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May 21, 2010

Can Premji and Narayanamurthy alter the Indian VC landscape?

In the context of Azim Premji of Wipro and N.R. Narayananayamurthy of Infosys carving out funds for VC-type investments from their family offices, here is an extract from an article in Institutional Investor on how Family Offices in the US are now preferring to directly invest in private companies and the benefits of such an approach.
The tectonic shifts in the venture economy are placing a heavy premium on new investment. The drought in funds, combined with the need among family offices for uncorrelated and outsized returns, is creating a perfect landscape for those with the ability to implement a solid venture strategy.

...Having suffered market losses in 2008 and early 2009 from investments in supposedly safer asset classes, family offices are focusing on venture capital and private equity. Rather than rely on external managers, family offices are now investing themselves, rapidly becoming a critical source of new venture capital.

This is not a new idea. The great founding industrial families of the United States were among the first venture capitalists in this country. The Rockefeller family, the Hillman family and several others were the critical backers of the VC firms, starting after WWII and continuing through the emergence of Silicon Valley in the 60s & 70’s. These families shaped the VC industry we know today, prior to being supplanted by pension funds, endowments, insurance companies and other institutional players as main source of VC funds. So, in many ways, this trend is really about venture capital getting back to its roots.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private equity, venture capital and M&A deals in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in