When significant wealth is generated, whether from a company sale, a major asset liquidation, or a successful IPO, a common question arises for newly liquid families: “What’s next for our capital?” For many family offices, the immediate answer often leans towards direct investments in startups, bypassing traditional funds. This strategy, while seemingly appealing due to the promise of larger ownership stakes, reduced fees, and greater control, often carries hidden risks that can outweigh the perceived rewards.
“After an inheritance or a significant liquidity event, families frequently make investments that exceed their actual risk tolerance,” warns Christopher Aw, a board director at Operation Snow Leopard and a trusted advisor to numerous family offices. “I’ve witnessed substantial wealth disappear due to poorly executed direct deals. It’s easy to assume you can absorb the risk simply because you have a lot of capital, but these missteps accumulate quickly.”
While some family offices achieve success with direct investing, many more underestimate the substantial time, specialized expertise, and rigorous due diligence required. Christopher adds, “Some family offices now mistakenly believe Venture Capital (VC) is a poor investment. In reality, it remains one of the best asset classes for high returns – they just didn’t approach it correctly.”
The Illusion of Control in Direct Deals
Direct deals can create a powerful illusion of proximity and influence for family offices. However, unlike institutional VCs, most family offices lack the operational muscle, deep domain expertise, or extensive networks necessary to properly evaluate early-stage startups. Due diligence often relies on intuition or informal connections rather than robust, structured frameworks.
“Some families believe they possess sufficient knowledge of a sector and neglect to bring in external experts, which can be extremely risky,” Christopher explains. “By definition, deep tech is cutting-edge, making it challenging even for seasoned financial professionals to truly grasp its complexities.”
This overconfidence, particularly in the flush period following a liquidity event, can be dangerous. Many families, awash with new capital, plunge into unfamiliar sectors with limited external support. Even more concerning, they tend to over-concentrate their investments, placing large bets on a handful of deals instead of building a diversified portfolio.
The Compelling Case for Indirect Investing Through VC Funds
So, what’s the more prudent alternative for family offices? The most practical approach, according to Christopher, is indirect investing through established venture capital funds, which he terms building a “large passive portfolio.” These funds are managed by seasoned professionals adept at risk management, portfolio structuring, and securing access to high-potential deals.
“The optimal strategy for family offices is to build a large passive portfolio,” Christopher asserts. “Direct deals might appear to be passive investments, but they are far from it – they demand significant active involvement. Very few individuals execute this well.”
The trend towards indirect investment is already evident in the MENA region. Over 83% of family offices in the Middle East now invest in private equity, with a growing number increasing their allocations to VC in recent years. Approximately 58% of MENA family offices are active in venture capital. The region boasts over 124 single-family offices, collectively deploying more than $383 billion across over 7,200 deals.
This doesn’t mean family offices should completely shy away from direct investing. However, the approach must be highly strategic. Investing selectively, ideally alongside a trusted VC partner or as a co-investor, allows families to leverage expert insights while retaining a degree of ownership and control.
Learning from Experience: Discipline and Humility are Key
In the Middle East, where family-run businesses form the bedrock of the private sector, the temptation for direct investment is particularly strong. A relationship-driven business culture often reinforces the instinct to back individuals you know. However, as several families have learned through costly experience, familiarity does not guarantee success.
“I know families who lost millions on direct deals that sounded fantastic at social gatherings,” Christopher recounts. “It’s not solely about having capital – it’s about applying discipline, implementing structured processes, and maintaining humility.”
For fund managers seeking Limited Partners (LPs) in the MENA region, this presents both a challenge and a significant opportunity. While many families remain skeptical of traditional funding structures due to past mistakes, an increasing number are recognizing the value of partnering with experienced managers, especially in complex sectors like fintech, AI, and cross-border logistics.
Notable investments led by MENA-based family offices underscore the region’s ambition and scale. Examples include Mayhoola’s €700 million acquisition of Valentino in 2012 (partially sold to Kering for €1.87 billion in 2023) and Al Nowais Investments’ $1 billion commitment to renewable energy in Egypt.
While the fervor around private credit is beginning to temper, it still holds appeal, particularly for family offices seeking stable returns in the 10–12% range. Private credit offers a more flexible option compared to private equity, which may yield 15–17% but comes with greater illiquidity. This shift reflects a broader trend: as family offices expand and evolve, more individuals are branding themselves as family office representatives, signaling their growing influence in shaping capital markets.
“Ultimately, the families who succeed are those who ask the tough questions, surround themselves with genuine experts, and remain honest about what they don’t know,” Christopher concludes.
