How wealthy families seek returns

The degree to which family offices are willing to take risks is also influenced by the age of their investments. Family portfolios have recently undergone some changes.

In the previous year, investors had to be skillful to achieve positive returns. Apart from a few outliers like the Brazilian Bovespa, stock indices and government bonds ended the year on a downward trend. With the recent rise in interest rates, the previous upward trend in real estate prices has stalled in several locations. These developments have caused significant changes in the portfolios of family offices, which tend to maintain a low profile.

Liquidating real estate

While family offices’ investment approaches are typically kept confidential, recent investment trends have been observed, according to our Managing Partner (CEO) Berthold Baurek-Karlic, who spoke to the Austrian Newspaper “Die Presse“. “I have witnessed the most rapid divestment from real estate in my entire career. The scale and swiftness of the reduction were astounding”, said our CEO.

Family Offices

Over the past few months, Europe’s family offices have been re-allocating their portfolios in a manner that would be unsuitable for investors seeking rapid returns. “The investors we collaborate with are highly resilient”, notes family office specialist Frank Floessel in an interview with “Die Presse”. “The same goes for investments in venture capital or private equity. These asset classes have lower liquidity and exiting them in the short term often incurs significant discounts.”

Investors with Long-term Perspective

Family offices, however, frequently possess the luxury and fortitude to maintain investments for decades. This is why they are instrumental in supporting investors in nascent businesses, where it is uncertain when and how much profits will be earned. Industries reliant on research, in particular, demand long-term commitment.

Our CEO Baurek-Karlic explains: “We are overseeing a space company that would not have been possible without the support of the public sector and family offices. They may have considerable resources, but at the end of the day, the technological undertaking must be feasible, financially viable, and sustainable.”

Baurek-Karlic and Floessel refrain from mentioning the entrepreneurial families that they advise on asset management. However, the experts stress that various offices have diverse investment strategies. While some prioritize philanthropy, others distance themselves from charitable contributions and patronage.

Legacy Wealth

“There are families that wholeheartedly embrace venture investments, while others adopt a highly conservative investment approach. My differentiating factor there is primarily the age of the wealth,” explains Floessel. “The older the wealth, the greater the probability of a more distant relationship with it.”

You can find the full article (published in German) here.

Many startup founders struggle to secure funding for the expansion of their companies after raising the Pre-Seed and Seed rounds, especially in 2023.  CB Insights found that only 48% of startups manage to attract Series-A funding, after a Seed round. Fundraising in Series-A is much more challenging and requires a more careful and detailed strategic planning compared to earlier stages. Startups may fall to liquidity bottlenecks if they fail to successfully attract funding on time which may pressure the company to raise at more unfavourable terms.

Fundraising in 2023

Fundraising environment in 2023 is highly affected by the global macroeconomic environment. Thus startups experience additional difficulties to raise funds due to higher degree of selectivity on the investors’ side since they are more reluctant to deploy funds in new opportunities and rather focused on maintaining their existing portfolio startups. In this article, we elaborate on the specifics of Series-A funding rounds today and we also propose some good practices founders can use.  

What is Series-A

After a startup has raised a seed round and made substantial strides toward realizing its objectives and reached certain milestones, such as developing an MVP and growing an initial customer base, it enters one of the most important stages of investment known as Series-A investment round. This stage of financing is meant to assist startups in growing their businesses and achieving their goals. One of the main characteristics of Series-A funding that differs it from previous stages is a readiness to significantly scale its already proven idea and raise capital mainly for business development. Prior to this investment, startups are expected to develop and launch an MVP, then receive feedback from its initial customers as well as gain some market share. It all comes down to a proof in product-market-fit, which has to be achieved in order to qualify for such a round. Investors consider proven traction as a crucial element for startups to receive Series A funding. Accordingly, founders must back up their claims with traction of a developed product, customers as well as strong professional backgrounds and expertise.

Series-A ranges

In order to attract Series A funding, startups must convince investors of their unique value proposition as well as the ability to fulfil commitments and established targets. A couple years ago more than one million in ARR was the minimum threshold for investors to recognise sufficient traction. Today we see plenty companies showing even EUR 3-5m in ARR. Competition for Venture funding become tougher. In the process of many back-to-back 30 min pitches with busy investors, founders must remain calm and present their companies at their best. Typically, a Series-A funding round in Europe ranges between €1.5m and €8m depending on the company’s industry and geographical focus. Series-A funds are primarily used to scale, expand into new markets, acquire key personnel, and create the infrastructure required for mass expansion. 

