Wealth Management and Investing in Innovation

DC Finance, founded 15 years ago, is a leader in the field of conferences for family offices and high net worth individuals. At almost any event held by the firm, from Israel to the U.K. to the U.S., the opening session features a high tech and innovation panel.

In April 2016, the company established a conference dedicated to tech and innovation. Why? Because technology and innovation are vibrant and exciting genres, and they become even more exciting when they meet high net worth families who, for the first time, are considering investing in these fields.

Eighty-five percent of the world’s wealth is not tech oriented. It was not made in the technology sector nor do the people holding this wealth invest heavily in technology or innovation. But the tech world provides endless opportunities for growth. The wealth of this audience is very traditional and was appropriated from various sectors. But if this audience starts to tap into the tech market, investment-wise, the possibilities are endless. It is beginning to happen more and more every day for a variety of reasons.

The first of these reasons being that the up-and-coming generations (next gens) of these families have a better understanding of the importance of technology and innovation. Not only that, but they also see the profit potential and appreciate that investing in these fields can be exceptionally beneficial.

Secondly, the next gens of these families want to leave a mark. This is true for non-tech related investments as well. These next gens are willing to invest in genres other than the core business to expand dividends and leave a legacy.

Third, passion investments — a psychological financial term that describes an investment that may not make much economic sense but excites the investor (like paintings or Broadway shows) — are commonly made in the tech field. Investors likely to make passion investments in the tech genre are excited about the adventure, especially when there is a passionate entrepreneur involved.

The last reason is impact investing, which refers to investments made into companies, organizations and funds with the intention to generate a measurable, beneficial social or environmental influence alongside a financial return. Often these are made by next gens in the tech and innovation fields. Everything in the “life sciences” category is for high net worth investors an impact investment and, as such, they allocate capital for it. Generally, the life sciences field does not raise capital easily, especially pharmaceutical companies with perceived high risk and long investment terms. But within the high net worth community, the life sciences category offers the “positive element,” allowing them to invest in curing disease, helping the environment and so on.

While all of these reasons for investing in tech and innovation exist, it’s unlikely that we will see investors making their way to Silicon Valley to find investments. However, if the right companies approach the investors, it is likely the investors will at the very least be interested.
Many companies are seeking to bypass the venture capitalists (VCs) that would many times invest at harsh terms. Other companies are harder for VCs to digest, as those companies are hard to categorize or the VCs lack the analysis tools necessary.

Not every company is a good fit to less experienced investors; this is why DC Finance prefers to showcase to clients tech companies from easy-to-understand sectors, such as the Internet, biotech, cyber tech, homeland security and innovation in general.

Unlike traditional institutional investors, private wealth and single-family offices are uniquely positioned to invest in tech. This is in part due to their freedom of cross-sector investments, company stages, growth perspective and market cap, as well as no restrictive holding periods due to a fund’s timeline or structure. They are more open to taking risks than funds. Some family offices see this as an exciting adventure — passion investing. With flexibility, patience and resources, private wealth comprises the ideal long-term investor base.

It is wise for tech companies to continue to seek out these investors, but keep in mind the number of these offices with other sectors who would love to allow clients to diversify their investments, especially with the second and third generations who are keen to not only leave their marks on the family business, but also to diversify where the future lies.