Comparing Entrepreneurial Financing Practices of Family Office and Institutional Venture Capitalists

Abstract

The family office acts as an intersection of wealthy families and their enterprise to manage the family wealth behind them. Extended from the previous literature examining how family firms differ from non-family firms, we investigate how entrepreneurial financing practices of family offices (i.e., family investors) differ from those of institutional venture capitalists (i.e., non-family investors), based on the mixed gamble perspectives. Moreover, we investigate how eponymy – a distinct characteristic of family organization, moderates such relationships. Using a natural experiment coupled with coarsened exact matching, we found that family offices make entrepreneurial investments (1) in the later stage of entrepreneurial financing, (2) in a narrower industry portfolio of venture firms, and (3) with a fewer number of syndicate members, compared to institutional venture capitalists. Furthermore, eponymous family offices (i.e., the name of the family office includes or derived from the family's surname) have a longer investment horizon, while making investments in the later stage and in a narrower industry portfolio of venture firms, compared to institutional venture capitalists. Consistent with the well-accepted premise that family firms have a long-term investment orientation, these results suggest that eponymous family offices serve as a “patient capital” to preserve their family's socioemotional wealth. At the same time, they extensively engage in investment practices that can counteract the possible financial loss caused by their long-term investment horizon. Overall, this paper contributes to research at the intersection of family business and entrepreneurial finance.