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A recent report by PricewaterhouseCoopers (PwC) sheds light on the growing enthusiasm among Indian family offices to invest in the rapidly expanding startup ecosystem. Some key sectors that have caught their attention include finance technology, artificial intelligence (AI), healthcare, and businesses that focus on consumer needs.
A family office is an entity created to manage the business, investment, and personal affairs of high-net-worth families or individuals aiming to grow and transfer their wealth across generations. Its primary goal is to preserve and grow family wealth while addressing specific needs and objectives. A well-established family office offers investment management, estate planning, tax advisory, and philanthropy services. It acts as a strategic team, overseeing the family business and safeguarding its capital.
“The increased adoption of AI technologies across industries is driving the growth of several AI-related startups. This has led to increased investor interest, including family offices, who are evaluating and investing into such businesses,” PwC said in its report.
“This surge in investment shows strong investor confidence in India’s AI capabilities and the potential for high returns. The amount of data being generated by both traditional and new-age companies requires a dedicated analytical engine (hardware and software) and monetisation strategy to increase the profit margins of such companies. To cater to this demand, several startups are creating products pertaining to both these areas, and family offices are evaluating and investing into such startups extensively,” PwC added.
According to the report, family offices are particularly drawn to the startup sector for its potential to drive innovation and offer significant returns. Moreover, they see it as a way to diversify their investment portfolios beyond their core business operations. Family offices use various strategies to get involved, including making direct investments or participating in venture capital (VC) funds.
This shift benefits startups, as family offices provide patient capital with less pressure and oversight than traditional venture capitalists. This allows startups more flexibility and room for development without the immediate pressure to deliver rapid results.
Known for their traditionally cautious approach, these ultra-wealthy entities are now formalizing their wealth management processes and actively exploring new avenues for growth and diversification.
PwC pointed out that India is home to many startups in the fintech space, with the local industry touted to grow to $150 billion by 2025 at a compound annual growth rate (CAGR) of 22% since 2021.
“The growth is a factor of rising digital adoption among a burgeoning technologically comfortable youth, and a growing demand for new age products. Family offices have made investments in payment platforms, lending businesses, and Insurtech solutions,” PwC said in its report.
“Further, digital payments in India are going to be in excess of $10 trillion by 2026. This will be made possible by policy initiatives, and a business environment favoured towards this goal. In the last ten years, more than 400 million new bank accounts have been operationalised in India as part of our financial inclusion initiatives such as Jan Dhan Yojana. This significant increase emphasises the potential of the FinTech market catering the rural and underserved populace,” the report pointed out.
Despite the challenges posed by complex regulations, the report said that family offices increasingly view startups as a promising asset class. As their confidence grows, they emphasize the importance of having a well-structured investment strategy and performing thorough due diligence before committing to any investments.
“For family offices that are inclined towards theme-based investments, healthcare offers a huge opportunity. The healthcare industry is undergoing rapid transformation owing to technological advancements, changing demographics and evolving consumer expectations. These shifts are providing business opportunities in pharmaceuticals, biotechnology, medical devices, telemedicine and HealthTech,” the PwC report said.
“Being a growing hub for family offices and startups, India has the potential to leverage the benefits of both these entities and develop a sustainable business environment,” it added.
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