Family offices thrive in a tech-savvy startup world

Salisbury Investments, a family investment vehicle by Aditya Puri, veteran banker and former MD and CEO of HDFC Bank, is betting big on PNB Housing Finance. The board of directors of the mortgage lender has nearly cleared a fund infusion by a clutch of other investors, including Salisbury. The deal is, however, hanging fire, awaiting a nod from regulators.

The proposed investment by Salisbury Investments— ₹25 crore for 0.2% stake—is insignificant in the overall scheme of things of the proposed ₹4,000 crore deal, but it represents a fast-growing tribe of Indian billionaires and ultra-high net worth individuals who are ploughing in their personal fortunes into growth companies and early-stage startups.

Family investment vehicles—called Family Offices—are mushrooming as India gives birth to new billionaires every year. A quick analysis throws up at least 100 Family Offices that have sprung up in the past one decade or so.

Prominent among them are Ratan Tata’s RNT Associates, NR Narayana Murthy’s Catamaran Ventures, Burman Family Holdings, Harsh Mariwala’s Sharrp Ventures, PremjiInvest, Damani Group’s Artha India Ventures, Rana Kapoor’s The Three Sisters (run by Kapoor’s three daughters—Radha, Raakhe, and Roshini), and Ronnie Screwvala’s Unilazer Ventures.

Each Family Office is associated with a few marquee companies and brands.

While PremjiInvest has invested in Snapdeal, Flipkart and Lenskart.com, Damani’s Artha India Ventures has invested in OYO Rooms and Coutloot, among others. The personal investment vehicle of Tata group patriarch has been an early investor in Ola, Cardekho, and Snapdeal. Catamaran Ventures has put money in National Stock Exchange, edutech portal Udemy, and Hector Beverages, maker of Paperboat. The Three Sisters, which manages the personal wealth of the tainted billionaire Rana Kapoor, has invested significant funds to set up Spanish dry cleaning chain Presto in the country, apart from a design school and a school of communications, in Mumbai.

A back-of-the-envelope calculation shows the Family Offices have invested over $5 billion in the last five to six years, in listed/unlisted companies as well as startups, in the country and abroad.

According to a report by 256 Network and Praxis Global Alliance India, the Family Offices are estimated to contribute around 30% of the estimated $100 billion to be raised by startups in India by 2025. The report predicts that India will have 150 unicorns by 2025, thrice as many as currently, pointing to the growing investment opportunity available to the ultra HNIs.

Though some traditional Indian family businesses are still cagey about investing in venture capital and private equity funds, many are moving in with a higher risk appetite. The ultra HNIs have realised the potential of VCs as an asset class. What has drawn them to the new asset class is its capability to generate superior financial returns even during the pandemic and such crises.

“Family offices have just started realising this potential, as VC and PE as an asset class makes around 20% of their portfolio allocation but usually contributes to around 30% of their portfolio returns,” says the report.

During 2014-19, family offices in India participated in over 1,700 startup investments, with many making lucrative returns from their early investments, said the report. “In recent times, several catalysts have further enhanced the appeal of investments in India’s startup ecosystem, ranging from favourable taxation reforms, better governance, growing mass adoption of technologies, and increasing exit avenues for investors,” it said.

Kris Gopalakrishnan, co-founder of Infosys, and currently promoter of Pratithi Family Office, said in the report that venture capital and private equity have emerged as viable alternative asset classes to traditional investments in real estate, public equity, fixed income, etc. in the past decade. “Family Offices and ultra HNIs do not get exposure to high growth portfolios, which use technology to solve real challenges and build large companies in a relatively short period of time,” he said.

The Family Offices, which still prefer to keep their portfolios wedded to conventional asset classes like stocks, real estate, and gold, have clearly lost out on the healthy returns generated by VC investments, says the report.

The increasing appetite by ultra HNIs is visible across the country. For instance, when Mumbai-based Artha Venture Fund (AVF), part of Artha Group with investments in over 80 startups across India and abroad, floated its debut fund, it was overwhelmed by the response. It recently announced the final close of the fund at ₹220 crore. Anirudh A Damani, managing partner, said in a statement that almost 50% of their first cohort of limited partners doubled down on their earlier investments. “More than 50% of the investments came from family offices, and from over 20 listed companies participating directly or through promoter entities. NRIs, HNIs, super angels, and SIDBI invested the remaining capital,” AVF said in the statement.

Private wealth in India is on a steady rise.

The number of ultra-high net worth individuals, with wealth of $30 million or more, is expected to rise 63% over the next five years to 11,198 in India, the second-fastest growth in the world, according to property consultant Knight Frank India report. As per its Wealth Report 2021, there are 6,884 ultra HNIs in the country, at present.

The billionaires club in India is expected to go up significantly by 43% to 162 by 2025 from 113 in 2020, much faster than the global average growth of 24% during the period.

During the last one decade, several companies such as Flipkart, Swiggy, Paytm, Zomato, Ola, and Oyo have become unicorns -- startups that enjoy a valuation of $1 billion or above. India is home to 56 unicorns, and over 55,000 startups. In 2021 so far, we have seen at least 21 startups turn unicorns.

Sunil Kant Munjal, chairman Hero Enterprises, said in the report by 256 Network, “Several startups are launching India-specific solutions, while repeat founders are targeting bolder issues. Many are unlocking value through private markets and I am heartened to see multi-generational entrepreneurs viewing the space as a vehicle to create wealth.”

Of course, it is a long road ahead.