The Venture Capitalist’s Guide to Family Offices (with a focus on Germany)

By Silicon Allee | Investment

This article is published as part of Skytrain – a transatlantic investor community bridging the gap between investors and VC funds in the US and Berlin. Join the network or learn more about what we do here.

Thanks to a long history of innovation and strong export market in high-selling sectors – like automotive, medtech, mechanical and chemical engineering – Germany has become the largest economy in the EU and the 4th largest in the world (after the US, China, and Japan). One of the results of Germany’s economic success is a high level of personal wealth. Forbes’s 2021 list of billionaires put the total number worldwide at 2,668, and Germany in 4th place with 136 billionaires (individuals and families). 

It’s probably no surprise that high-net-worth individuals (HNWI) and families around the globe have found ways to manage, preserve, and grow their wealth, partly through investments. One vehicle that has become very popular for managing and facilitating that is the family office. 

Our aim is for this article to serve as a guide to Family Offices in general – with a focus on Germany. So investors, fund managers and founders can better understand these mysterious institutions, where they fit into the bigger VC picture, and the role they could play as a partner in your VC deals.

What are the different types of family offices?

Here’s how the Family Office Exchange defines a family office: 

“The family office is a unique family business that is created to provide tailored wealth-management solutions in an integrated fashion while promoting and preserving the identity and values of the family.”

So, high-net-worth families set up family offices for a wide range of reasons. Some of these include; tax planning, estate planning, philanthropic planning, family education & multi-generational planning, lifestyle management services, and – of course – investment strategy and management, which is why you’re here.

There are basically two kinds of family offices: Single-family offices and multi-family offices (MFOs).

Single-family offices are dedicated to serving one ultra high-net-worth individual (UHNWI) – Anything upwards of €100M – and their family in all aspects of wealth management. 

MFOs are more traditional wealth management firms that offer services to a range of high-net-worth clients – upwards of €20M. They generally offer a range of services and benefit from economies of scale that enable for cost-sharing.

It’s important to note here that no two family offices are alike. Services are highly customized to suit the individual needs of each client family. In Germany, we’ve found more than 300 single-family offices, and over 100 major multi-family offices. 

Where do family offices invest?

For the high-net-worth and family office scene, discretion is very important. Unfortunately, discretion often comes at the expense of transparency, so official figures on investments are difficult to track down.

One thing we’ve been able to learn is that there’s also no hard and fast rule about where family offices put their wealth to work. Family office investment portfolios differ based on a very wide range of factors; the generation of the family, their appetite for risk, the industry their money was made in, the priorities of the family, etc. 

German family offices have traditionally invested heavily in real estate and public-market equities. But alternative investments – including as limited partners in VC funds – do makeup quite a large portion of many family office investment portfolios. 2020 even saw an increase in the number of family offices across the globe making direct investments into startups. German family offices have been historically slow to adopt VC as an alternative asset – largely due to the risk-averse national culture – but with VC on the rise in Germany, it’s only a matter of time until the German family offices follow suit.

The Adams Family of Family Offices…

Are family offices good limited partners in VC deals?

In recent years, the focus of family offices has shifted from wealth preservation to diversification and growth. This has led to more family offices investing in Alternative Investment Funds (AIFs) – including VC. It’s not really surprising as venture capital also ties in to the values-based approach of family office investments – sharing a passion for ‘building’ companies and supporting entrepreneurship. Combined with the desire of a younger generation of family members to support innovations that will have a meaningful and positive impact in the world. 

Sound familiar?

So there is clearly a lot of potential for attracting family offices as limited partners in VC funds. But despite a general rise in family office involvement in venture capital and a clear strategic alignment, the percentage of venture capital contributed by family offices is comparatively low.

On top of that, many family offices that are involved in VC prefer direct investment over investment via funds. At the very least, family offices prefer to split their venture capital distribution between direct investments and managed funds. This is mainly due to a reluctance to hand over the fund management fees and a focus on diversification. It’s important to note, though, that direct investment also brings with it a lot of additional costs.

