Family office start-up bets ease as capital shifts to micro VCs

Direct startup investments by family offices moderated in 2025, even as overall interest in early-stage venture opportunities remained intact, with a growing share of capital being channelled through micro venture capital (VC) funds instead of direct bets.

Family offices invested just over $1 billion across 61 deals in start-ups less than 10 years old this year, according to data from Venture Intelligence. This marked a decline from $1.3 billion invested across 78 deals in 2024. The softer headline numbers reflect not a retreat from venture investing, but a recalibration of how family offices access early-stage risk.

Slowdown in direct investments

The slowdown in direct investments has been driven by a reassessment of the operational and governance challenges involved in backing startups independently. Many families that actively wrote early-stage cheques over the past few years have found portfolio construction, follow-on funding, dilution management and governance oversight more complex and time-consuming than anticipated.

As a result, capital that would earlier have gone into direct start-up deals is increasingly being allocated to professionally managed micro VC and early-stage funds. This shift is reflected in the rapid expansion of the micro VC ecosystem. Data from the Indian Venture and Alternate Capital Association shows that the number of active micro VC funds has risen sharply from about 65 in 2021 to more than 250 in 2025.

These funds have emerged as a preferred vehicle for investors seeking early-stage exposure without the execution risks of direct investing. Micro VC funds typically manage smaller pools of capital, often under $50 million, and focus on pre-seed to pre-Series A investments. They write relatively small cheques but back a larger number of companies, spreading risk across a broader portfolio.

Their hands-on involvement at the formative stages of a startup, spanning product development, hiring and go-to-market strategy, helps bridge a gap where institutional capital is often limited.

Traditional VC funds, by contrast, operate much larger funds, deploy larger cheques and usually enter once product-market fit is more visible. For family offices, micro VCs offer a middle path: access to early-stage opportunities with professional screening, portfolio management and governance structures, while avoiding concentrated exposure to individual startup outcomes.

“Direct family office activity has contracted because many families have realised that early-stage, direct investing is harder than it looks,” Anirudh Damani, managing partner at Artha Venture Fund, the venture capital arm of Artha India Holdings, told Fe. While Artha closed close to 20 investment rounds this year, Damani said a broader structural shift was underway, with families preferring institutional platforms to deploy early-stage capital.

What’s driving this reallocation?

The reallocation has also been influenced by competing opportunities across asset classes. Over the past year, pre-IPO and listed equity markets attracted a larger share of family office attention, tempering direct venture deployments. Damani expects deal activity to pick up again in 2026, albeit in a more selective manner, as public market returns normalise and early-stage valuations correct. “The risk-reward equation at the seed and early-growth stage becomes more compelling again,” he said.

Longer-term, private equity and venture capital remain a core allocation for family offices. An EY report published earlier this year found that more than half of surveyed family offices have allocated up to 10% of their portfolios to PE and VC, while about a quarter have allocations exceeding 20%. With the number of family offices rising from about 45 in 2018 to nearly 300 by 2024, industry participants expect capital flows into structured early-stage vehicles to deepen further.