Raising capital is hard. For anything. But especially for emerging venture capital GPs. A verifiable track record takes a decade. The asset class is mature. And most allocators are risk-averse. Raising from traditional institutions is statistically improbable for emerging managers. Family Offices (“FOs”) and Ultra-High Net Worth Individuals ("UHNWIs") are your best shot. But people this successful aren't making donations. They want to know their money is safe and that you will earn them the returns you are promising. To help that effort, I've put together this guide.

Background - What are FOs? How do they operate?

There’s a saying in the family office industry: “If you’ve been with one family office, you’ve been with one family office.”

The family office world isn't monolithic; differences between family offices are substantial. Some family office investors are near extensions of the family. They serve as trusted advisors, assist with relationship management, or handle non-financial aspects of the principal’s life.

Other family office professionals are completely cordoned away from the principals and only execute their specific function- estate planning, tax structuring, etc.

When approaching a family office’s investment arm, it’s important to understand if they are allocators or investors. Many family office investment professionals are allocators. Simply put, they invest in funds but don’t take risk in the underlying asset selection or performance.

In my role, I’m not an allocator – I take direct risk in underlying assets. But I’ve been lucky enough in my position to be exposed to many funds coming through our doors, and I've helped other team members with assessing funds.

Remember – this isn’t Gospel. It’s one take from one investor at one family office.

Each family office (“FO”) has different investment mandates, return goals, permissions, and structures. Some may be single-family offices (“SFOs”), e.g., one LP. Or a multi-family office (“MFOs”), typically no more than 3-5 families that have pooled their wealth. Typically, small (<$500mm) and large (>$2bn AUM) FOs operate on the “endowment model”.

These FOs have a legal contract with the family dictating how much they can invest, which asset classes they can invest in, and caps on illiquidity and liquidity, etc. For instance, the family wants their money invested in buckets, e.g.,10% in Real Estate, 40% Public Equities, etc.

Middle-sized FOs manage enough money that fee drag can be real, and they can hire enough investment professionals to find opportunities that can still move the proverbial "needle".

They hire specialists to invest directly and can make investments large enough to have a seat at the table. These middleweight FOs are typically more entrepreneurial, agile, and faster than smaller or larger FOs.

Further, a growing strain of FOs, across AUM size, are building direct investment capabilities. Wealthy families have found it more efficient to buy talent and invest directly than to pay 2/20 fees. This gives families more agency and transparency, especially in private transactions.

Side note: Transparency, co-invests, and flexibility for FOs are increasingly in demand. Think through how you would structure your fund to provide that offering.

Targeting and Research

There are a few homework questions to research before or during initial calls. (FOs are notoriously opaque and rarely seek public attention. Their structures also keep them out of SEC scrutiny and disclosure requirements.)

First, find out how the patriarch or matriarch made the fortune. This will immediately help you, a) weave your narrative and b) understand the probability of their interest in venture capital as an asset class. If the patriarch made his money investing in public equities, one can imagine that he has a high bar for private investment allocation. Or if they made their money in industrials, they may be interested in venture because they want technological solutions for their existing business interests.

Second, it’s important to understand if the “golden goose” is still laying eggs. If the asset that produced the wealth is still contributing to the FO’s AUM, they will be more willing to take wingy bets, e.g., emerging VC managers. If the FO’s permanent capital base isn’t growing, they will prioritize capital preservation.

Third, understand if the FO is first generation or not. Commonly referred to as G1, G2, G3, etc. A G1 FO is where the patriarch is still alive and in control. G1s have a particular set of interests and may double down in their area of expertise. G2 (the children of the patriarch/matriarch) is aware of the struggle to create fortune and is in consolidation mode, e.g., typically more risk-averse.

They focus on strengthening the initial business, ensuring nothing stupid happens with the money, and creating more efficient operations across their empire. G3 (patriarch/matriarch's grandchildren) are far enough removed from the wealth creation event. Therefore, are more willing to diversify, experiment, build new lines of business, and create their own empire with family capital.

Preparing for the Meeting and Designing your Approach

When you pitch a family office (or truthfully, any LP) you need to address three broad concerns which I have broken into tangible questions:·

The Sailing Question – “If I were to give you money and then I sailed around the world for three years, would my money be cared for?” This is the character issue. Trust and integrity are key.·

Right-to-Win – Why could this VC be the best at what they do? Convince them you are an apex predator in your field, your differentiator. Any structural advantages over the competition. You are answering the monkey in their head that is banging a tambourine - they are thinking, "If I want VC exposure, why would I choose you over Sequoia, a16z, etc.?"·

Unique Worldview – VC investors are ambushing the future 10 years from now. It’s an extremely hard form of investing. This is the famous Peter Thiel question, “What do you believe is true that most others don’t?” Your ability to explain your worldview and investment thesis coherently and convincingly, and your access to the founders building these companies, will be critical.

