Daybreak - Why India’s ultra-rich are keeping it in the family — and out of VC funds

Episode Date: May 20, 2025

Family offices—the ultra-rich who used to hand over their money to VCs and wish them well—are now wondering why they ever bothered. Why did they pay someone to do what they could do themselves, on their terms?Their primary gripe? The funds are not returning money. Of course, the so-called middlemen in this scenario aren't too pleased. After all, they are losing a substantial amount of business in the process. But it all boils down to one thing – who’s running the money. Tune in. Daybreak is looking for a talented audio journalist with at least two years of experience. Check out the role here. Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the same. secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they managed to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into.

to the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert, as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcast. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode.

A long, long time, venture capitalists were seen as the gatekeepers of private capital. But now, the ground on which they stand is shifting. Why? Because they are increasingly losing access to a pretty critical source of capital for their funds. I'm talking about family office. the ultra-rich who used to hand over their money to VCs and simply wish them well. So essentially all these fund managers, people who worked for, like, you know, venture capitalist firms, they get these deals, it could be any segment from founders or like they would come across these deals where people want to raise money.

And they would then go about approaching family offices, larger families and asking them if, hey, like, you know, if you want to be part of this deal, How much percentage you want to put into this? This is a good sector. This is a good company. That's my colleague, the Ken reporter Noha Boberi. You see, between 2018 and 2025, India went from having just 45 family offices to now having well over 300.

The difference is, now these offices are increasingly choosing to cut out the middleman. After, like, you know, going through this numerous times, family offices are thinking, why even bother? Why should we put our money in a VC fund when we can evaluate and make those decisions ourselves?

And so today the relationship is like they don't want to rely too much on fund managers. They want to do it themselves. NUHA spoke to multiple people familiar with both sides of the story to understand what prompted that shift. If someone is open to taking a bet saying, I want to do the investment myself

or like, you know, we can get someone who I know who is a good, like, you know, chief investment. who's a good analyst and they want to come and work for our family office, then they want to take that road because it makes like internally for the family office as well to have a leaner team. And then these people can advise the family office and they don't have to then rely on say, external help to decide which investment is good or bad. So that's what has happened to family offices where they now are professionalizing internally to have a chief investment officer,

a couple of analysts within them to decide what deals to look at and how much they want to invest and at what capacity. Now, for family offices, their fundamental gripe with VCs is simple. The funds are just not returning money. Of course, the so-called middlemen in this scenario aren't too pleased. After all, they are losing a substantial amount of business in the process. So naturally, they have some thoughts about all of this. And their argument, of course, is that they will...

always be the specialist in the space. They will always be the first people who are founder or any person in the field wanting to raise money will go to. They will always be the number one in terms of the next big bet in terms of consumer, in terms of even healthcare or say an FMCG kind of brand wanting to make it big through funding. They will always be the number one people to be approached. So family offices can do whatever they want or think they can do better than a VC,

but specialists will be specialists as well they are. But it all boils down to one thing alone. Who's running the money? Welcome to Daybreak, a business podcast from the Ken. I'm your host Rahal Philippos and I don't chase the news cycle. Instead, every day of the week, my colleague Sikta Sharma and I will come to you with one business story that is worth understanding and worth your time. Today is Tuesday, the 20th of May. Hello, dear listeners.

Did you hear the news last week about Amazon's Prime Video? introducing ads on their platform next month onwards? It looks like India's OTT game is entering a whole new era. Ads are in, subscriptions are evolving. But what is really going on behind the scenes? And what does this mean for us, the viewers, and what does it mean for the world of advertising? This week, Swati Mohan, the ex-head of marketing at Netflix India,

will be joining Rahil and I for a chat on daybreak. Swati is someone who has had a front row seat to the right, and the evolution of India's streaming giants. From this shift to an AVOD-SV-O-D hybrid model to regional audiences rewriting the rules for OTT, this conversation is going to be packed with hot takes and sharp insights and some seriously good stories. So watch out for the episode.

