Just got back from attending Dealcatch earlier this week. My thanks and congrats to Chrysalix, and co-sponsors Nixon Peabody and Cascadia Capital, for a really productive (and fun!) networking event. Lots of opportunities to catch up with fellow cleantech investors, talk about specific deals, discuss industry trends, etc. More firms should hold events like that; it has to be pretty valuable for them.
Being there also really helped illustrate a contrast I've observed between institutional venture investors and many (but not all) family offices I've run across over the past few years: the willingness to actively engage in such conversations with each other.
VCs, generally speaking, embrace "co-opetition," or the idea that sometimes they're going to be collaborators and other times competitors. They regularly seek out opportunities to talk with each other -- sometimes to solicit co-investments in specific deals they're working on, and sometimes just to share more general thoughts and observations with each other. I've found that it really accelerates our individual learning curves to do so. It's obviously not a perfect source of information, but you learn something about which startups are seeking funding, which competitive startups are out there, what the overall fundraising climate is like, etc. You might even end up working with each other on a shared investment. Some VCs share more than others, but I've always found it beneficial to keep an open line of communication with as many fellow investors as possible, because I feel it just makes me a better investor when I have more contextual information about what's going out there, and so I try to share context in return.
Family offices, on the other hand, are often self-constrained in these kinds of activities. First of all, many are secretive to (in my opinion) a fault. I understand why these wealthy families wouldn't want their investment teams going out and getting a lot of attention, which would likely result in the families themselves getting unwanted attention and unsolicited "asks." But family offices shouldn't take such low-profile leanings too far, to the point of hindering their ability to network, at least with fellow family offices. Secondly, many family offices are seriously understaffed, and covering way too much ground. That doesn't leave much time in the day for networking. But in the vague and opaque world of venture capital investing, gathering context can be time very well spent. And additional relationships and networks will help bring in better and fresher dealflow. It's also tough to share tactical context when you're covering so much variety in terms of sector and asset categories, because you can only cover so much in a brief phone call.
Over the past couple of years of having one foot in each camp, I've been able to watch as deals often go through the venture capital community, get passed on by the VCs, and then later make their way through the family office community. That, to put it bluntly, is a pretty bad case of "negative selection bias" that such family offices are having to deal with. And it's a direct result of these family offices being so low profile, and then not being networked-in enough to have heard about the deals from fellow investors earlier.
It's one major reason why we helped pull together a syndicate of fellow family office investors, and why we're putting a lot of effort into making sure fellow cleantech investors know about the Cleantech Syndicate, because there's no real reason why family offices should be so low on entrepreneurs' target list. Family offices can be strategically valuable investors (because of connections to operating businesses and other relationships of the principals); they are often as deep-pocketed as the VCs, or more so; and they can sometimes be a better fit than a traditional VC, depending upon investment time frame, non-IP-centric business model, etc. Many entrepreneurs should target family offices sooner than they have been -- and perhaps they would have been doing so, if they only knew more about them!
Being at Dealcatch just reminded me how valuable it is for VCs to network with each other early and often -- and how little I see of such efforts within the family office community. As family offices get increasingly involved in direct investing into startups and projects in the cleantech sector, I hope I see more such proactive networking within that community, because it can be quite valuable.
