The family office as VC investor

Venture capi­tal is an attrac­tive invest­ment oppor­tu­nity: the market is highly dyna­mic — and thus has corre­spon­ding poten­tial for value growth. As a result, some family offices have become serious play­ers in the venture capi­tal indus­try in recent years. Some make invest­ments as co-inves­tors along­side VC funds, others, like us, go it alone. A family office as a venture capi­tal provi­der is attrac­tive for foun­ders and for the family members: In contrast to venture capi­tal funds, which usually remain commit­ted for around five years, our invest­ment hori­zon for direct invest­ments, for exam­ple, is deli­bera­tely long-term at seven to twelve years. That’s an unusually long time in the start-up scene. It is often important to entre­pre­neu­rial fami­lies that their capi­tal is used wisely and productively.

On the one hand, it’s about carry­ing on the name that comes from a family busi­ness with a tradi­tion that goes back seve­ral hundred years. On the other hand, there is a desire to live the philo­so­phy inter­wo­ven with the company’s history also as a current and future invest­ment stra­tegy. The capi­tal is to be inves­ted in compa­nies. This is exactly what happens with venture capi­tal: money is inves­ted in compa­nies to finance growth and does not go to outgo­ing share­hol­ders as in the case of a tradi­tio­nal company purchase.

2. Ques­tion: What is the advan­tage for a young company to gain an FO as an investor? 

Family offices have decisive strengths: Unlike private equity or venture funds, they do not have to with­draw their money after a few years and usually have no time limit on their invest­ments. This enables them to think in the longer term. A core argu­ment that sets them apart from the compe­ti­tion. And also the reason why, for exam­ple, we have been selec­ted for various invest­ments. What’s more, family offices have a high level of post-finan­cing power. In addi­tion, unlike tradi­tio­nal buyouts, venture capi­tal is not lever­a­ged with debt. This often makes fami­lies feel more comfor­ta­ble. Foun­ders expect — and rightly so — more than money from their future co-part­ners. They expect support for growth. The more concrete, the better. This is not about co-mana­ging, it is about being a spar­ring part­ner for stra­te­gic issues and brin­ging in expe­ri­ence and networks that a young company cannot yet have.

Family offices have decisive strengths: Unlike private equity or venture funds, they do not have to with­draw their money after a few years and usually have no time limit on their invest­ments. This enables them to think in the longer term. A core argu­ment that sets them apart from the compe­ti­tion. And also the reason why, for exam­ple, we have been selec­ted for various invest­ments. What’s more, family offices have a high level of post-finan­cing power. In addi­tion, unlike tradi­tio­nal buyouts, venture capi­tal is not lever­a­ged with debt. This often makes fami­lies feel more comfor­ta­ble. Foun­ders expect — and rightly so — more than money from their future co-part­ners. They expect support for growth. The more concrete, the better. This is not about co-mana­ging, it is about being a spar­ring part­ner for stra­te­gic issues and brin­ging in expe­ri­ence and networks that a young company cannot yet have.

To stay good in the long run, you have to face the compe­ti­tion. And the network that a good circle of share­hol­ders brings can only help us and our invest­ments. When Warren Buffett coope­ra­tes with others, anyone who does­n’t must ask them­sel­ves if they are doing the right thing. This is another reason why we have opened up our direct share­hol­dings to third parties. For the first time since our foun­ding eleven years ago, we deci­ded at the begin­ning of 2017 to include exter­nal entre­pre­neurs and entre­pre­neu­rial fami­lies in our group of share­hol­ders and to invest toge­ther in young compa­nies. And very focu­sed, exclu­si­vely in compa­nies in the growth phase and exclu­si­vely in e- commerce compa­nies and in compa­nies with a digi­tal busi­ness model, which includes FinTechs in particular. 

As far as the size of our invest­ments is concer­ned, we remain true to our stra­tegy: In a first step, we invest in the order of 2 to 3 million euros and increase our stake to 5 to 10 million euros if the compa­nies are successful. Knowing a company better from the inside redu­ces our risk, and our post-finan­cing secu­res the compa­nies’ growth pros­pects and faci­li­ta­tes finan­cing. Both sides bene­fit from this. 

About Dr. Michael Riemenschneider
Mana­ging Direc­tor Dr. Michael Riemen­schnei­der has been Mana­ging Direc­tor of the Family Office since its foun­da­tion in 2006 and is mainly respon­si­ble for invest­ments in compa­nies and the capi­tal market.
Dr. Riemen­schnei­der worked for Boston Consul­ting Group as a stra­tegy consul­tant, studied indus­trial engi­nee­ring at the Univer­sity of Karls­ruhe and earned his docto­rate at the Univer­sity of St. Gallen.