This month’s comment comes from Alan Merriman. Alan Merriman is a founder and Executive Chairman at Elkstone Partners, Ireland’s leading MFO. As Executive Chairman, Alan oversees all of the group’s activities including family office investment services, ventures and real estate opportunities.
Aside from capital, what are investees looking for in an investor?
Alan: In my opinion, beyond money, the number one thing that investees are interested is speed. It’s a clear criteria that is becoming a competitive edge amongst different VCs and family offices.
There are also other factors that I think are very relevant, such as the network aspects. The ability to open doors both locally and internationally for founders can be very attractive — and again this is an angle certain family offices can play too.
Another unusual angle that investors are looking for from a family office would be a track record of dealing with other VCs — many startups and founders haven't had that history. So, this advantage is a huge edge that a family office can bring to an investee.
Lastly, another angle that's worth illuminating from a family office perspective, is the ability to bring strategic value — but to bring it in a non-threatening way. I think this is a huge advantage that family offices have when it comes to what investors are looking for.
These are all a subset of the first and there is a long list of criteria that investees are looking for aside from capital, but these are the ones that come to my mind, particularly from a family office lens.
How has the pandemic impacted the VC market?
Alan: During the pandemic, most VCs and investors focused on their existing portfolio. And that was a natural consequence of where we were at that point in time. But things have moved on very dramatically since then.
What people have been pleasantly surprised by, including VCs and family offices, is that venture portfolios held up incredibly well — and that's helped this particular asset class through what was a big test.
The other thing to note is the very low interest rate environment. The pandemic has extended and exacerbated this. It’s clear that the appetite to allocate money to alternatives and the secular growth that comes from that is going to continue.
This backdrop has meant that VC’s are having a super cycle in terms of raising funds and putting that money to work. The one thing I am most confident about is that innovation is not going away — if anything, it's continuing to accelerate.
In every crisis, there is opportunity — and this certainly applies to this pandemic. We are in an age where innovation is accelerating, and new opportunities are opening up because of what we've all gone through. Not to mention how low interest environments are causing more and more money to be pushed into this space — and the VC market framework is responding to that by being very dynamic.
Historically, have family offices been slow to get into VC compared to other asset classes?
Alan: It’s difficult to say because every family office is different. But generally, yes, I think family offices have been slow to get into VC.
However, increasingly, family offices are beginning to understand the need to allocate more and more to the VC space.
This shift has largely been driven from the younger generation. Largely due to the next-generation’s willingness to be more innovative and open to change. Often, the second or third generation are more open to spreading the family capital and are more alert to different trends and innovations that are happening in the world.
How can a new player in the VC space start accessing competitive deals?
Alan: Broadly speaking, there are two ways to access venture. One is through VCs and the other is through direct exposure.
It makes a lot more sense to start with VC investing first to learn through that lens. Learning through observing others mistakes and successes and getting a better sense where your interests lie or where you think you can add value. But one should always be mindful of their starting point and where you can really add value.
Does reputation make a difference when competing for the most attractive deals?
Alan: Reputation is always important. If you have a reputation of being a high performer, you're certainly more likely to attract more funding success. You are also able to better attract start-ups and venture opportunities. The process becomes circular and creates a snowball effect.
Another way reputation is important is because the VC space is a network game. In other words, the strength of your reputation compounds your network, the more powerful your network the more access to the best deals you can get. It’s circular and reputation is completely intertwined with success in the VC space.
But it's also about the trust between the investor and the investee. Trust is built up over time and having a good reputation can help with that.
Another important reputational aspect is your conduct when you sit on the Board of a company. It's not just about financial performance, it's also about performance in terms of the network impact you bring, your conduct around the board table and, ultimately, the value that you offer to that company.
About Alan Merriman
Alan Merriman is a founder and Executive Chairman at Elkstone Partners. He oversees all of the group’s activities including family office investment services, ventures and real estate opportunities.
About The Lede
This article was originally published in The Lede, Transmission Private’s monthly newsletter that tracks the future of reputation management. Featuring interviews with leading private client advisers from the worlds of law, finance, and accountancy, sign up today to receive the newsletter in your inbox every month.