Unveiling the Power Shift: Private Wealth’s Impact on Venture Capital

SCS (Intro): 

The average single family office deploying funds into venture capital now has around $989 million of assets under management, demonstrating their growing influence on the venture ecosystem. So it's no surprise that family offices are dedicating more time, resources and capital to venture. Not to mention building in-house expertize to become even more sophisticated. 

Unconstrained by traditional fund cycles, they're an attractive and logical partner for entrepreneurs, innovators and venture funds, and hold huge possibility in solving some of the toughest problems, including the gender venture funding gap, which is exactly why I've been spending more time in the family office space.

However, venture remains the ugly duckling of all asset classes, receiving the least resources and frankly, requiring the most work. It can be a steep learning curve for family offices, and competing directly with existing VCs may not always be the right strategy. So it's glad that I was called to moderate this conversation on the rise of private wealth. 

I was in Finland for the LP summit, which we co-hosted with Arctic 15. I spoke with Tor-Oskar Karlberg from Stephen Industries, Ville Solja from Kiilto Ventures, and Nydia Zhang from Ferretto Capital. Buckle up because there's a lot of notes to take for this one.

SCS: 

And before we transition here, of course, a special mention to our sponsors. We have Helsinki partners, Tesi and Anthemist that are in the room today. Thank you very much for your investment into the future of venture capital. And despite what was said about venture being broken, I think we're here to really bring a realistic view to venture and investment. 

And I think what better way than to have it among this room, right? So this is really a safe space to really share your insights again, you know, very few GPs in the room on purpose here, because this is where the LPs share the secrets of the trade of how do you invest?

How do you really drive returns? And are we really getting what we sort of sought out to in terms of alpha within the time horizon. And now for the next panel, I'm excited to invite my panelists to speak a little bit about the power shift. 

We're starting to see a lot more wealth, private wealth. A lot of you come from the family office world. I think something like, the average assets under management, most family offices that are investing in venture hold today is about $989 million. And yet, only 5-10 percent is the asset class allocation for venture. Why is that? And yet, I think some of you have spoken to, a few of you that are professionals in your family office space as well, that it's taken a lot more resources to diligence, to really get deep on venture and really deliver the alpha.

Great. So today, we really want to dive in this panel and really to start and really reframe from the challenging environment, right? That was presented to us about venture being broken from your own lenses, in managing your own wealth and your principles as well, where relevant. Talk to us a little bit.

I mean, give us a framing. I mean, there are a lot of new faces in the room, some global investors, maybe just quick, you know, 30 seconds introduction on what you do, who you are, and where you see venture within your portfolio. Maybe we'll start with you, Tor.

Tor-Oskar Karlberg:

Tor Kalberg, I'm an investment director at Steven Industries. We're the family office of Kusta Poutiainen. He was the founder of Picosan company that was founded in 2004 and then exited in 2022. So a very long journey to exit there, but that's quite typical of deep tech.

And that is also guided what type of companies we're looking at and also a bit our venture fund allocation. 

SCS: 

So how much is your allocation into venture from your portfolio? 

Tor-Oskar Karlberg:

So far it's below 20%, but it's gonna increase to closer to 40%. 

SCS: 

Wow. Wow. That's significant. Okay. 

Ville Solja:

Yes. Good morning from my behalf as well.

I guess this microphone is working. My background is, basically I'm a fourth generation owner, coming from a company called Kiilto. The business is still, still up and running, so it's a bit over 100 years old. Besides that, we have our family office, and in between our venture, sort of our venturing arm Kiilto Ventures, where we do an active investment work into the early stages of companies that are solving some of the biggest problems within the built environment. 

That has a strong connection to also our core businesses. I look into all of these different lenses. So not only the sort of investor hub, but also active builder slash, slash sort of family business owner type of perspective.

SCS: 

And Ville, maybe just for the context, I know we have folks that are outside of Europe coming in. And so what, what's sort of the source of wealth and the sort of family business that was. 

Ville Solja:

Yes, the source of wealth basically comes from the family business. And basically the family office is basically now doing, investing the wealth that the family business has generated.

