Startup Street: India Family Offices Could Supply A Third Of Startup Funds By 2025

Some of India’s wealthiest families are likely to be behind the flurry of funds that the country’s growing startup ecosystem will receive over the next few years.

Indian startups are estimated to raise around $100 billion of funding by 2025, according to a new report by 256 Networks and Praxis Global Alliance. Of this, about 30% is expected to come from family offices set up by ultra-high net worth individuals.

Increasingly, India’s ultra-rich—those with net worth over $30 million—are setting up family offices to preserve and manage their wealth. Investments in startups by family offices has been on the rise in the past five years. But it still remains in early stage with most such family offices preferring to keep bulk of their money in conventional asset classes like stocks, real estate and gold.

That could change in the coming years.

“Private wealth in India is burgeoning and UHNIs are increasingly turning to venture capital and private equity ecosystem as an asset class. Incumbents, digital entrepreneurs, celebrities, NRIs are setting up family offices and investing in the Indian startup ecosystem which has generated 14 new unicorns in 2021 so far,” Madhur Singhal, managing partner and chief executive officer of Praxis Global Alliance, was quoted as saying in the report. “These family offices are providing businesses with patient capital and we’re closely following the role that these family offices play in the Indian startup ecosystem.”

By 2025, India is expected to have more than 10,000 ultra-rich individuals. They could own wealth worth as much as $700 billion by then. And India’s tech startup landscape will be an attractive playground for their monies.

“The opportunity to leverage India’s technology sector growth remains firmly in the private market,” the report said. “Over 250 private Indian tech companies with valuations above $100M have the potential to go public in medium term. The size of the private tech market and the public tech market is closing in and the private tech market is expected to outperform the public tech market soon.”

Family offices know this potential. According to 256 Networks analysis, a typical seven-year portfolio performance of an Indian family office allocates about 20% of their funds to alternative investments like startups and venture capital. Yet, they generate far higher returns than most conventional assets. About 30% of the seven-year-average return of a typical family office portfolio comes from alternative investments—only second to equities.

“For the new Indian UHNIs, venture capital holds huge promise as an asset class generating superior financial returns even during crisis times. Family offices have just started realizing this potential,” the report said. “Hence, the Indian family businesses have the potential in making India’s start-up landscape blossom and endeavour to build a strong community together.”