Family Offices: AI Redefines Private Investment

Family Offices Turn to AI

For several decades, investments in promising startups primarily flowed through traditional venture capital funds. However, the meteoric rise of artificial intelligence (AI) has sparked a genuine frenzy of investments, prompting many family offices and private capital to bypass these intermediaries and invest directly in the equity of companies. Mitch Stein, founder of Arena Private Wealth, explained in a recent episode of Equity that companies are staying private longer, with fewer initial public offerings than before. According to him, a lot of money is made well before companies go public, and currently, private markets are dominated by numerous AI-related companies. "Family offices that invest directly in AI startups are right to do so," he stated.

A Strategic Investment in Positron

Arena Private Wealth recently co-led a $230 million funding round in the AI chip startup Positron, an investment that secured a board seat for the Midwest company. Stein explained that this is part of a deliberate shift towards a less passive approach and more active participation in capital markets. The urgency among family offices today is palpable. Ari Schottenstein, head of alternative investments at Arena, stated that the global AI infrastructure is being built now, and it is crucial to enter early to have the opportunity for more primary investments and truly build a portfolio; otherwise, the risk is missing these opportunities and making random bets.

Stein was even more direct, asserting that the biggest risk is not having exposure to AI, rather than worrying about what might happen to AI investments. The numbers reflect this sentiment. In February, family offices made 41 direct investments in startups, almost all related to AI. Among them are prestigious names like Emerson Collective of Laurene Powell Jobs in World Labs, Azim Premji's family office in Runway, and Eric Schmidt's Hillspire in Goodfire.

AI, a Strategic Priority for Family Offices

According to a study by BNY Wealth, 83% of family offices consider AI to be a major strategic priority for the next five years, and more than half have exposure to AI through their investments. Some go even further. An increasing number of family offices are incubating their own AI companies, investing the first millions, taking operational roles, and deploying the same entrepreneurial instincts that built their wealth, according to Schottenstein. Jeff Bezos's decision to become CEO of his own robotics company, which raised $6.2 billion last year at a valuation of nearly $30 billion, is an emblematic example of this model.

On a smaller scale, Stein cited Tyson Tuttle, an Austin-based angel investor and former CEO of Silicon Labs, who agreed to be acquired by Texas Instruments for $7.5 billion. Tuttle co-founded Circuit, a startup using AI to improve manufacturing and distribution, raising a $30 million funding round, of which $5 million came from his own family office.

A Selective and Rigorous Approach

However, not everyone has come to the table having founded a company. The Arena team comes from institutional finance, and they assert that rigorous due diligence is what enables them to lead funding rounds. "We take our time, we are very slow to say ‘yes,’ we often say ‘no,’" Schottenstein said. "We definitely invest in the sources, experts, and people necessary to ensure that a company is what it claims to be and can do what it says it will do."

For the deal with Positron, this meant working with third-party experts to validate the technology, but also reading the capitalization table as a signal: "If Arm enters into a deal, we would like to think that your technology is real," Schottenstein stated. Arena also knew that Oracle was a major client, making Positron one of the only AI chips deployed in a hyperscaler other than Nvidia or AMD.

This selectivity shapes how Arena participates once it is engaged. Unlike a typical VC that spreads risk across a portfolio, Arena makes a small number of direct deals each year, which completely changes the stakes. When they commit, they invest fully; Positron is their sole investment in an AI inference chip. "When we participate in direct deals on a single asset and only do a small number each year, our stakes are incredibly high," Stein said. "We do not manage returns at the portfolio level. We do not model failure on a single asset transaction. We take considerable risk with our clients' concentrated capital. We also take reputational risk as a firm. There is an alchemy in that which founders appreciate."