Family offices are investing directly in AI startups, skipping VC funds

In short: Wealthy families are increasingly investing straight into AI startups, instead of going through venture capital funds.

What's going on

For a long time, many people who wanted to invest in fast growing private startups did it through venture capital (VC) firms. VC firms are professional investors who pool money and pick startups.

Now, more family offices are trying to get direct ownership in AI startups. A family office is a private team that manages investments for a very wealthy family. TechCrunch reports that this shift is partly happening because companies are staying private longer and there are fewer initial public offerings, meaning fewer chances for regular investors to buy shares on the stock market.

Arena Private Wealth, an investment advisory firm for high net worth individuals, says it has seen this urgency up close. Arena recently co-led a $230 million funding round for Positron, an AI chip startup, and received a board seat. Think of a board seat like getting a chair at the decision table, not just writing a check.

The broader numbers point the same way. TechCrunch cited CNBC reporting that family offices made 41 direct startup investments in February, and nearly all were tied to AI. BNY Wealth research also found that 83% of family offices say AI is a top priority over the next five years, and more than half already have some AI investment exposure.

What to watch

Direct investing can mean bigger gains, but also bigger losses, because family offices may make fewer bets and put more money into each one. Watch whether this pushes startup prices higher, and whether more wealthy investors take hands-on roles, including starting and funding their own AI companies.

Source: TechCrunch AI