Indian family offices have a new favourite—early-stage VC funds

Nitesh Aggarwal, chief investment officer of family office Baldota Group, said early-stage VC fund managers are turning to family offices for capital as institutional limited partners withdraw their investments.

Corporate limited partners, or LPs, such as sovereign wealth funds, pension funds, and insurance companies, often pool their money in venture capital and private equity firms, which in turn invest in startups and other companies.

“Given a choice, most early-stage funds will raise [capital] But now institutional LP money from the US has dried up, especially from university funds and pension funds, because many LPs in this category have maxed out their allocation in VC funds and also the DPI has not been very good,” Aggarwal said.

DPI, or allocation to paid-in capital, is a performance measure that helps limited partners understand how much of their investment is returning as actual cash.

The total value of the Baldota family office is $130 million. Of this, around $55 million was distributed across 45 VC funds and 38 startups spanning India, the US and Israel.

Claypond Capital and other family offices did not immediately respond to that question. mint e-mailed inquiries.

When small becomes big

Kushal Bhagia, founder of early-stage venture capital firm All In Capital, said: “Many families have had disappointing experiences with larger growth funds, so they gravitate towards smaller funds like ours. They value earlier exits, co-investment options and the ability to double down on winning portfolios.”

Bhagia added that Indian family offices are turning to smaller investment vehicles for closer interaction, including occasional direct investments in portfolio companies, something large funds generally do not offer.

For Everyone in Capital ₹200-crore Fund II, nearly half of its investment commitments come from family offices, according to Bhagia.

“In a $300 million fund, you might only need three or four IPO-scale results for 3 times the fund (triple return). That’s tough. In a small fund, a single $300-500 million result might be 1 times the fund, and a $2 billion result might be 10 times the fund.” [returns]Bhagia said: “Larger funds naturally gravitate towards capital preservation, which would suit larger institutions such as endowments and pension funds, which prefer 2-3x stable interest. [returns] More than 10 years and low headline risk.”

Mumbai-based early-stage venture capital firm Avaana Capital closed its $135 million climate and sustainability fund in October 2024, with around 15% of its investments coming from family offices.

Sandeep Singhal, senior advisor at Avaana Capital, said family offices make up a modest portion of the firm’s LP base. “Our family office commitments will be less than 10-15% of the fund,” he said, adding that the firm expects to receive more income from such investors in future funds.

Ankita Vashistha, founder and managing partner of Arise Ventures, said family offices account for about 40% of the VC firm’s co-investment deals. Arise Ventures aims to grow ₹500 crore for its third fund by the end of the year.

The attraction of exits

Vashistha said small-cap, early-stage funds make money for themselves and their investors (LPs) by backing startups early and exiting early by selling their stakes during Series B or C fundraising rounds.

“A key focus for us, especially given our corporate bent, is strategic exits. Not every portfolio company needs to be a unicorn (startups are estimated to be worth at least $1 billion). [startups] “It can be acquired by institutional buyers for triple-digit million results… That is why family offices are rethinking their strategies and even looking at thematic funds,” he added.

Prateek Indwar, managing director and head of capital markets at financial services firm InCred Capital, said from an early-stage investing perspective, startup exits are plentiful compared to late-stage funds where most of the big exits come from IPOs.

“If family offices are favoring early-stage startup VCs over late-stage funds, it is clearly because the early-stage ecosystem can offer a range of exits from secondary equity buyers, mergers and small, major and SME board listings,” he said.

Indwar acknowledged that as a percentage of total deployable capital, the early-stage ecosystem is still small for family incumbents but is growing rapidly.

The size of investments from Indian family offices to early-stage venture capital firms is slowly increasing, fund managers and investment advisors said.

The managing partner of an early-stage, deep-tech-focused VC firm said average investments in the first fund from domestic family offices were typically $1-2 million, but check sizes for the final second fund more than doubled to $6-8 million. The manager requested anonymity, citing confidentiality terms with limited partners.

A PwC study last year found that family offices generally prefer investments under $25 million and prefer predominantly pooled deals to minimize risk. He added that large family offices account for 31% of startup investments, 15% of property investments and 14% of fund investments (as LPs) globally.

Rethinking “2 and 20”

Early-stage startup investing remains a high-risk proposition: Only a small fraction of bets generate large exits, and many companies fail to get into Series A, the first official round of raising funds from institutional investors. Still, industry executives said such deals present an attractive opportunity for domestic family offices.

Some family offices are even willing to become anchor investors to secure additional rights alongside the fund, such as direct co-investment in companies, board seats, advisory roles and greater visibility into the fund’s deal pipeline through its due diligence process.

VC funds often operate on a “2 and 20” model. Fund managers charge LPs approximately 2% per year in management fees throughout the investment period to cover salaries and expenses related to due diligence, management and compliance. Their benefits come only from the fact that LPs get their capital back and, in some cases, the “carry” paid after a certain return on their investment (usually 20% of the profits).

But many family offices are forcing fund managers of small venture capital firms to rethink the traditional “2 and 20” model.

Paying a 2% annual management fee plus 20% “carry” over ten years can erode net returns unless a fund manager has a clear and defensible advantage, according to Pradyumna Nag, founder and managing director of Prequate Advisory.

“As a result, family offices are increasingly using a small LP commitment to secure access and information, then applying larger, selective co-investment controls to the specific deals they want,” Nag said. “This approach maintains visibility and impact while reducing hybrid fees.”

Families generally look for demonstrable value creation over 12-36 months, clear unit economics, evidence of growth driven by fund manager intervention, short-term scaling plan and disciplined management, said Prem Kumar Barthasarathy, managing partner of UK and India-based VC firm Pontaq.

“In short, family offices act as long-term partners, preferring managers who can show how they took a company from zero to 10 and map out the next leg with executive and oversight control.”