And now back to Rahil. Let's go back in time a little bit. It's 2022 and the post-COVID euphoria is real. Suddenly, private investing was feeling a lot like a party. Just that year, in fact, Indian family offices participated in 124

private equity and venture capital transactions. But by 2024, that number had dropped to 83. A lot of these family offices and even people say, Ultra H&Is, and H&Is had put money

in startups, I think, around the 2021, 20202 period, which was massively overhyped and we see a lot of people putting in money. but then they realized that private, the private sector, private equity in general was not performing really well. So it was a very high risk kind of a scenario. And so they decided now it's a good

time to put money in the public market. So it kind of, the balance started coming, I would say, end of 2020, when they realized that they cannot put a lot more money in privates because it was a very risky kind of a scenario. So they went to the public domain. They were like, we're going to put money now in the public market, we'll see how it plays out. And that's why we saw, like, you know, the number of deals and, like, you know, having more of a balance post-2020. And now because of that, because they know that they have the power to do, like, you know, those changes on their own end, they also want to, like, take that power further and now

invest themselves. The biggest upside of having an office is control. No limited partners, mandates or tenure clocks. The family office gets to decide what to invest in and where to. to invest based on their own risk appetite and understanding. Essentially exactly what we see is claimed to be doing, but without the pressure of having anyone breathing down their neck. Just take Manevar's Ravi Modi for instance.

So Manevar launched its family office in 2020 around the COVID period. And when they started, they started with doing investments directly on their own. And because they had trust, like, you know, that and the experience from these analysts, these research people who they had in their team, and even because, of course, the Manewar family office, it's headed by Rabi Modi, right? He is the head of, like, you know, he's founded Manewar. He has, like, you know, become a big person in terms of that industry itself. So a lot of family offices believe that, especially for investment in the sectors they themselves have a business in,

they are the best people to kind of make that decision over, say, a VC or a PE firm. Maniwar's family office went on to invest in companies like the apparel brand rare. rabbit because at the end of the day, no VC would understand the apparel business quite like they would. That's why today as well, if we look at their portfolio, over 50% of their deals are made directly and the remaining, they still work with a few fund managers. But for most family offices, the reliance on fund managers is decreasing. So say, according to a VC who I spoke with, if five years ago or, say three years ago, there were five or six, six, fund managers they used to work with now that number is two or max three.

So for the likes of Maniwar, investing directly feels like an obvious choice. It also helps that the returns tend to be significantly better. Traditionally, if you invest through a VC fund, your money is locked in for say an eight to 10 year of a timeline and then you're completely, say, dependent on what kind of like, you know, money or returns these firms would promise you, which is different, which is like we have, as far as we have seen in India, barely two to three funds have returned the money. And even if on paper a VC firm boast of say 1.5x, it in reality is like 0.5x. And like how they measure this is in terms of DPI or the distributed paid in capital.

What this metric is like, it evaluates the performance of a VC fund, um, basically. Like the money they initially put, say a family office put a certain amount of money initially, and the returns they see beyond that after the fund's cycle is completed. What we are seeing now is that barely funds are returning money and if they do, the DPI is extremely low. There's also the fact that direct investing allows the family office to take centre stage. A lot of them just aren't interested in being anonymous LPs in other funds. Like one CIO at a family office stole Nuha, structured or, offices typically function a lot like VC or PE funds, except there is a lot more flexibility

with timelines. So for a VC firm, like, you know, whenever they start a fund and, like, you know, they get these investors on board, they are also answerable to them over the timeline of that fund. So you will have, like, you know, meetings with them every few years. I mean, every year of course, but at some point, say, around the three-year mark, four-year mark, you're supposed to show a certain kind of return to them to, like, you know, like ensure that, you know, this is on the path to the kind of number, they expect at the end, like when the fund is completed.

So, of course, they have that pressure. They mostly look at numbers, right? And when you are inherently built to look at numbers, I think during the course of that, the relationship that you may have with the founder is lost. Then you only talk about numbers. Then your only thing is that that is a target or a goal that you have set for the fund and it should be completed.

In fact, some founders, Noonha spoke to. said it's far easier to work with family offices when you're trying to raise your first round of funding. Because they don't look at the previous performance of a founder, they don't essentially look at numbers. They talk to the founder if they believe that this person has the ambition to go to the company, then they'll put money in it. One founder told me that he met Nikol Kamath and within the course of, say, 10 minutes in that meeting, Kamath was ready to put money into the organization, whereas the three other VC funds he went to, they believed that the sector he wanted to build a new startup in was already, like, had a lot larger competition.

Did you know that India has one-fifth of the world's semiconductor design talent? And yet, we are nowhere in the big league when it comes to the global chip race. So why are India's chip ambitions taking so? so long to materialize, despite global tailwinds, billion-dollar companies and government incentives. Well, here is a hint. It's not just about money. My colleague Shrishy Acher broke it down in the latest edition of our weekly newsletter, Make India Competitive Again. It is smart, it's surprising, and it explains what is really going on behind the scenes.

