- Entrepreneurs double down on sector investment to fund the next generation
- A fifth of new VC funds raised in Europe comes from private wealth, as opposed to institutional money
- Venture capital overtakes real estate to become the second largest asset class held by wealthy investors
London, 3rd December 2019 – The world’s wealthiest entrepreneurs are now allocating more of their own money into funding the next generation of tech startups, creating a virtuous circle of putting smart money to work, according to research from Dealroom.co for Talis Capital.
Using data from CapGemini, Forbes, Bloomberg, UBS, Wealth-X, and KKR, the report reveals that tech wealth is growing twice as fast as other private wealth sources and in this long-standing low-yield environment, private wealth investment is shifting into European VC funds. These flows into VC have tripled over the past five years, with longer term equity assets such as venture capital now seen as more attractive investments than buying property.
More entrepreneurial wealth than ever is being created by tech founders – particularly in Europe – and there is a huge appetite to invest in early stage deals which has led to the emergence of a new type of investment firm; a hybrid VC. Backed by entrepreneurs, and capable of sourcing and leading high-growth investment opportunities, these hybrid VC funds can be flexible to the ever-changing market.
A complementary survey, carried out by Talis with a selection of ultra-high net-worth individuals and family offices to support these findings, similarly reveals that there has been a dramatic shift in the attitude towards venture capital. Almost half (47%) of all respondents a decade ago did not invest at all in VC and now 92% are committing their capital to VC. Amongst these investors there was a 5x increase in the number of respondents investing more than 20% of their capital in VC compared to ten years ago.
Among the respondents – which include Mark Richardson, David Fransen, Giles Heseltine, Simon Clarke, and David Symondson – 83% plan to either maintain or increase their venture capital investments over the next five years. They plan to do so through a mix of VC and direct investments, because this combination offers better returns and allows them to support the next generation of entrepreneurs.
The rise of private wealth
Over the past decade, private wealth has doubled from $33tn in 2008 to $70tn in 2018. Fewer than 2,760 people hold $9tn globally and the average wealth of these individuals is $4bn. In this time, the share of global wealth held by tech entrepreneurs specifically jumped from $300bn in 2008 (a global market share of 7%) to $1,225bn (or 14%) by last year.
This is largely made up of private wealth from the likes of established entrepreneurs such as Amazon boss Jeff Bezos, Google’s founding partners Larry Page and Sergey Brin, and Spotify’s Daniel Ek and Martin Lorentzon. However, the more recent exits of European fintech firm Adyen and iZettle have created new tech millionaires, adding a new generation of the uber wealthy to the mix.
Adyen’s exit was valued at $7,8bn while iZettle was sold for $2.2bn. Since 2013, tech exits in Europe have totalled $354bn with $115.5bn worth of exits last year alone. As a result, more wealth than ever before is being created by tech founders across the continent, led by the likes of Spotify’s recent $30bn exit.
At the same time the average age of investors, who have significant capital to invest, has fallen. Since 2011, a Bloomberg survey found that the average age of US investors with $25m or more dropped by 11 years to 47. Furthermore, research from BNP Paribas found millennials are more than twice as likely to invest in VC funds and startups than other age groups.
A new type of investor
As private wealth, and particularly private tech wealth has soared, the types of investments made by these new multi-millionaires have shifted.
Whereas the likes of traditional investments, such as real estate, were once seen as high-yield, secure investments ten years ago, coming in second only to investing in equities, today’s entrepreneurs are seeing greater returns from private equity and venture capital investment. Respondents of Talis Capital’s survey quoted better returns as the biggest influence in their decision to increase VC investments. Since 2008, the allocation of private wealth to these funds has almost doubled from 14% to 22% and has leapfrogged the amount of money (18%) allocated to property investments.
The types of sectors being invested in has also widened in scope. In Talis Capital’s survey, health tech, food tech, fintech and AI topped the preferred list of sought after when investing, typically at Series A-C level. Illustrative of the huge range of sectors that entrepreneurs are investing in, in recent years Spotify’s Sophia Bendz has backed Swedish food-waste startup Karma and femcare company Daye. Brent Hoberman, who co-founded Lastminute.com, has invested in furniture firm MADE; Transferwise’s Taavet Hinrikus has funded sales management software startup pipedrive; and Zoopla’s Alex Chesterman has invested his own money into Secret Escapes and Uniplaces, among others.
