By Life Science Nation CEO, Dennis Ford
Next year will bring tremendous pressure to the venture capital and private equity universe, mainly due to the fact that the fundraising environment will remain sluggish, with the exception of a handful of connected and in-the-know global firms. In an investment atmosphere as dynamic and unpredictable as the last decade, most firms have few performance metrics or market insights to hang their collective hats on. Poor returns mean an inability to raise capital in future rounds, crippling a class of investors. However, the limited partners (LPs) haven’t disappeared from the face of the planet, so what happens when PE and VC cannot preserve capital? Enter the family office, with a lineage and a genetic proclivity to take a shot and win big in nascent markets. Not a big leap – as this is how the core capital of most family offices was created. These fortunes are primarily the hard-fought spoils of entrepreneurial risk-taking in the past. It’s how they won so big in the first place. This entrepreneurial attitude and willingness to do big things hasn’t disappeared – the apple doesn’t fall far from the tree.
Traditionally, a family office is an organization explicitly charged with the mission of managing a family’s wealth through adroit investment – directly, with fund managers –while sprinkling some philanthropic dollars around as well. The purpose is to preserve a fortune and legacy. This wealth has been accumulated over generations, and the entrepreneurs who garnered this capital were not shrinking violets. And as times have changed, family offices have morphed and partnered with other family offices as well as other high net worth investors. The status today is that these new-age family offices can manage and invest their own capital as well as, if not better than, their once-trusted fund managers. In recent years, family offices are teaming with like-minded brethren and investing right along with them. The fact of the matter is that this tactic aligns and makes perfect sense.
Is it time to put family offices on your global target list of investor candidates? You bet it is! Just as angels have banded together and lead the way on group investing, so goes the new way of the family office groups. Unlike angels who can help get a startup launched, the power of a band of family offices, or multi-family offices with a like-minded investment mandate, is staggering.
This new investment gestalt is actually right in line with how wealth was typically created in the first place, so they know intrinsically how to evaluate a business opportunity and will not get flummoxed by any deal terms. The news here for life science entrepreneurs is that there may be an additional layer or two to get through but at the end of the day, it will be a lot quicker than the processes put in place by the PE and VC firms still trudging away out there. These family offices will have a gate keeper who will do the initial vetting and then if successful, forward you to an in-house evaluator who will in turn bring in the researcher or scientist to look under the hood of an opportunity.
Last but not least is that philanthropy and life science investing are in the same purview and thus compelling to these new investors. When a new drug or medical device gets a hit, it’s a billion dollar hit, and that fact isn’t lost on these new life science investor entities.