It’s a lot of work

The sheer volume of work required to succeed in early-stage venture capital makes it a high barrier of entry for family offices. There’s a good chance that the principals and executives of a family office lack the enthusiasm to commit to the punishing amount of work needed to build an early-stage tech VC fund. Especially one that can compete with established VC firms.

Needs special skills

Managing venture capital – especially early stage – in-house, involves the expensive and time-consuming task of  developing a highly-skilled team. Accurately assessing pricing, creating access to lead flow, setting realistic expectations as to the level of risk and diversifying & managing a portfolio accordingly, building a network, are all skills that a successful VC fund management team need.

It’s more hands-on than other asset classes

VC firms and business angels bring more than capital to the table. Truly investing in startups means acting as incubators, giving training and advice. Family offices may not have the skills and resources needed to help their portfolio companies succeed – especially if VC is not a major focus.

Advantages of investing in funds

Investing via a fund, on the other hand, enables an office to hand over vetting to a trusted and dedicated third-party, and also allows the family to support a wider range of businesses than they might via direct investment.

In that case, partnering with the more “famous” funds may seem less risky, and therefore, more attractive to family offices. But larger, established funds are often closed to new investors, depend heavily on their network, or prefer an institutional investor base. 

Of course, the difficulty in gaining access to these funds may put off a lot of family offices and lead them to seek out more direct investment opportunities. But, younger, emerging funds can provide better performance over the long term. 

On top of that, partnering with a modest fund with a relatively small, focused team, will create a more personal relationship between the VC fund and the family office. There will be less bureaucracy and better access to the network of fund partners and founders. Helping family offices to fulfill their goal of investing for impact.

So, with such a lot of potential for family offices to make an impact in the VC space, it really begs the question…

How can VCs, fund managers and other GPs connect with family offices?

Just as official figures on family office investments are difficult to pin down, so too are the names and – more importantly – contact details of the owners or decision makers behind these mysterious (by design) entities. The end result is that breaking into the family office fundraising space is still a challenging task. 

That being said, challenging isn’t the same as impossible.

Here are some general tips on facilitating connections with family offices:

Understand the different family offices in your focus area

The first step is to figure out who it is you’re looking to connect with. One great thing about family offices is that many are purposeful, impact investors. When you know why a family office invests you can find those that share your values and purpose as they’re the ones most likely to buy into your fund and have a meaningful impact. Find out what you can about their portfolios to determine where they invest and whether your interests are aligned in any way.

We’ve included a list of some big players and a few other resources for finding out more about the various German family offices in the next section and many of those sites also have information on international family offices.

Connect with the decision-makers

Movement towards more transparency and progressive growth in the private wealth sector means that family offices are becoming more accessible than ever. Many now have in-house origination teams whose sole job is sourcing deals and making connections. 

Using websites, family office databases or even LinkedIn can help you identify exactly who you need to be having a conversation with. Look for commonalities with these people. Stuff like mutual contacts, shared alumni roots, previous employers, commonly supported interests and charities can all serve as an in-road to a conversation, or better yet, an introduction.

Create added value

Due to the highly-specific nature of family office investing, one of the best ways to hook them is with an offer that meets their needs. Show them how your offer could help them diversify their portfolio, build their legacy through impact, or improve their access to deal flow.

When it comes to adding value to your offer, here are a few ideas we gleaned from this detailed 2021 report, which makes the case for family offices to connect with emerging VC funds.

One of the simplest ways for family offices to invest in a VC fund is as a simple limited partner. If a family office is interested in learning the inner-workings of a VC fund, one way to open that door a little wider is to offer more access that you would normally give to limited partners. This could come in the form of coaching, training, or introductions to your network.

The fund could also offer a % stake in the management company. In return, the family office would get favorable conditions and a % of the carry that the management company receives from LPs. 

For a little less commitment, VC firms could offer family offices who come on board as LPs the opportunity to provide a working capital loan and earn interest on top of what they make as an LP.

We hope these tips will be useful for helping VCs, fund managers and other GPs connect and collaborate with German family offices.