SCS: 

Right, but in what industries? 

Ville Solja:

In the chemical industry. So our background is in the chemical industry. As I said, I'm a strong sort of focus application wise within the built environment. So different kind of products for building materials and so on and so forth. 

SCS: 

Wonderful. And your allocation to venture was?

Ville Solja:

It's roughly nowadays, around 10%. And we are also sort of on the road to increasing that quite heavily, not perhaps to 40%, but I guess somewhere around 30%, 20-30% is the level that we're aiming at. 

SCS:

Thank you. Nydia. 

Nydia Zhang:

Hi everyone, my name is Nydia. I am the Investment Director at Foredo Capital. We are a single family office based in Hong Kong. The family business is quite traditional. So it's in home appliance manufacturing and distribution in Thailand. So for us, our investment style is endowment model. So outside of our beta basket we look at from hedge funds to private credits to PVC and non corporated. So you know, simply say we look at investing almost everything. 

SCS: 

Yeah. And what's your allocation to venture? 

Nydia Zhang:

So for venture in our alpha basket is about 15 to 20%. 

SCS: 

Yeah. So, these folks are really outliers. Of course we've chosen them pretty specifically to speak about their experience in growing their portfolios in venture.

But even in the U.S. and globally, this is 5 to 10%. It is steadily increasing and importantly, why we're having this conversation is we think that private wealth, I mean, we know private wealth can serve as patient capital. A lot of them come as operators. So like you say, you have that strategic edge of not just being a silent investor, but also adding value from an operational standpoint.

And you all have chosen to increase your allocation. Can you talk to us? I mean for those in the room, I've heard, I've met a lot of them. Some of them are just thinking about how do we actually build a significant portfolio? That delivers the DPI that we're seeking for. So maybe you can start. I mean, you're really topping the game here with raising your allocation to 40%.

How do you think about building the portfolio? 

Tor-Oskar Karlberg:

In our case, it will be a lot of direct investment along the fund investments. So we're targeting companies that have an impact in the sectors of green tech, health tech, and deep tech more generally. And we picked these, um, these sectors exactly because of that we find most impact companies within these sectors.

We want to support that. It's part of the kind of ESG targets of our, of the family. And then in terms of the fund allocations, we have in the last two years done mostly local, regional funds. But we're working hard now to expand that to find global fund managers as well. 

SCS: 

Yeah, so when you think about your split between directs and funds, What's your thinking around this?

Did you use your funds first as an entry way into deal flow to understanding the market, or did you do both in parallel? What were your lessons there? 

Tor-Oskar Karlberg:

Exactly. Using funds as an entry point is a great advice. I'd give any family office that is starting out in investing into venture.

Because that way you get sort of a partner that you can spar with on, on deal flow, not just deal flow that you get through them as co-investment opportunities, but opportunities that come your way and you just want a second opinion on these companies. Of course we use our networks far more broadly than just the funds we've invested in but this one way.

SCS: 

Nydia, I mean, coming from Hong Kong, there is definitely a lot of Asian wealth. In fact, when we're looking at the markets and even for Beyond The Billion, because we work with a lot of family offices, our focus has been North America and the next rising region is of course Asia. And we're starting to see a lot more activity, a lot more Asians on the ground, that are thinking hard about their lens of impact through their investments.

Talk to us a little bit about what you're seeing in Asia. Like, what do we have to know about working with LPs from Asia? 

Nydia Zhang:

I think Asia is interesting because every country has very unique culture background. And then, so it's hard to see Asia as a whole. So for example, in Hong Kong, if you look at the Hong Kong stock exchange, probably 70% to 80% are family owned businesses.

That means that it paints a very unique landscape in terms of like how wealth was generated and how people view how wealth should be preserved. So, I will say it's, it's a journey to get Asia family office to just get comfortable with idea of invest in venture because the families don't like to pay fees, especially for older generations, right?

