Single-family offices (SFOs), which have a team of professionals managing the wealth and investments of a single high net-worth family, are increasingly showing a preference for consumer startups, a sector that has seen a correction in valuations during the last two years following the 2021 boom.
SFOs have invested in at least 22 consumer startups so far this year, most of them in collaboration with venture capital (VC) funds, Tracxn data showed. During the same period last year, the number was at 15. Generally, family offices co-invest with VCs where they are existing limited partners and which have the insights to choose companies they prefer.
In comparison, investments in other sectors have remained at similar levels. So far this year, SFOs have invested in nine fintechs, while last year they had invested in seven. As for startups in the sustainability sector, eight have attracted investments from SFOs this year, compared to six companies last year. In health tech, five startups have attracted investments from SFOs vs three last year and 17 startups in the enterprise application and high-tech segment received investments from SFOs this year vs 15 in 2023.
Among the consumer startups, jewelry brand Giva raised Rs 100 crore in an extended Series B round in September from Premji Invest, the family office of tech titan and former Wipro chairman Azim Premji. Another jewellery retailer Bluestone raised Rs 600 crore in a round led by Prosus and with participation from Pratithi Growth Fund- a maiden fund of the family office of former Infosys head Kris Gopalakrishnan.
“Valuations of consumer startups have become much more reasonable than they were at the peak, as venture capital interest has cooled,” said Anirudh Damani, director at Artha India Ventures, the family office of stock market veteran Ashok Kumar Damani.
He added that family offices are now increasingly shifting focus to early-stage investment opportunities since identifying value buys at the pre-IPO stage has become challenging, especially in a more competitive market.
For example, one of the recent largest seed rounds of $20 million, raised by wealth tech startup Centricity, saw participation from the family office of the Burmans, the controlling shareholders of the Dabur Group.
Many traditional business families and family offices have a deep understanding of India’s consumer landscape, which gives them an edge when underwriting consumer-focused investments, explains Sahil Aggarwal, director at venture debt fund Trifecta Capital.
He agrees that entry valuations are also attractive compared to other sectors, allowing SFOs to acquire and maintain meaningful ownership without the need for continuous participation in multiple rounds, unlike VC funds. “A well-managed D2C brand also requires relatively low equity capital after reaching a certain scale,” he added.
Among other consumer startups which have raised capital from family offices this year are beauty brand Pilgrim, cloth diaper brand Superbottoms, customised menswear brand The Pant Project, dairy brand Sid’s Farm, plant-based food brand Superfoods Valley, Ayurvedic beauty brand The Ayurveda Experience, and millet-based food brand Slurrp farm, among others.
“Family offices are becoming more inclined towards businesses that generate strong operating cash flow. They are seeking private equity-style valuations in what were traditionally venture capital deals,” noted Artha India Ventures’s Damani. The family office has so far backed startups such as OYO, Purplle, LenDenClub, Everest Fleet, and Agnikul.
He added that micro VC funds are increasingly aligning family offices with startups in sectors where they already have expertise and network connections — a trend that wasn’t as common just a few years ago.
In contrast to VCs, SFOs tend to be more flexible with investment terms and can often end up with poorer deal terms than institutional investors. For example, VCs have an anti-dilution clause built into their contract, as a safeguard against any future down round, that protects their stakes from any decrease in value — a term that a new family office may miss out on.
From: financialexpress
Financial News