Over the past five years, the number of individuals and families using private wealth to directly participate in VC rounds in Europe, for instance, has grown five-fold to a record-breaking $5bn – and 2019 is on track to beat this.
In fact, Dealroom calculates that 20% of new venture capital funds raised in Europe came from private limited partners and that 18% of the $28bn investment in European startups in 2018 came directly from private wealth. Not only does this represent a tripling of private wealth into venture capital since 2014, private wealth has now overtaken every other source of funding for VC rounds, including corporate investors and government funds.
The golden age of VC
To cater for this insatiable appetite and shift in allocation, a new type of venture capital fund is emerging to better serve the needs of these next-level investors.
These hybrid venture capital funds, pioneered by the likes of General Atlantic, Talis Capital and Iconiq Capital, blend the best of having a private entrepreneurial investor base with the operations and performance of a more traditional VC.
By having entrepreneurs at the heart of these funds, rather than VC bankers, investors know first-hand what it’s like to start and scale a business meaning they offer invaluable advice and experience as well as capital. Talis Capital’s largest LP and co-founders of the VC fund, Bob and Rohini Finch were instrumental in growing The Vitol Group to one of the largest independent energy trading houses in the world over the past 30 years. While fellow co-founders and managing partners of Talis, Vasile Foca and Matus Maar hold, or have recently held, positions on the boards of Darktrace, Iwoca, Import.io and Threads. Vasile co-founded Intresco and Skwire, a proptech company, while Matus co-founded Pirate Studios.
Bridging the gap between family offices and private individuals, and traditional VC firms, these modern investment firms offer a gateway into early stage technology deals; advising and investing on behalf of individuals and families that lack the resources, network and expertise to invest meaningfully in tech. They then help incubate companies and can take operationally active roles in the firms.
Matus Maar, co-founder and managing partner at Talis Capital, said: “We are seeing many more investors wanting to invest in tech and data driven businesses at an earlier stage. In part, this is to do with a new generation of ultra wealthy individuals and families who made their money through tech and want to keep investing in the sector. Great returns are also encouraging more investors to diversify into venture capital but finding the right tech deals to invest in is very difficult, if you do not have a track record, the networks or the know-how to execute it.”
Talis Capital’s network of investors and experts follow evolving macro technology trends and monitor how industries are changing to both source and lead new startup investments at the early stage, and to help these companies achieve their potential. As a result, they only accept private capital, which means they have no institutional investors and are not bound by institutional capital restrictions.
“Originally we were born out of a single family office and over the past ten years we’ve been on a journey which has led us to evolve into a fully fledged VC,” added Vasile Foca, co-founder and managing partner at Talis Capital. “Having a private-only investor base has been very strategic for us and the way in which we’re structured and how we operate has really come out of the ways in which our investors like to work – we now invest on behalf of a group of over 30 LPs.”
Since 2009, Talis has invested more than $600m worth of transactions and its portfolio of nearly 50 companies includes Darktrace, iwoca, Onfido, Ynsect, Luminance, Pirate Studios and Oh My Green.
“We predict venture capital and early stage tech investing will only become more popular with the world’s wealthiest, especially as the younger generation are persuading their previous generations that this is where they should be investing,” Maar continues. “They want to create strong legacy investments and work with exciting smart startups that can improve our world for the better in areas like health technology, sustainable farming and food production, mobility and climate change.”
Giles Heseltine, MD, Hottinger Private Office, said: “Our appetite for investing in venture stage tech has changed significantly over the past decade, boosted by the fact that there is a much better understanding of the sector, not to mention the increasing number of opportunities emerging at this stage.”
Christina Gaw, Managing Principal and Head of Capital Markets at Hong Kong-based Gaw Capital said: “The largest benefit we’ve seen from investing in VC funds is diversification. We can invest in emerging sectors, early-stage deals, and even into sectors and localities we’ve never invested in before with a confidence that only comes by leveraging the expertise, networks and relationships offered by hybrid VCs such as Talis Capital. ”
Mark Richardson, philanthropist and investor, said: “Largely our increased appetite for VC fund investing is due to better returns compared to other more traditional asset classes as well as our growing interest and involvement in the sector through Talis Capital as well as other VC funds. Investing via funds complements our own skills, knowledge and expertise in investing and we believe supporting the next-generation of entrepreneurs is a real responsibility. Our attention is drawn to investing in start-ups that disrupt traditional ways of doing things as well as those associated with sustainability and climate change. We take great pride in having the access and opportunity to invest in this new wave of founders and believe our allocation in this area will continue to increase”