When to raise a Series-A

We advise entrepreneurs to take into account the following important factors when deciding on when to raise a Series-A round: 

• Product-market fit – For obtaining Series-A financing, a startup is expected to demonstrate that its product or service has already established product-market fit and that a company targets a large enough, fast-growing, and highly-scalable market.  
• Proven traction and room for growth – Established initial customer base and the existence of market demand that can be addressed with more investment.
• Realistic and well-aligned growth strategy – It is essential to develop a well-defined growth strategy using data of the market entry with MVP to indicate investors that the firm has a clear path to scale its product and achieve the next stage of growth.
• Experienced team – Having a solid and competent team boosts investor confidence and contributes to securing Series-A.
• Competitive advantage – It is crucial for receiving Series-A funding to demonstrate a superiority of the startup’s product to similar products in the market using data of a launched MVP.  It is also important to show how it will be able to take over the existing market and its competition’s market share.
• Runway – It is important to have sufficient runway left to not have pressure in the fundraising and negotiation process. Generally investors like to see at least 9 months runway at the start of the fundraising process (with additional 3 months of fundraising readiness prior to the start of the process).  

 What to include in your pitch-deck

As we already mentioned, when conducting due diligence for a Series-A investment round, investors are more selective. As a result, they have higher demands for portfolio startups at that stage. Therefore, for raising a Series-A round founders should approach creation of a pitchdeck special attentiveness. We recommend including certain items in a pitch deck for the given investment stage: 

• Goal – A short summary of the company and the value it is contributing 
• Market – Presentation of market trends and its development, including growth estimates. It should also demonstrate existing demand which can be fulfilled by a startup’s product after its scale through a Series A investment round 
• Problem – Description and proof of a relatable problem and target audience affected by it
• Solution – Full description of how your product solves an existing problem, and can monetize it 
• Traction – Especially relevant for a Series A investment round. It is crucial to demonstrate existing achievements of a startup, which can include revenue growth over time, key accounts and their sources (big clients), and key milestones 
• Competition – a startup should explain why it is different from its competitors and how they can monetize this difference.
• Financials – Startups must prepare a comprehensive financial plan that is well-aligned with their growth strategy and realistic in its projections as well as based on past performance. At this stage, it is crucial for startups to have growing financials and KPIs.  

How to raise a Series A

The next stage in raising a Series A investment round is to structure documentation and construct a data room. This would consist of all relevant documents that can verify a startup’s legal position, indicate its business model, demonstrate its proven traction as well as present its growth plan. DOWNLOAD a checklist with all relevant due diligence documents here. It is important to align an upcoming investment round with existing shareholders and prepare the terms of a funding round. After that you will start searching for investors that may be interested in investing in a startup. For that purpose, creation of a target long list of prospective investors would be the best tool. Using that investor long list, founders can start contacting potential investors.

Reaching out to potential investors

The fundraising startup must be ready to respond to challenging inquiries. It has to provide more details regarding the company’s development strategy and financial projections during these meetings. To keep investors interested and involved, it is critical follow up with them after each interaction. This stage can be the most difficult for many startup owners. They face limited access to a network of investors, difficulty with approaching investors, pitching, and negotiating favourable terms. The normally short runway makes fundraising even more stressful for founders. That often leads to mistakes along the way due to having to also operate the business. As a result, many startups fail to raise a Series A funding round.  

Getting the right support

Given the current fundraising environment, one of the most effective solutions to overcome the fundraising complexity could be hiring an consultant. The consultant can help with all issues which startup founders are facing during that process. Experience in deal structuring can be very helpful. Downrounds have become the new normal, but they are not a must if you set the terms right. Venionaire Capitals transaction service team (based in London and Vienna) is an entrepreneurial partner of both startups and investors. As an investment company specialized in Venture Capital and Private Equity, we have been supporting more than 100 deals since 2012.

What we offer

We offer valuable advice through due diligence, valuation, deal structuring, and deal negotiating. Our expertise and investor network enable us to provide startups with the necessary support and guidelines to ensure their chances of successfully securing the funding they need to grow and succeed. We dedicate ourselves to helping startups reach their goals. So we welcome them to work with us and benefit from our expertise. 