Who are the biggest German family offices that invest in startups?

As we already mentioned, we’ve found more than 300 single family offices, and over 100 major multi family offices domiciled in Germany alone, so “the definitive global list of family offices” would be much too long for this article – and the majority of them wouldn’t be interesting from a venture capital point of view.

So, to give you a feel for the landscape, here are five of the biggest family offices in Germany who invest heavily into early-stage venture capital.

ASTUTIA Ventures – The VC fund set up by Benedict Rodenstock of the Rodenstock family behind eyewear manufacturer, Rodenstock GmbH. ASTUTIA Ventures invests in early-stage startups in the areas of smart cities, future of commerce and digital lifestyle. 

SKion GmbH – Founded by Susanne Klatten, the richest woman in Germany, SKion focus on future-oriented technologies and innovative business models in the industry and service sector.

DVH Ventures – A VC fund set up by Dieter von Holtzbrinck of the German publishing empire Holtzbrinck. They have a pretty impressive FinTech portfolio and currently operate two early-stage funds focusing on various tech startups.

Maschmeyer Group – After selling his company AWD to Swiss Life, German billionaire Carsten Maschmeyer set up umbrella company Maschmeyer Group to manage his various business activities. 

They currently have 5 funds but the most relevant to us are Maschmeyer Group Ventures deploying capital primarily in the US, ALSTIN Capital focusing on emerging industries and future markets, and Seed & Speed who invest in pre-seed and seed-stage software startups in the DACH region (Germany, Austria, Switzerland).

Reimann Investors (German language website) – The Reimann family made their fortune through a complicated history with German chemical company Benckiser. To make a long story short, the family sold their shares and set up family office, Reimann Investors, to manage the family wealth. They primarily focus on early-stage digital and FinTech startups.

SALVIA GmbH – This family office started out in 2014 as an Angel fund to manage the assets of German serial entrepreneur Helmut Jeggle. Since then, Salvia has evolved into a broader VC fund with a focus on deep-tech, medtech and greentech startups.

More Resources

To go deeper and access more detailed information on family offices, we found these resources that could help.

Family Office Directories claim to host the “#1 longest running and most credible database of family offices”. According to their site their database currently contains 2,289 Single and Multi Family Offices with 4,622 contacts globally. We downloaded their free sample (gated) and it does appear to be very detailed with full contact information and, most importantly, the family office’s areas of investment.

Family Office List – As well as the contact details of 3,279 international family offices, also provide some interesting – and useful – data such as deal structure preference and

desired geography. They offer a subscription model service rather than a one-off fee.

Deal management platform Axial has a database of US and Canada-domiciled family offices available to their members. From the free information on their site, we weren’t able to find out if these family offices are looking for or open to doing deals in Europe though.

Silicon Valley Bank published a report on Family Offices Investing in Venture Capital in July 2022. The report is mainly focused on US family offices but does contain some interesting stats on global family office VC deals.

PwC also put together an interesting Family Office Deals Study 2022, the focus is on direct investment and real estate with no mention of venture capital but does give some valuable insights into general family office investing in Europe.

For German family offices:

Crunchbase provides a list of 56 active family offices in Germany. It’s a paid tool though, so you’ll need a subscription to view them.

PE/M&A database, Mergr, provide a list of 7 family office investors in Germany – again, you’ll need a paid subscription to see more advanced information such as their portfolios.

Family Office Hub offers up-to-date lists of the 100 largest multi family offices Germany for €250 and the 300 largest for €600. We haven’t bought either list ourselves though, so can’t speak to the quality of information.

As always, we (and our lawyers) want to remind you that no information in this article should be viewed as investment advice. Our goal at the Skytrain Network is to build a bridge across the Atlantic and help US investors to leverage our network and facilitate investment into the lucrative VC scene here in Berlin, Germany.

Article written by Andrew Wilkinson

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Dieses Vorhaben wurde als Teil der Reaktion der Union auf die Covid-19-Pandemie finanziert.