How COVID-19 Impacted the Investment Theses of Family Offices

The COVID-19 pandemic pushed the modern world into uncharted waters at an alarming speed, bringing the global economic activity to a near halt as the world tried desperate measures to bear the brunt of its onslaught.

From startups to global conglomerates, everybody in the economic world was hit by the crisis. Family offices were no exception to this economic mayhem. They, like most others, are exposed to unprecedented challenges and unforeseen changes arising from the so-called new normal. Inevitably, family offices needed to be more prepared than ever to take on the changing circumstances in their realm of interest and operation.

Often overlooked, family office investors are actually major players investing in startups. According to the Family Office Club, currently more than 3,000 family offices are operating in the United States alone, and these offices, which generally have a minimum of $100 million in assets, often consider alternative investment opportunities, prominently in startups.

The pandemic has compelled family offices across the world to rethink their positions and strategies. KiwiTech recently invited a few top-tier executives from leading family offices across the United States for a panel discussion on the impact of COVID-19 on their investment theses. Let’s take a look at some of the excerpts from the panel.

The markets changed in many ways; some parts have accelerated, some have decelerated. On being asked how these changed circumstances have updated investment theses of family offices and what they are doing differently as compared to before the pandemic, the panelists shared their experiences in taking on the impact. 

Francisco Sacasa, Operating Partner and CFO of Bee Cave Capital, a family office based in Austin, pointed out that the pandemic has not influenced their long-term investment strategy. He said, 

“We at Bee Cave Capital like supporting the local economy. There is always the profit motive, but also the altruistic side of giving back to the community influences our investment decisions. In the long term, our thesis hasn’t changed. We’re still the same. However, there is a short-term impact. During COVID-19, we saw a return to value. Valuations have come down. It allows for the ability to deploy capital become a little bit smarter because the risk profile has changed. We’ve seen change in deal structure. The second part for us is we are a bit of contrarians, we are looking at the other spectrum – the industries, the sectors of the economy that have been very negatively impacted and almost destroyed value in the current COVID environment, we’re looking at making investments there because this is the perfect time to buy, because we believe those sectors will bounce back.”

Responding to the question, Rohit Gupta, Partner at GFO Companies, a family office based in Los Angeles and Oklahoma City, said, 

“Primarily, we invest in people. Most of our investments tend to be early stage, because we like the return profile. We’re flexible, we recognize the need of the times. On the flip side, what happened with COVID-19, valuations have come in line with our expectations a bit more. The old days of really frothy companies raising absurd valuations dropped. COVID-19 has made entrepreneurs rethink their expenses. It has made us move 5-10 years faster than we thought that we would on remote working.”

Matt Oguz, CIO of IRIS Family Office, an investment group located in the San Francisco Bay Area, highlighted some macro-economic factors that have influenced decision-making processes at family offices. He said, 

“We make about two to three investments a year. With COVID-19, the money supply out there has increased tremendously. Capital across the world has reached over $400 trillion of all individual wealth, in the United States alone it has become $120 trillion of household wealth. A level higher than ever before. That access capital along with access capacity in production, which stops inflation at least for the time being, plays a huge role in valuation of publicly traded companies. With that, investors are bringing more capital in the US public markets, because this is the best place to invest. When that happens, private companies feeding into that are speeding up their efforts, their ambitions, their outlooks to get into that game and to grow. Also, we think it is an exciting time for development in life sciences to battle COVID-19. Over the next 10 years, we’ll take a closer look on companies into life sciences.”

Ricardo Taveras, Managing Partner at Taveras Private Holdings, a family office based out of New York City, is of the opinion that the pandemic has created opportunities for family offices to venture into areas earlier not considered by them. He said, 

“Our focus areas are B2B SaaS companies in healthcare and education tech. Our investment thesis that decides whether or not a company is a good fit for us is highly determined by our ability to speed up their growth more than they anticipated to do on their own. With COVID-19, we’ve seen an opportunity to adventure into other spaces. Our focus has shifted a little bit towards debt structures, cash advances, and different liquid deals and structures that some companies in our portfolio really needed, and gave us an advantage to increase our profile a little bit while being liquid. It is really important for us to be liquid in COVID-19 to capture the opportunities.”

To sum it up, although these unprecedented times have brought family offices face to face with unique challenges, they have also brought new investment opportunities for them. Crises will always occur, the key is to prepare yourself now for whatever the future holds for you. With that in mind, it is certain that family offices are there to stay and continue investing large amounts of capital in the startup ecosystem.

KiwiTech has helped hundreds of entrepreneurs connect with investors through its various events involving angel investors, VCs and family offices. If you are actively raising seed or growth stage capital, click here to check out our upcoming events!

LEAVE A COMMENT

We look forward to starting a meaningful conversation!