With traditional venture capital, angel investors, private equity and newer models like equity crowdfunding, entrepreneurs today have more access to capital than ever before. Now, add to this list: the growing prominence of family investment offices.
According to PitchBook, the number of direct investments by family offices in startups has almost doubled in the last five years. According to this Ernst & Young report, there are now more than 3,000 outfits globally managing the money of a single family — half of which were created in the last 15-20 years.
Single, or multi-family offices, which function to help preserve, grow and transfer wealth across generations, aren’t new. What’s different about them now is that they are increasingly staffed by former private equity and hedge fund managers, with existing networks in the startup world, that are more familiar and comfortable with entertaining these kinds of risk investments.
But what are some of the subtle differences between traditional models of funding and family offices — and what should startups know before approaching one or the other?
“One way to think about the differences between a venture capital fund, a family office, and an angel group (like Hyde Park Angels) is to look at how they make their investment decisions. Venture capital firms deploy investment capital on behalf of limited partners who invest in the fund, but don’t choose the companies. Family offices could be thought of as made up of limited partners who are part of the family (or are related closely in some way), and they invest their own capital. Finally, an angel group curates investment opportunities for member investors who could be considered limited partners, and each chooses their investments,” said Alida Miranda-Wolff, Director of Platform at Hyde Park Angels.
On the other side of the spectrum are startups, many of which in Chicago have found success in finding, pitching and receiving support from family offices.
Case in point: Shiftgig, a Chicago-based app and platform that connects hourly workers to businesses that has raised $56 million in total funding.
“One thing for a startup to keep in mind is that family offices might not have the bandwidth to accommodate assistance with strategy and recruiting, which VC firms are traditionally better equipped to provide. Separately, most traditional VCs reserve capital for multiple rounds whereas newer family offices aren’t prepared for multiple rounds of investments. This is not a knock on family offices; just be knowledgeable of the past investment patterns of that investor,” said Eddie Lou, CEO of Shiftgig, reflecting on receiving funding twice from DRW Venture Capital, the venture investment arm of the Chicago-based trading firm.
DRW — which has been “fantastic to work with,” according to Lou — has a streamlined due diligence process and is getting ready to make larger investments. DRW has supported Shiftgig by making introductions to prospective clients and investing their pro-rata in future rounds of financing. “DRW acts like a partner rather than a parent,” says Lou.
Timely, then, is the upcoming 5th Annual North American Family Investment Conference, coming to Chicago this June. Organized by Campden Wealth, a global membership organization for family offices that puts on conferences and other peer-to-peer learning opportunities, the conference has seen high attendance in Chicago because of a “proliferation of high net worth individuals and families choosing to manage their investments via their own offices,” according to Brien Biondi, President of Campden Wealth.
Given the emergence of this trend, especially locally, we’ve compiled a list of 38 Chicago family offices that have made investments in startups sometime in the last four years. This list is intended to serve as a resource to the Chicago tech community at large and we will be updating it on a monthly basis. Please email email@example.com if you know of a Family Office that should be on here.
Chicago Inno’s 2017 Family Office Index
Anderson Pacific Corporation | Kenneth D. Anderson
Industry focus: Telecommunications, Media and SaaS
Notable investments: an Illinois based data center, a fiber optic network, content delivery network, etc
Avocation Investments | Rich Padula & Jeff Kleban
Industry focus: B2B technology products and services, focused on Midwest
Notable investments: Geofeedia, TurboAppeal, Public Good Software, Shipbob, FourKites
Breslow Forsythe Group | confidential/not available
Industry focus: Business services, Consumer goods, Distribution, Industrials, Manufacturing, Pharmaceuticals, Logistics, Real estate, Healthcare, Gaming, and Amusement companies
Bluestein & Associates | Abram (Bram) Bluestein & Andrew Bluestein
Industry focus: Seed and Series A food, Retail and B2B technology businesses, primarily based in Chicago
Notable investments: Eat Pak’d, Mac & Mia, Luxury Garage Sale, Eastman Egg Company
Certare Ventures | Art Wong
Industry focus: Real Estate, Digital/IT
Chaifetz Group | Richard Chaifetz
Industry focus: Business and commercial services, Consumer branded products and services, Financial services, Healthcare products and services, Media and entertainment, Niche manufacturing, Transportation and logistics
Cooper Management | Carey Cooper
Industry focus: typically live in consumer industry, but looking at all sectors
Notable investments: Shiftgig, Enjoy Life Foods (Sold to Mondelez), Remote Year, LYFE Kitchen, and Free Flow Wines
Diversified Capital | Larry Levy
Industry focus: Commercial Real Estate
DRW Venture Capital | Don Wilson & Kimberly Trautmann (investment officer)
Industry focus: Fintech, Digital/IT
Notable investments: Shiftgig, Bolstr, SpiderOak, OpenFin and Droit Financial Technologies (last two are New York-based)
Equity Group Investments | Sam Zell
Industry focus: Energy, Logistics, Manufacturing, Transportation, Communications and Real Estate
Fulcrum Investing | Kevin van Eekeren
Industry focus: Mobile, Social Media, E-Commerce, Point-of-sale, “but [they] try to keep an open mind so let us know about your idea!!!”
Notable Investments: ConceptDrop, Eastman Egg Company, Luna Lights, Page Vault
Harrison Street Real Estate Capital | Christopher & Michael Galvin
Industry focus: Real Estate
Longview Asset Management | Crown family
Investment focus: Banking, Manufacturing, Marketing, Food, Education, Retail, and Hydrocarbon Infrastructure.
Notable investments: eBay’s enterprise unit
Muinzer Ventures | Family office/VC arm of South Street Capital
South Street Capital is a commercial real estate firm. Its venture arm has invested in Chicagoland startups for over a decade.
Notable investments: CityBase and Seasons Soda
PSP Capital Partners | Penny Pritzker
Industry focus: Business services, Niche manufacturing, Value-added distribution, Food and agribusiness
Notable investments: Halo Branded Solutions (sold in August 2016)
Promus Holdings | Andy Code
Notable investments: Quality Control Corporation of Harwood Heights, Illinois
Sawdust Investment | Michael Krasny
Note: This is a working list. Also, given the somewhat blurred line between individual angels and family offices, it can be difficult to track investments from these entities. Thanks to several members of the Chicago tech community for their assistance with research and context for the Family Office Index: Alya Adamany Woods (World Business Chicago/ChicagoNEXT), Ali Afridi (Lightbank), Alida Miranda-Wolff (Hyde Park Angels), Adam Hecktman (Microsoft), Maura O’Hara (Illinois Venture Capital Association), George Deeb (whose list helped me with my initial research), and Randy Rivera.
Update: Bluestein & Associates and Cooper Management added by reader submission 4/21/2017
Update: Muinzer Ventures added by reader submission 5/4/2017
Edit: An earlier version of this article incorrectly spelled Kimberly Trautmann’s name. The error is regretted.