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Every big technology outcome leaves behind a new pool of private wealth. Founders, early employees and investors who did well in Palo Alto's companies often hire professionals to manage what they made. Some set up a family office: a private company whose only job is to look after the money and affairs of one family or a few. Many of those offices invest in startups, which puts them in the same rooms as venture firms on Sand Hill Road.
This page explains what family offices are, how they differ from venture capital and what founders should know before taking their money. It is general information, not investment, legal or tax advice. In keeping with how most family offices operate, we do not name private families' offices here.
What a family office is
A family office is a business that serves a wealthy family the way a small investment firm and a back office would. Its staff can include investment professionals, accountants, lawyers and assistants. What it does depends on the family. Common jobs include:
- Managing investments across stocks, bonds, real estate, private equity and venture capital.
- Coordinating taxes, trusts and estate planning with outside advisers.
- Running the family's philanthropy or foundation.
- Paying bills, handling insurance and overseeing property.
- Preparing the next generation to manage the family's wealth.
Single-family and multi-family offices
A single-family office works for one family only. It is expensive to run, so it tends to make sense only for very large fortunes. A multi-family office serves several unrelated families and spreads the cost among them. Many multi-family offices look a lot like wealth management firms. Some began as one family's office before taking on others.
The legal basics
In the United States, firms that manage other people's money usually have to register as investment advisers. The Dodd-Frank Act of 2010 directed the Securities and Exchange Commission to carve out family offices. In June 2011 the SEC adopted the Family Office Rule, Rule 202(a)(11)(G)-1 under the Investment Advisers Act. In general terms, an office that serves only family clients, is owned and controlled by family members and does not hold itself out to the public as an adviser falls outside the definition of investment adviser. That is why single-family offices publish little and file few public reports.
Multi-family offices that manage money for unrelated families generally do not meet the rule and register as advisers instead. Family offices are still subject to securities laws on trading and disclosure. The collapse of Archegos Capital Management, a family office, in March 2021 caused billions of dollars of losses at major banks and led to calls for closer oversight of large family offices.
How family offices differ from venture firms
| Venture capital firm | Family office | |
|---|---|---|
| Whose money | Outside limited partners such as pensions and endowments | The family's own wealth |
| Time horizon | Funds usually run about ten years | Often no fixed end date |
| Fees | Management fee and carried interest | No fees to outside investors; staff are paid by the family |
| Decision makers | Partners, often through an investment committee | Family members and the office's staff, often informally |
| Reporting | Regular reports to limited partners | Reports only to the family |
| Startup role | Often leads rounds and takes board seats | Often follows another lead, though some lead |
The biggest difference is accountability. A venture partner answers to limited partners who expect returns within a fund's life. A family office answers to the family, whose goals might include preserving wealth, supporting causes or backing friends' companies as much as maximizing returns. That flexibility cuts both ways. A family office can wait patiently for a slow company to mature. It can also stop investing suddenly if the family changes priorities or a key person leaves.
Some venture firms have borrowed ideas from family offices. Sequoia Capital announced in October 2021 that it would move its US and European business to an evergreen structure without a fixed fund life, which lets it hold companies longer.
How family offices invest in startups
Family offices reach startups in several ways:
- As limited partners. Many put money into venture funds, especially seed and emerging funds that large institutions skip. Our seed funds guide explains how those funds work.
- Direct investments. Some write checks into startups, much like angel investors but often larger.
- Co-investments. An office that backs a venture fund may get the right to invest more alongside the fund in particular companies.
- Late-stage and secondary deals. Some buy shares in mature private companies, including from employees. Our secondaries guide covers how those sales work.
Experienced offices may employ former venture investors and behave much like a firm. Others rely on the founder's personal network and invest only occasionally. Ask early how a particular office decides and who signs off.
What founders should ask
- Who decides? Is there an investment team, or does the family principal make every call?
- Will you invest again? Some offices reserve money for later rounds. Others make one investment and stop.
- Do you lead? Many family offices prefer a known venture firm to set terms. That is normal, but it changes how you run your round.
- What do you expect? Board seats, information rights and how often you will update them should be agreed in writing.
- What else matters to you? Some offices care about impact, local roots or a particular industry. Understanding that early avoids surprises.
The documents should be the same as with any investor. A SAFE or priced round works the same whoever signs it. Our term sheet basics explain the common terms and the glossary defines the jargon.
Spotting fake family offices
Scammers sometimes pose as family offices to target founders who need money. Warning signs include requests for an upfront "due diligence fee," pressure to sign quickly, vague answers about whose money it is and email addresses that do not match a real organization. Legitimate investors do not charge founders to invest. Ask for references from companies the office has backed and confirm them yourself. If something feels off, walk away.
Family offices around Palo Alto
The Peninsula has a high concentration of family offices because it has created so much private wealth, from the Hewlett-Packard era through the dot-com years to today's AI companies. Most keep a low profile. Many work from ordinary office buildings in Palo Alto, Menlo Park and Woodside without any sign on the door. Founders usually meet them through other investors, startup lawyers, bankers or their own boards rather than through public listings. Women and first-time fund managers often raise early money from family offices too; our women-led funds guide touches on how emerging funds raise their first capital.
Good to know
- Family offices value privacy. Respect it and ask for introductions through people they know.
- Do not assume a family office is a soft touch. Many are as rigorous as any venture firm.
- Talk to a startup lawyer before accepting money from any new investor.
Frequently asked questions
What is a family office?
A family office is a private company that manages the money and financial affairs of one wealthy family or a small group of families. It may handle investments, taxes, estate planning, philanthropy and day-to-day bills. Some invest directly in startups or put money into venture funds.
How is a family office different from a venture capital firm?
A venture firm invests money raised from outside limited partners, usually through funds with a life of about ten years. It also charges fees. A family office invests the family's own money with no outside investors and no fixed end date. That can make it more patient, but its priorities can also change quickly with the family's needs.
Do family offices have to register with the SEC?
A single-family office that meets the SEC's Family Office Rule, adopted in 2011, is excluded from the definition of investment adviser and does not register. Multi-family offices that manage money for unrelated families usually register as investment advisers. Ask a securities lawyer how the rules apply in a specific case.
Should a startup take money from a family office?
It can work well when the office has startup experience and understands the risks. Founders should ask how decisions are made, whether the office will invest in later rounds and who will be the contact. Have a lawyer review the terms just as you would with any investor.
How can I tell if a family office is legitimate?
A real investor will not ask you to pay a fee before investing. Look up the office's track record, ask other founders it has backed and verify its people. Be wary of anyone who claims to represent a family office but avoids naming its principals or past investments.