Report

Should Family Offices Make Direct Investments?

A Review of Direct Investment Venture Math and Risk Profiles

Explore how portfolio construction, concentration risk, and institutional capabilities can shape direct venture investment decisions for family offices.

Connecting Family Office Capital with Venture Expertise

Foreword by Ted Wilson, Managing Director, Venture Banking

Family offices have more ways than ever to participate in private innovation markets, from venture funds and direct investments to later-stage private opportunities. This report brings together perspectives from across Stifel to examine how portfolio construction, concentration risk, and institutional capabilities can shape those decisions.

Probability of Missing 10x+ Outcomes, Assuming 6% Hit Rate

The Portfolio Construction Challenge

For family offices, access to a direct venture opportunity is only one part of the investment decision. This report examines how the outlier-driven nature of venture returns, portfolio size, and concentration risk can shape direct investment outcomes.

Key topics include:

Why a small number of outlier companies drive venture returns
How portfolio size can affect the probability of capturing those outcomes
Where direct investments may introduce concentration risk within a broader portfolio
When direct investing may make sense for family offices

Mean vs. median Portfolio Outcomes Under a Skewed Venture Return Distribution

The Math Behind the Risk

Probability analysis and portfolio simulations illustrate how portfolio size, concentration, and diversification can influence venture outcomes:

73% probability of missing a 10x+ outcome with a five-company direct portfolio
More than 50% probability of missing a 10x+ outcome with ten direct investments
6% of investments are assumed to generate 10x+ outcomes in the illustrative model
As portfolios become more diversified, median outcomes improve and the probability of capital loss declines.

Built for the Venture Ecosystem

Stifel Venture & Fund Banking provides specialized banking and lending solutions for funds, investment vehicles, and venture-backed companies across the innovation ecosystem.

Specialized banking solutions for private investment funds
Venture debt and growth capital solutions for venture-backed companies
Connectivity across Stifel’s broader Wealth Management and Investment Banking capabilities

Wealth management and Investment Banking services provided by Stifel, Nicolaus & Company, Incorporated, Member NYSE and SIPC