Many family offices suffer from 'group think' investing, says VC leader Tim Draper

Published Thu, Aug 17 202312:02 PM EDT

Even as family offices explode in size and number, they're increasingly prone to "group think" when it comes to investing, according to Tim Draper, a leader in early-stage venture capital. "There is a little bit of group think that happens in family offices," said Draper, founder of Draper Associates . "One leading family office says 'we're going to do middle market buyouts' and then they all do it. The market's then flooded and it doesn't end up well for them." Family offices in recent years have quickly piled into certain asset classes, like private credit, direct deals and secondary private-equity, as they follow larger family offices. Family offices, with an estimated $6 trillion in assets globally, can quickly fuel growth and even mini-bubbles in specific asset classes. The private-credit market, for instance, now at $1.4 trillion, is expected to reach $2.3 trillion by 2027, according to Preqin , due in part to investments from family offices. Preservation over growth At the same time, Draper said family offices are too often focused on capital preservation rather than growth. "Family offices are full of people who are talking about preservation of capital," he said. "I think tjat's a mistake. If you really want to build your family office, you keep investing. You don't try to preserve anything. Anything 'preserved' ends up dying off. " Draper, a third-generation Silicon Valley venture capital investor, is famous for his early investments in Space-X, Tesla, Skype, Coinbase and, more controversially, Theranos. A prominent bitcoin enthusiast, he has also passed along investing lessons to his children, Billy, Jesse, and Adam, who also run funds or invest. Jesse Draper, founding partner of Halogen Ventures, said her dad and grandfather taught her to "always think bigger" when it comes to spotting investment opportunities and helping them grow. "When I'm looking at an early stage company I'm not thinking about just what that one product is accomplishing," she said. "I'm thinking about the entire 10- to 20-year roadmap and how big it can get. Is it a billion dollar opportunity?" Tim Draper said he has also learned from his own kids, who have each created their own investment themes. Jesse Draper's Halogen Ventures invests around "the future of family," with investments in companies like Babylist, which sells baby products and registries, as well as companies in child care and family financial planning. She said that in addition to funding the future, entrepreneurs are also about "solving society's biggest problems," and "childcare has been broken since the dark ages." While the Draper family doesn't have a formal family office itself, it meets about once a quarter to go over broad financials, investing decisions and progress. Tim said they speak far more regularly on the phone to compare notes and lessons from the front lines of venture capital. "We're all on phone all the time, talking about deals, what we saw, how we made a difficult decision and best practices," he said. "In some ways we are are a family office, its just a decentralized family office."