For startups, the obvious avenues to chase for funds is family, competitions and venture capital firms. A not-so-obvious one: The family office.
Among the super rich, the family office is a type of firm that manages all the pesky tasks that come with being incredibly loaded: investments, taxes, how to best pass money across generations, legal entanglements, family businesses, and so on.
Twin Focus Capital, based in Boston, is one such firm.
“Our model is providing a lot of services for these families, everything from the glorified dog-walk to thinking through tax and legal and administrative challenges that these families have,” said Paul Karger, co-founder and managing partner of Twin Focus Capital. Among the many types of investments Twin Focus specializes in, is startups.
Twin Focus works with close to 35 multimillionaire families that have more than $5 billion in combined wealth and has assisted in the backing Greg Selkoe of Karmaloop fame. The firm also backed meal-delivery kit startup Purple Carrot, e-commerce company Wanderset and employee-credential tracker, EyeSite.
"Family offices are the untapped gem for early-stage entrepreneurs seeking capital," said Andy Levitt, founder and CEO of Purple Carrot, adding that in addition to three rounds of undisclosed investment, Twin Focus also gives them "insight and advice."
BostInno.com spoke with Karger -- who has promoted the family office as a new source of startup investment -- about his multi-family office firm and how Twin Focus sees startups as a part of an investment strategy for its clients.
BostInno: How does Twin Focus approach investment in startups?
Karger: We put our startup investments into two buckets. In one bucket, it’s client-led. The family comes to us, and says, “Hey, I have an interesting introduction in this space” or “I have expertise in this space, and I want to make an investment.” It could be biotech or pharma, technology, or artificial intelligence, or cell phone tower (technology). It could be something where the clients have domain expertise and they’ve got connections. But, we’re intimately involved: We have to come up the curb, we have to structure the deal, we have to figure out how to fund everything and pull it all together.
Then, there’s another bucket of interesting opportunities we pursue on a wholesale basis, and we bring them up to a number of our clients. … We lead the investment and a number of clients will participate.
BostInno: How much would you typically invest in startups?
Karger: On the low range, maybe a half million dollars and $5 million on the higher range.
BostInno: The startup world is often associated with risk but wealth management is not. ... Do you guys have to persuade these families to invest in startups?
Karger: Our clients are open to it, but you have to remember that at the end of the day, we’re able to control our risk by sizing. The families we work with have $100 million-plus balance sheets. So, we can take lots of little bets. We can take bets of couple of hundred thousand dollars or a half million dollars, and it would only be 0.5 percent of the balance sheet. That’s the benefit of scale. Another thing to note is that, we’re not a fund, so we're not investing in 25 different opportunities and then doubling-down on the most successful one. We’re more targeted.
BostInno: So it dilutes risk, right, if you have several families who invest in a startup?
Karger: For their loss and their return. People show up at our door and say, “Oh, you manage $5 billion dollars, can you just write a $1 million or $2 million check for us?” It doesn’t work that way. In many ways, we have an even higher bar than the venture fund would have.
BostInno: Do you look at early or late stage startups?
Karger: We look at everything. If it’s early stage, it’s got to be super compelling for us to write a check, because when you’re managing big dollars it’s hard to make the needle move on smaller opportunities…. It also has to be a place where we feel like we have some type of value to add. It’s not just about writing a check. It’s where we’re able to leverage our network, or we’re able to provide the company additional help.
BostInno: Do you guys take pitches or do you only take what families suggest and what you identify as opportunities?
Karger: All of the above. … We’re looking at a broad swath of opportunities. We listen to everything, but we say no 99.99 percent of the time. Three or four times a year we get to say yes to interesting things.
This interview was edited for brevity, clarity and to accommodate the short attention spans we all have in this digital age.