So it's educational journey for them to first get comfortable with the longevity is, you know, short - eight years, but long - 10 or maybe 12 years of a lockup. So sometimes even marriages last shorter than that. Second of all is the, you know, 2/20 fee structure, then people need to understand why do we need to do that.

And then the third is that the theme of ventures, you know, I mean, a couple of years ago it was maybe fintech and then now AI, before that it was you have blockchain. Blockchain, climate change, food tax, et cetera, et cetera. And then the theme changes. But again, the fund you're investing, you're just locked for the next 10 years.

So what is important is that for family office need to have a conversation with ourselves in terms of like, we need to know who we are before we start to look for what we like. Otherwise, we will just be, not attacked, but we will just lose our focus, and that we just basically choose whatever that coming out of the way that seems attractive at the time.

SCS: 

It's quite a curious point. I've heard this multiple times. I guess every investor is looking for a bargain, right? But the fees is really the X as you're paying for X as you're paying for expertise. When you're having these conversations with your principals, they built their wealth from business. So they know the power of business in generating wealth, but they don't want to pay to get that return. Is that the current situation? 

Nydia Zhang:

I mean, also depends on how their wealth is generated, right? So for us, we are already third gen. Let's say the principal's grandparents or their parents, how they made business, the way they do business are very different from what we're looking at now.

Club deals is pretty normal in Asia. And then normally you say, I know something that's proprietary. And then we get in this deal quickly. And then, boom, there we go. But to have a knowledge base and then proprietary, especially on technological side, you actually need to sit, let's say, the GP with the family members.

And then sometimes you need to steer the conversation a little bit before they got too bored. And then you need to make them have the perspective like what, you know, it's not about making the profit for today. We already have other asset classes that provide better liquidity. But it's more like we need to understand in the future that there might be opportunities that are just not so pronounced at the moment.

SCS: 

And these strategies are super helpful, right? Because I think that this brings me to a nice segue of the next generation, right? Like Ville, what we're seeing is, you know, I'm sure you all know this, we are experiencing the greatest generational wealth transfer in our lifetimes to baby boomer wives who are outliving their spouses and to the next generation folks like Ville.

And what we've noticed is the next generation LPs are the ones that are asking the smart questions because they care about technology as a lever for impact and for change. Ville, talk to us about your own experience within your family to say venture is a future, technology is the future. What did that look like for you?

Ville Solja:

Well, wow. First of all, quite a, quite a broad, broad question, but I personally sort of, when we first started sort of exploring why we actually ended up going into venture and why we ended up in being also quite an active investor to the direct investments was basically that, we saw as a family business, as a family office that when we have like we have a history that goes 100 years back and we want to look far into the future. 

And we sort of lacked the means sort of both operationally wise, both on the business side as well as on the investment side, sort of ways to tackle on the opportunities that sort of long term brings.

And actually tackle on the biggest challenges that are out there. And sort of build meaningful, purposeful business and meaningful, purposeful investment strategy as well on that was basically the starting point where we decided that, okay, we need to be more active and we want to do this not only because it's something that we find sort of a strong purpose in, but at the same time, something that we thought that we actually need to do in order to survive.

And that was basically the reason and sort of why I guess in a family sort of in this type of setup and being a 4-gen owner, I guess it's kind of like a relay where you have like the pin you take it from the previous owner. And then you do and run your own sort of part and then give it to the next one. And I guess that's sort of the role that I'm trying to have at least for the past 10-15 years when I've been involved in the family, both sort of on the investment side and the business side.

So I guess that's the perspective that I have. 

SCS: 

I've noticed, I guess the lingo in Europe is slightly different in that impact is almost a commonplace, right? It's a common language where all of you are thinking about your check as a vote for the future. As a way for impact.

And yet, of course, we've got a lot of impact washing, greenwashing, pinkwashing. I'm aware I'm wearing pink today, but there's a lot of that going around, right? But how are you thinking about purposeful investing and making sure, what's your parameters to make sure that this delivers the maximum impact that you're seeking?

How are you thinking about impact? Maybe starting with you, Ville, continuing on, and then to Nydia.

