Funding Fuel: How Family Offices Invest in Innovation
March 12, 2024
—Investment in innovation is an ever-changing landscape, but a new player has made a big impression in recent years: the family office. Traditionally, these private wealth management firms have been responsible for the wealth of affluent families, focused on preserving and growing their assets. Some family offices are shifting their investment strategies toward impactful investments, including venture capital, private equity, and innovation. Family offices join the ranks of other funders, helping to diversify and create resilience in the funding landscape, with the hope of ultimately creating new technologies and solutions to big challenges.
Funding the future
Family offices are unique among other investor types, often with investment horizons that span generations. Chief concerns are protecting and growing the assets of one or multiple families, preserving wealth for future generations, and shielding affluent families and their spending from the public eye. Some of the largest family offices include Walton Enterprises, which manages the assets of the Walton family, the founders of Wal-Mart, along with Cascade Investment, the multi-family office of Bill Gates, and Bezos Expeditions, Jeff Bezos’s family office. Traditionally, family offices invest in a range of assets, including stocks, bonds, private equity, hedge funds, real estate, and more. But recent years have seen a shift in family office funding priorities. The rising influence of younger generations has led a number of family offices to emphasize investing for social impact in emerging technology and sustainability projects. Vehicles are becoming more direct as family offices become co-investors and venture capital players.
Goldman Sachs’ report Eyes on the Horizon found that 39% of family offices are moderately to extremely focused on sustainable strategies, with nearly half of respondents directly investing in companies with social or environmental impact. The same analysis found that 43% and 34% of family offices reported being heavily weighted in the technology and health care sectors, respectively, meaning they hold more assets in those sectors than average.
Family offices also heavily invest in startups. According to PwC, almost one-third of the total capital invested in startups worldwide came from family offices in 2022. PwC also reported that the top industries for family office-backed investments in startups were software as a service, fintech, and artificial intelligence and machine learning. That same year saw a shift from large-scale investments to more medium-sized deals for family offices, between $1 million and $10 million.
Joining the ranks
A report on impact investing found that private investment to generate positive social and environmental impact more than doubled between 2017 to 2022, from $95 billion to $213 billion. As family offices continue to emphasize investment in startups and other innovation-based assets, they join the ranks of other important funders, including foundations and nonprofits. Family offices have the flexible capital and long-term mindset to support early-stage researchers developing complex technologies and bridge a critical funding gap. This diversifies the pool of resources and can push early research forward to stages that meet the criteria for support from companies, universities, and government agencies. Because family offices seek solutions to specific health care or technology challenges, they also serve to push translational research to develop products and services meeting critical market needs.
A diverse funding ecosystem for research reduces the dependency on a few types of funding, leading to a more resilient and dynamic research landscape. Family offices can fill crucial funding gaps and provide long-term support that more traditional sources don’t typically offer, often investing in more high-risk or early-stage projects. This is especially important for high-impact fields like renewable energy and biotechnology. With family offices, nonprofits, foundations, and others providing necessary capital to spur innovation, researchers can focus on finding answers to pressing challenges and bringing groundbreaking technologies to market.
Why it matters
Faced with large-scale global challenges, investors increasingly turn to impact-based assets to fuel innovative solutions. Family offices are flexible and attuned to specific goals across long timelines, making them well-suited for startups and other long-term innovative endeavors. Research organizations can look to leverage these funding sources to support research to solve grand challenges and introduce new technologies to benefit society.
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