Why Family Offices Ditch Venture Capitalists for Direct Deals?
- Jasaro.in
- May 13
- 5 min read
If you've ever sat across from a multi-generational business family over lunch, you know they don’t like being told what to do with their money. And when it comes to investing in startups, they’ve started asking a fair question, "Why pay someone else to do what we can now do ourselves?"
The Shift from Venture Capitalists to Family Offices
In the last decade, India’s venture capital (VC) ecosystem has exploded, but not without growing pains. Alongside that, the rise of family offices has quietly shifted the balance of power. Once content with writing checks to VCs and waiting patiently, family offices are now getting into the cap table themselves. They're doing deals, hiring teams, and building long-term investment platforms.
The Results?
More control, more customization, and, perhaps most importantly, no management fees. This evolution hasn’t gone unnoticed, the VCs are nervous, and here’s why.
Fading of the Middleman
For a long time, venture capitalists (VCs) were the gatekeepers of innovation funding. Entrepreneurs pitched, VCs picked winners, and limited partners (LPs), including family offices, hoped for a 10X payday somewhere down the line. But reality hasn’t matched the promise. In India, venture funds boast paper returns of 1.5X, where as the actual cash returned (DPI, Distributed to Paid-In) often lands closer to 0.25X, according to CEPRES.
That disconnect has families asking hard questions. “If the holding period has to be 7+ years, I’m better off understanding the deal and investing myself,” says Sanket Bihani, formerly with Vijay Kedia’s office and now investing directly at the Bihani Group.
Sanket’s not alone. India had about 45 family offices in 2018, now over 300. Many are no longer passive pools of generational wealth, they’re staffed up with CIOs, analysts, and a growing impatience against low-return funds that charge high fees.
Fees, Frustration, and Flexibility
Venture capital’s beloved “2-and-20” model i.e. VCs collect 2% annually in management fees and 20% of the upside (carry). This is the irritant? These fees get paid whether or not the fund delivers meaningful returns to LPs.
According to Saumya Jain at Pratithi Investments, a decent VC fund should return 22-23% net IRR after all fees and expenses, but most fall short. And it’s not just about fees. It’s about lock-ups. Traditional funds tie up capital for 8-10 years, leaving LPs with limited say and even less liquidity. That doesn’t go well with operators who have built their businesses by calling their own shots. Call it ego or experience.
By contrast, direct investing offers agility. Family offices like Manyavar’s now split their portfolios toward direct plays, even in unlisted deals.
“Why would you want to invest your money and let it be there for 10 years in hopes that you'll get 10X?” - Devashish Khanna, CIO, Capri Global’s Family Office.
The Autonomy Advantage
When a family office invests directly, they aren't just writing a check. They're stepping into the boardroom. They negotiate terms, track performance, and sometimes exit on their own timeline. Capri Global flipped its portfolio from 15% direct to 85% in just three years. Why? Control and higher return targets. While VCs aim for 15-18% IRRs, Capri targets 25-30% from its direct investments.
And if you think family offices lack sophistication, think again. Pratithi Investments manages a ₹2,000 crore portfolio with a lean five-member team. Manyavar’s office hires Big Four accountants, top-tier lawyers, and seasoned analysts. In structure and execution, these aren’t legacy holdovers, they’re agile, hybrid VCs with their own skin in the game.
The Founder's Perspective
What about the startups themselves? After all, capital is only half the equation. Founders increasingly appreciate the softer, and smarter, side of family capital. When consumer brand Bira 91 sought funding, their investor list included heavyweights like Marico and Pidilite. These aren’t just checks, they’re strategic introductions, retail distribution, and even operational advice. Family offices bring more than money; they bring context.
They also bring empathy. Many come from entrepreneurial roots, understand business cycles, and are more forgiving of early missteps. “They were a lot more keen to back me as a founder and take a call,” one founder noted, “even though the other guys were richer or doing things differently.”
But there are downsides. Family offices investing in early rounds can be slow to move. They demand institutional rights without writing institutional-sized checks. And while they’re patient, that doesn’t mean they’re passive. They’re active, engaged, and expect results, just on their own terms.
A Structural Shift in Power
Let’s not be naive: not every family office is equipped to do this well. As one VC scoffed, “Investing by yourself is the stupidest idea you could have.” But arrogance has consequences. Especially when it’s directed at the people with the capital.
The best-run family offices today are not just dabbling. They are becoming institutions. Premji Invest, once a backer of VC funds, now runs a full-stack investment shop with 50+ professionals and a monthly deal cadence. Their portfolio includes names like Lenskart, iD Fresh, and Manipal. This is not casual investing, it’s strategic deployment.
The traditional LP-GP model is being questioned, if not outright challenged. As funds balloon in size, their ability to generate alpha shrinks. Meanwhile, direct investors are keeping teams small, costs low, and performance high. Legacy capital is now meeting the startup ecosystem on equal footing.
When the Money Becomes the Manager
And that brings us to the heart of the shift. For decades, family offices gave their money to managers. Now, they want to be the managers. They believe they are the jockeys, not just the owners of the horse. They want the data rooms, the board seats, the term sheets. It’s not about ego. It’s about evolution. If the venture model isn’t delivering, families will build their own.
Take the Vijay Kedia family office. In 2015, they backed a startup called TAC Infosec. No VC. No structured fund. Just conviction. That ₹3 crore bet is now worth over ₹500 crore, a 2,000X return. Try doing that through a fund and you might still be waiting for your carry waterfall to kick in.
Conclusion: The New Power Brokers
Family offices are not trying to replace venture capital, they’re redefining their own roles in it. They’re more involved, more informed, and more inclined to back people over pitch decks. They want alignment, agility, and access, and willing to build the infrastructure to get it.
This isn’t just a passing trend, it’s a power shift. As exits remain elusive and public markets continue to tempt with liquidity and transparency, family capital is getting smarter, faster, and more strategic.
Venture capital isn’t going anywhere. But it’s no longer the only game in town.
Sources: The Ken, Inc42, Medium, Withers Worldwide, Framexec.
Found this article insightful; please help others to discover it by liking, sharing, and commenting below.
Comments