You can read it on the Kent's website, which is the hyphen-kent. k-e-en.com. You can also listen to it. Both are available to the subscribers of the Kien. If you prefer listening to us, you can access the podcast on our app or on Apple Podcasts with a premium podcast bundle

that gives you access not just to make an India competitive again, but also all our other paid podcasts like First Principles, 2 by 2 and the Nutcraf. All the details are in the show notes of this episode. Traditionally, family offices comprised one person from the family

who would generally keep an eye out for interesting investment opportunities and then pursue them. The Ken has also previously reported on how second and third generation leaders of these legacy businesses have taken more of a keen interest in dawning the investor hat.

But today, the approach is a lot less mom and pop. Even we have family offices who have like, you know, an investable corpus of 500 crore. But if there is a family office with a corpus of, say, over 2,000 crore, then definitely they would have a small team at least internally,

where they have these analysts, these researchers, and chief investment officers who look at the investments, who then decide bases that if they want to advise a family to go for it or to not do that. Just take InfoSys co-founder Chris Gopal-Khrushnan's family office, Pratthi, for instance. Roughly 70% of Pratati's capital goes into direct deals. That's up from 50% two years ago.

The shift of course is intense. intentional, but it remains flexible. So Pratiti has a five-member team which looks at around 20 or so deals that they have invested in, and they want to keep the team leaner and not, like, you know, entirely emulates what a VC firm looks like where they might have, say, 10 to even 20 fund managers because they don't want, like, a lot of people looking at a lot of deals. They want to, like, have a small team with, like, you know, experience behind their back. essentially even what Ma Nava is doing

even they have a three to four member team which looks at say one is an analyst one is an investment officer and that's how family officers want to go about it given that they still like you know work with the same big four consulting firms they've worked with the same kind of

legal advisory which a VC firm has because these businesses are like tens of thousands of crores large right they have all the kind of support which and beyond that which a VC firm would also kind of like, you know, advertise. What's interesting is that a lot of the deals that these family offices get is because of personal connections.

Pratati's investment in jewelry retail or Bluestone, for example, came via someone called Prishan Prakash, who is a partner at Global VC-XEL. Other opportunities also typically come through personal relationships, which means no two-and-twenty hair cut. Noohai explains what that means. So it's a very sacred kind of a fee structure for, VC and even PE firms where they call it 220 or even for some VC firms say to 110. Essentially, the first part is 2% of management fee, which the fund managers take, and 20%

would be the carried interest over what you see on the fund's performance. So for instance, if a fund's tenure is done and you see a return of 18 to 20%, then after deducting the fees, family offices can expect only 13% returns, which Nuha says is abysmally low. And today a lot of like heads of family offices and like, you know, who have professionalized themselves have said it very openly and publicly that VCs should look at it as a metric which you can kind of change depending on how the fund performs. If we are taking a hit, then they should also be open to the idea of taking a lower cut depending on how the fund performs.

Naturally, VCs aren't the biggest fans of this DIY movement. They argue that family offices, lack the judgment to pick VC fundable businesses. After all, there's a difference between running a business and knowing what can be funded. But despite that, the balance of power is shifting. Family offices are the bells of the ball, particularly for startups. Because they don't just get investors. They get context. Imagine building an FMCG company and having the who's who of the industry in your investor list. Naturally, that comes with a nice network. And contrast that with the VC approach, which, as one founder put it, sounds more like a eulogy.

Hey, you're undercapitalized, you'll get crushed, this won't work, all the best. But still, the charm does wear off after a point. Several founders, Noha spoke to, said it's great in the beginning. But as time goes on, challenges do start to crop up. A second founder added that family offices investing in series A or B are like regular institutional investors, but those doing angel rounds are a hassle. They offer less equity, yet demand big investor rights. Family offices, according to them,

start acting like VCs when they think they've seen enough pitch decks to know the difference between AI-powered logistics and logistics-powered AI. That's when they go from passive capital to active conviction. They've seen things, they've done things, and occasionally they'll tell you about them over dinner after backing your CVE. Meanwhile, VC saw some rebound. in 2024, but exits remain elusive. M&A is weak, IPOs are rare, and patience, well, it's running thin.

Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the web. website. Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma, and edited by Rajiv Sien.