In addition to our advisory services, Venionaire will always also look into direct investments through its actively managed funds, for the best deals run by its transaction team.  

 

References: 

Corporate Finance Institute. (2023, February 24). Series A Financing. 

EU-Startups. (2023, February 21). The Startup Funding Journey: A Guide to Pre-Seed, Seed, Series A, B, C, D, and E Funding. 

Sifted. (2023, March 6). Series A funding for startups: What VCs want to see from founders in 2023. 

 

Author: Denis Voldman

A brief historical digression

A Japanese samurai was once a loyal servant and protector, an imperial guard, a warrior with a strict code of honor. They lived according to the “Hagakure”, which contains about 1,300 lessons and dealt with both daily life and the relationship between lord and follower. The traditional warrior nobility of the samurai experienced its heyday in the 11th and 12th centuries A.D. The samurai, originally in the service of the emperor and nobility, became the ruling class of society with the rise of the shogunate and the establishment of a military aristocracy. The demise of the samurai 150 years ago also represents the rise of modern Japan. However, the myth and fascination with these warriors still exists today far beyond the borders of their homeland.

Between past and future

Japan is a country of (supposed) contrasts, performing a daily balancing act between tradition and modernity. While moving between centuries-old shrines and the most modern high-rise architecture, between traditional teahouses and eccentric maid cafés, and yet, despite the apparent contradictions, you can easily find a way between the centuries.

Let’s draw mental parallels and dare this balancing act for our business. Today, our “servants” are our digital or high-tech companions. From artificial intelligence, robots and drones to countless apps, that now make every facet of our daily lives easier. In Japan, you will find a large number of world leading corporations. They almost naturally have large powerful corporate venture vehicles. The few investment banks, some of which manage over 100 corporate venture funds, could be described as shoguns (rulers) in the ecosystem. Perfection is a social and cultural requirement, and this is achieved by specialists. Accordingly, these funds are often managed externally by specialists.

Behind the scenes

Japan’s technology giants are global players, but in Japan itself they like to keep to themselves. To this day, there are hardly any non-Japanese top managers, and the global subsidiaries’ leadership always contain Japanese managers. English as a foreign language is a matter of course for the educated Japanese, but they prefer to do business  in their mother tongue. It is therefore advisable for Western business people to be able to speak at least a few bars.

If we stick to our mental balancing act, these technology giants are the modern samurai of their industries. The innovative leadership of these “Samurai of Tech” goes far beyond Asia. They invest, develop spin-offs together with research institutes and have a strong presence in the international “super hubs” of the startup scene – for example in Israel, Silicon Valley or India. For the corporations, close ties with global startup hubs seem not only practicable, but actually extremely important in terms of their claim to long-term honourable cooperation with innovators. A good reputation ensures access to the best talent and thus the samurai’s superiority in the innovation race.

How to deal with crisis

Right now Europe is just learning to deal with the next and arguably most severe crisis in recent history. Japan has meanwhile perfected living in the crisis. Interest rates are still negative, inflation is not a major issue, the domestic market is strong and the country’s international position is excellent. Japanese are strategists, so it’s not surprising that the appetite for risk to increase activity in Europe – especially venture capital and Web3 – is growing strongly.

In Europe, however, Japanese corporations and corporate venture vehicles are currently hardly present. The European market is considered attractive, but unfortunately also very complex. Various hubs, regional cultural differences, many languages and different laws (depending on the region) in Europe are understandably deterrent. Those who want to be successful therefore ally themselves with strong partners – although this requires some patience. Strong partnerships are based on trust and building this trust does not work overnight.

Building Bridges between Japan and Austria

Venionaire Capital has very good experiences in working with Japanese co-investors and business partners. Attending the City Tech Tokyo Conference and speaking at an official Deloitte side event has greatly strengthened our bi-directional relationship. We are looking forward to a strong delegation from Japan attending the World Venture Forum in Kitzbühel.

You have questions regarding the Japanese market, or would like to find a strong partner for corporate venture funds (full service), or as a scale-up to enter the European market? Please contact our Advisory Team, led by our Managing Partner, Berthold Baurek-Karlic.