Ville Solja:

Yeah. That's a very important question. And actually, when we think about sort of our direct investments and Kiilto Ventures as a whole, sort of already sort of the investment thesis per se is tackling such a big opportunity and problem.

So if you think about the built environment alone. It causes roughly, roughly sort of 40%, 39% percent of global greenhouse gas emissions come from the built environment. You have problems related to the materials. Roughly 50 percent of the building materials, go to landfills and basically, we don't have a system for circularity type of business models to utilize those material streams.

And at the same time, we live in a world where urbanization is a fact, if we think about the magnitude of that. If you think about that, the magnitude of that change, there would need to be the size of, of Paris. We need to build a new city the size of Paris every week for the next 30 years in order to sort of, have a supply of cities to meet the needs of people moving into the cities.

So we have the growing market, and at the same time we have the challenges related to the current built environment. So there's a lot of opportunities if you look at it from the perspective to actually tackle these changes and turning to meaningful business. And that's why we are actively doing that and see that the knowledge that we have coming from the business side can provide sort of meaningful value and potentially the alpha that was sort of discussed earlier here today.

SCS:

And Nydia, how are you thinking about impact? Like what does impact mean? Is ESG a standardized evaluation in your investments? 

Nydia Zhang:

I think for family offices that are based in Asia, we're indeed a little behind for the impact talk, so to speak, right? I mean, for family offices, for us, that we are still you know, we're asset management. At the end of the day, we need to find funds that can give us good returns, right?

But I don't think that is mutually exclusive from, you know, generating a good impact. So, for us, on our venture allocation, I think we wouldn't necessarily go look for impact funds, but we already set a thesis of what we're looking for, that we hope to find venture funds that are solving, for example, climate change, rising healthcare costs.

We think with this kind of top down approach, then when we find the GPs that they are already solving the problem that is meaningful to the world. 

SCS: 

Yeah, and Tor, are you more explicit in how you're thinking about impact? 

Tor-Oskar Karlberg:

Yeah, so we see both the environmental side, but then also the healthcare side. So we try to involve both, and the healthcare side of course tackles the latter. In terms of fund selection, this is something we do prioritize. I mean, if the fund is an Article 9, that's also always a big plus. Applies of course to European, not American funds. 

SCS: 

Can you give in essence what Article 9 is for the audience that's global?

Tor-Oskar Karlberg:

Yeah, so Article 9 means that the fund has a specific purpose, like all the investments they make make a significant contribution to lowering emissions or some other like ESG criteria, whilst Article 8 is then more just like excluding stuff and then reporting on the ESG performance. 

SCS: 

And so when you think about sort of fund selection and how they're investing.

What does that look like? Do you go, I mean, as an LP, many LPs are more passive, right? They're not actively, being, I guess, more of a shareholder activist in their investment strategy. How do you think about that impact? 

Tor-Oskar Karlberg:

Yeah, I don't think we're super active LPs either. I mean, it's more in the selection phase and then we let the fund managers do their work.

We don't try to get too involved there. Of course, we spar with them and we go to the LP meetings.  

SCS: 

Of course, it's in the front end that you select based on the evaluations of their track record, what they say they're going to do and own up to them. 

Tor-Oskar Karlberg:

Yes. 

SCS: 

Love it. Okay. So looking ahead, I mean, this is a short panel here. What are we feeling on the ground? I mean, some of you do direct investment, some of you are interviewing GPs that are working through what is hopefully an uptick compared to the lull that we had and hopefully a, you know, a normalization beyond ‘21 and ‘22 high prices.

What does this investment cycle look like and how are you thinking about the next few years in the short term, Ville maybe from you?

Ville Solja:

Yeah. Well, first of all, I think we are sort of, as we have a long term perspective, we are not sort of too concerned about the status of the current cycle.

Of course, when we look both sort of the discussions that we have daily with our team, what our team is doing with the, with the entrepreneurs and the portfolios that we're operating with closely, we get some certain insight as well as when we're talking with the GPs, and certainly sort of the market has to some extent, of course, the knowledge that we have comes mainly from the regional, new Nordic sector.

