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Billionaire families reshape Silicon Valley’s venture terrain

Over 70% of billionaire families in Asia are investing in venture, which is higher than what's being seen in the U.S. and Europe, where that number is kind of sub-60%.

Bloomberg|
Nov 01, 2019, 09.32 AM IST
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"We’re coming across families that are putting hundreds of millions of dollars into individual companies.," said Jacqueline von Reichbauer, a former JPMorgan Chase & Co. private banker.
If you’re a startup, tech entrepreneur or venture capitalist there’s a good chance you do business with Silicon Valley Bank. The lender’s clients include half of all venture capital-backed technology and life-sciences companies in the U.S. and 67% of companies that went public last year with VC support.

The Santa Clara-based bank isn’t just courting tech whizzes. It’s increasingly focusing on the mega-wealthy family offices that are reshaping the landscape of venture investing. More than 1,500 direct venture deals were done by such outfits over the past five years, according to data provider Fintrx. Prominent examples in recent months include Tony James of Blackstone Group Inc. investing in fintech startup Alto and India’s Azim Premji leading a $115 million funding round in enterprise software maker Icertis.

Jacqueline von Reichbauer, a former JPMorgan Chase & Co. private banker who led a single family office before joining SVB in 2018, heads the lender’s family office practice. VonReichbauer, 37, discussed the increasing appetite for early-stage investing among families, Silicon Valley’s global appeal and the recent travails of the IPO market this month with Bloomberg. Her comments have been edited and condensed.

Why are families upping their venture investments?
First, there’s so much capital available at the later stage for private companies that returns broadly are relocating from public to private markets. Companies can now stay private significantly longer than they used to. So if you’re a family that wants to participate in some of the returns that are being generated by these companies, you have to participate.

The second reason is that we’ve also seen a massive uptick in innovation in old-guard industries. So the traditional definition of tech has completely eroded. Look at a company like Sweetgreen raising $150 million on a $1.6 billion valuation. That’s not traditional tech as we saw it a decade ago. Now you’re looking at food and agriculture and beauty and construction. All of these older-guard industries are facing disruption from venture-backed companies.

How deep-pocketed are some of these family offices?
We’re coming across families that are putting hundreds of millions of dollars into individual companies. Families that are independently taking billion-dollar-plus companies private; families that are really morphing in both form and function into what looks like more of a venture fund than a traditional family office. We have families that are participating at such late stages and putting such large dollar values to work that they’re even expressing frustration over the competition they’re seeing from the SoftBanks of the world.

It’s hard to express how significant and powerful some of these families are becoming in this ecosystem. They’re building massive venture portfolios in some cases. A family I was with a week and a half ago are putting $1.5 billion to work in venture alone.

What’s their appetite for venture?
At the very high end we’re seeing families where the vast majority of their balance sheet is in venture. So call it 60%-, 70%-plus. Those extremes are often particularly true for families that have a background in technology that generated their wealth through the world of startups.

They’re independently institutionalizing. They’re building multibillion-dollar allocations on their own. There are families that are building incubators and accelerators and even in one case funding innovation from the ground up in an Edison lab-like campus. It’s pretty wild some of the extremes that we’re seeing.

How does this play out globally?
There’s a slightly riskier posture that U.S. based families take. Broadly speaking, North American families have more of a growth posture on their balance sheet. That being said, the percentage of billionaire families that are investing in venture is greatest in Asia. So over 70% of billionaire families in Asia are investing in venture, which is higher than what we’re seeing in the U.S. and Europe, where that number is kind of sub-60%.

You help these families network?
We can step in and provide a place for families to connect and engage where they do have this shared commitment to venture. Families syndicate with one another, they’re sharing opportunities and deals and perspectives on managers. There’s a lot of that information flow happening because these families trust one another and they share the same type of differentiation as a pool of capital. So if there are opportunities for them to work together, they want to.

Is the weakness of the IPO market an issue?
There’s a lot of conversation around the WeWorks of the world, Peloton going out down 11%. But if you look at these companies -- Peloton, Datadog, CloudFlare, CrowdStrike, Pinterest, Zoom, Beyond Meat -- regardless of some of the public market performance, there’s an incredible story about great gains and return generation for those that did invest when the company was private.

I’m not hearing negative feedback from families who are too concerned about the public market activity. For those participating early, hiccups when companies hit the public markets aren’t a reason to pull back. If anything, it’s more reason to invest in venture.
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