HNIs pivot towards early-stage startups as late-stage entities face correction

livemint.com:

Mint in an interview. The volume of deals in the broader ecosystem has dropped over the past four years as uncertain macroeconomic conditions led investors to pursue fewer bets in select companies with a well-defined path to profitability. According to data sourced from Tracxn, single family offices made 31 investments in the first half of 2024 compared with 50 investments in the same period in 2023 and 120 investments in 2022.

Examples of recent early-stage deals include Sorin’s investment in the Pant Project, Sharrp Ventures’ investment in SuperFoods Valley, and the JJ family office’s infusion in Astro Motors. To be sure, even as early and growth-stage startups are broadly classified under private market investments, they belong to different asset classes. Early-stage investments are high-risk bets that generate high rewards.

As the stages progress, the returns diminish for investors as the risk factor eases. Investors typically expect to get 20-30x returns when they enter the cap table at an early stage compared with 3-5x returns from a growth-stage company. The transition among family offices mirrors the shift in the broader ecosystem as even typical venture funds see increasing traction among early-stage companies, which typically range from seed to series B funding rounds.