But the information that we have is that, that sort of the market is, is bouncing back a bit from, from, from what it, from two years back or one year back. Of course, if we look at the figures like funding, funding figures, for instance, in Finland, I guess last year it was 50 percent compared to the year before that.

And so that, that tells a bit about the environment on a general level. But as I said, we're not too concerned about the short term. We look at, on the direct part, we look at sort of doing or being part of meaningful stories that are not only sort of attached to this specific moment, but we all go beyond that then.

And of course, the same with the funds as well. 

SCS: 

How are you seeing this investment cycle and how is Asia actually faring as a region? 

Nydia Zhang:

I think lessons for us, they're good and bad, right? And, you know, it's common knowledge that the past two years has been quite brutal for VCs, right?

And then, I think the good thing is that if we look back for some of our funds that are in our portfolio, that we feel good because we, you know, know what we were looking for. So, and of course we're not, we're also quite realistic about, you know, the environment and what it will do to the, uh, their, their track records.

Right. And so the good thing is that we still, uh, in alignment with what they're investing. We're still in alignment with the integrity of our GP. We still, Trust them, right? And the bad thing is, of course, I think end of the day, venture investing is people business, right? And then we are a constantly evolving process, even for LPs that we, for example, will think that track record is always an important, uh, category, important benchmark for us to evaluate.

But now we'll, if you look at the GP, their track record will, let's say They're a good traveler who is because of they were in the good times. Right? And then, should we, should, in the future evaluation process, should we actually pay attention to VCs in terms of their performance in back times? I mean, five years from now, if we look at this, you know, from two years ago till now, maybe, you know, I feel like the market may have taken a little bit, but it's still not back to where it was before.

So maybe this five year horizon will be a good benchmark for us to see how their records hold up during this time period. 

SCS: 

And Tor, for you, what's your outlook for this venture cycle? 

Tor-Oskar Karlberg:

Yeah, I mean, I don't want to be making short term predictions, but my personal feel is that the cycle still has a bit to go, like at least a few years, I mean it still feels like it's picking up, of course there are big geopolitical risks on the horizon, I think.

You know, any of those are triggered, it might completely change the landscape. So that's different than scenario. I think if, if we look back, you know, 2001, 2022, we can see that it's at least cooler now. And that's also perhaps one of the learnings we have from our own direct investments that, you know, once the founder made his big exit, they're pretty quickly deployed into a few new startups perhaps at elevated valuations that have already had to be, you know, written down a little bit adjusted to more normalized level. 

And as Alex said, you make the money on the buy. And we try to be more disciplined in terms of pricing in the future. 

SCS: 

Very tempered expectations on this panel, Alex.

What do we think? We have time for one question, one or two questions from the audience. Do we have one or two questions? Panu, you look like you have a question. 

Audience:

Well, I was going to ask a private question, but let's go ahead. Let's do it. Let's do it. I get the private question. Have you guys done any allocations to Europe so far?

And are you looking to extend a house? You said you're going to probably have to be sitting down with the older members from the family office. Oh. How will that work out if you are looking across the, or all the Atlantic states? 

Nydia Zhang:

Well, that's actually one of the reasons I'm personally here. Right. And, uh, I think for European funds, we haven't - that is lacking our portfolio, but European founders, we do have, we do see in other funds portfolio.

And then, so I think for this trip, I, not only interested in the local ecosystem, but also interested how countries like Finland, how are you able to retain talents and then provide them a good environment to grow and flourish? 

SCS:

Oh, you have a question. Oh, double the fees now. What do we think? 

Tor-Oskar Karlberg:

Yeah, of course, that's one of the key criteria for us that, you know, the fees cannot be excessive because then it eats into the returns. But, with moderate fees. It's an option we keep on the table. We've done it for buyout funds, but not for venture funds yet.

But in terms of building that global VC fund allocation, for example, for Asian funds or North American funds, that might be a way that, a route that we choose to take. 

SCS: 

Excellent. Round of applause for this panel.