Why Raising From Family Offices Can Be Riskier Than You Think

Family offices have quietly become one of the biggest forces in startup funding, and one of the least predictable.

According to PwC, family offices are now responsible for 31% of all startup investments worldwide. It's easy to see why founders can be drawn to them: large checks, quick decisions, and less red tape than traditional VCs.

But there's a catch, and it's a big one.

Not all capital is created equal

Unlike venture funds, family offices don't invest in startups as a core business. They do it as part of a broader wealth management strategy.

That means their process is less predictable. There's often no investment committee rhythm, no clear thesis, and no structured follow-on strategy. One month, they may be backing an AI startup; the next, they're buying vineyards in Tuscany. Non-market terms can also be pervasive in contracts. 

For founders, that lack of a system can be destabilizing. Sure, you may close a round fast, but when the next one comes, the same investor could be nowhere to be found for reasons beyond your control — for example, because their public market portfolio is down.

The “no write-offs” problem

VCs are built on a portfolio model. They know most bets will fail, and a few winners will return the fund — and then some. 

Family offices, on the other hand, frequently operate under a "no write-offs" philosophy, in which every investment must somehow pay off. That sounds good at first, until you realize what it means in practice. They may try to "save" struggling companies, pushing founders to pivot endlessly or merge into side projects just to protect their capital.

This is what some investors call a "toxic lifeline," money that keeps you alive but prevents you from truly growing. 

Instead of failing fast and rebuilding stronger, founders end up stuck for years in slow-motion decline, burning time and equity, and walking away with little after liquidation preferences stack up.

Professional investors bring more than money

Many family offices are new to venture investing, because they are generalists by design. VC is only a small part of their portfolio, with limited experience in product cycles, talent risk, or downstream capital markets. Even among the ultra-wealthy, disparities in governance and professionalism are vast, as Reuters recently reported.

That gap matters. VC funds have dedicated teams that are 100% focused on their craft. Beyond writing checks, a well-run VC establishes a comprehensive system, encompassing reporting cadence, network access, investor syndicates, and governance discipline.

That ecosystem can make the difference between being one more line item in someone's portfolio and being a company that gets to Series C.

The smart approach: Mix both, but let VCs lead

Family offices can be excellent strategic partners, especially if they bring industry knowledge, long-term patience, or global networks. But they shouldn't anchor your round.

The best structure is one where a professional VC leads, sets terms, and defines reporting expectations. In this round, a family office may come in alongside, amplifying rather than taking the steering wheel. Because while family offices can open doors, the wrong one can quietly close them too. Raising solely from a family office can also send a bad signal to next-round investors, making them question why you weren't able to secure venture funding in the first place.

In a world where family offices control trillions and their startup bets are rising fast, founders must remember that who funds you shapes how you grow. In this regard, fast capital isn't always smart capital, and what looks safe on paper may be the most complicated risk of all. 

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.