Common Questions and Required Topics to Address

Track Record – it’s a double-edged sword. You’re emerging; how can you point to DPI? Or all you can show is paper marks on existing investments you made under another firm. The problem here is that while track records are important, it doesn’t mean that the FO believes you can do it again. There is always a question for breakaway investors - were you good because of your individual skill or because of the apparatus you were a part of? For example, many public equity PMs working out of a pod can point to amazing returns, but when they go solo, they stumble. Sometimes because of the non-investment business requirements, other times because they were accustomed to resources they can't replicate when they step out on their own. Other times, the environment they were in (the Pod) enabled that performance, but they can't repeat it independently. Further, the current market environment, e.g., the rise of continuation vehicles, capital capture, and private capital dry powder, means that if you have thought through realistic exit strategies (How am I getting my money back?), it will meaningfully distinguish your offering.·

Target industries and process – Showing up and being a generalist in VC land is extremely difficult. You don’t know this as an emerging manager, but the FO has likely heard someone exactly like you – “Former Tesla & Saildrone, SWE, Atoms meets Bits” in hard-tech or “Service Academy, Special Operations, M7 MBA, Houlihan Lokey” in defense tech, literally dozens of times before. The resume is the table stakes. Intelligence is assumed. Your job is to explain how you have the following key attributes:·

Network & Sourcing – How have you demonstrated that you know how to fix a problem within the industry? Do you have enough experience to find the person in the industry who can help you answer the question(s)? How have you developed the top of the funnel? How deep is your pipe? How will you keep the pipe full? This is both a diligence and sourcing question. If all your deals are brought to you by other funds that have direct relationships, and they carve out an investment allocation for you – that’s not organic pipe. And the FO won’t view it as such.·

Technical and Business Chops – Do you have a STEM background? If not, what is the business angle, the emerging MOAT to the businesses you target? Can you independently underwrite the technological readiness level? If you must hire 3rd-party technical experts, how will you ensure the veracity of their assessment? Do you have experience with, or have you thought through, the CAPEX needed to scale the product? Have you taken a TRL 3 and an MRL 3 and shipped the product to happy customers? Convince the FO that you know the industry fluently. Prove that the technology you underwrite is not just great, but superior to the status quo. Remember, it's proving that whatever you have done, or will do, is repeatable in the future.·

Investment Discipline – Don’t tell them you “know a winner when you see one.” That may work when you’re @pmarca , but you’re not, at least not yet. Explain how you evaluate founders, exhaustively, and in detail.

Explain why those signals matter, how your process progresses, terms you walk away from, and how you approach negotiations with founders in terms of control and economics. Also, how you think about future dilution and exits. The FO wants to know how you’ll get their money back. The focus is on process, discipline inside the process, and facts or patterns that guide your decision. Having a great process that is repeatable, detailed, and disciplined will go a long way.

Side note: Don’t practice shaving with LP money. You need to come in with a process that you’d respect. FOs that fund emerging managers know mistakes will happen, and the process will evolve, but don’t come in with vibes.·

Reality Recognition – Let’s all hit the “I believe” button. ‘ The tech is real, the founder is a pipe-hitter.

Can you see and properly identify extraneous obstacles? And internal points of friction?

For example, you stumble across a start-up building a solution for a new chemical compound. The new compound promises to make childbirth painless. FDA process problems are obvious. But have you thought through social allergies to this compound? “Childbirth is supposed to be painful.” (Genesis)

Have you thought about the major suppliers for intake? (China and India owning the pharma chain – do you have answers for future export controls or government sensitivities?)

Or how long would state-level approvals take? Which Congressional committees oversee that process? Any champions on the Hill or at a state level to assist the company? Or perhaps most importantly, if the tech is real, why hasn’t a behemoth like Pfizer or Moderna already bought this person/IP/idea yesterday for a billion? ·

Playbook to assist founders win – Capital has turned into a commodity. Venture is the only asset class where the asset must also choose the investor. Be able to answer, convincingly, “Why your dollar is better than [x] competitor dollar.” And not just in terms of terms and speed to close. As a GP, you are selling to LPs and to portfolio companies; it’s important to convince the FO that you can do both. In conclusion, a friendly reminder:

This is only one family office investor opinion.

You are a grown human; you’re responsible for what you believe.

But if you can answer these questions well, I believe that you have increased your chances of earning an investment check from a family office.

And as always, I'm here to help however I can. Feel free to DM me.

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