The AI gold rush is pulling private wealth into riskier, earlier bets

The surge in artificial intelligence is prompting a significant shift in investment strategies among high-net-worth individuals. Traditionally, investing in a promising startup required going through top venture capital firms. However, with the current AI boom, family offices are increasingly opting to bypass these intermediaries and invest directly in companies. Mitch Stein, founder of Arena Private Wealth, noted in a recent discussion with TechCrunch that companies are remaining private for longer periods, resulting in fewer initial public offerings than in the past. "A lot of money is being made well before companies go public, and right now the private markets are dominated by a lot of these AI names," he explained, emphasizing the increasing trend of family offices directly allocating funds to AI startups. Arena Private Wealth recently played a pivotal role in a $230 million investment round for AI chip firm Positron, securing a board seat in the process. This move reflects a conscious shift towards being proactive participants in the capital markets rather than passive investors. The urgency felt by family offices is palpable; they recognize that the foundational infrastructure for AI is being established now. Ari Schottenstein, the head of alternatives at Arena, argued that getting involved at this stage is crucial. He stated, "You’re either going to get in early and have the chance to build a portfolio, or you’re going to miss out and be left making random bets." Stein further underscored this sentiment by asserting that the primary risk lies in not having any exposure to AI. Data from February indicates that family offices engaged in 41 direct investments, predominantly within the AI sector. Notable figures in this movement include Laurene Powell Jobs, Azim Premji, and Eric Schmidt, all of whom have made substantial investments in various AI ventures. Research from BNY Wealth reveals that 83% of family offices consider AI a strategic priority for the next five years, with over half already invested in this domain. Furthermore, an increasing number of these offices are taking the initiative to incubate their own AI startups, providing seed funding and actively participating in operations. This hands-on approach mirrors the entrepreneurial spirit that initially helped them build their wealth. A striking example is Jeff Bezos, who took the helm of a robotics company that raised $6.2 billion last year. On a smaller scale, Tyson Tuttle, an angel investor and former CEO of Silicon Labs, co-founded Circuit, which focuses on AI-driven improvements in manufacturing and distribution, raising $30 million including $5 million from his family office. While many investors are seasoned entrepreneurs, teams like Arena's, which comprises experts from institutional finance, emphasize rigorous due diligence as crucial to their investment strategy. Schottenstein remarked, "We take our time; we’re a very slow 'yes,' and we say 'no' a lot." This thorough approach extends to their recent investment in Positron, where they collaborated with external experts to validate the technology and assess the cap table as a critical indicator of the company's credibility. Arena's focus on a limited number of direct investments each year sets them apart from traditional VCs. By concentrating their efforts on few but significant deals, they accept high stakes and the associated reputational risks. "When we participate in single asset direct deals, our stakes are incredibly high," Stein concluded, highlighting the alignment between their investment philosophy and the expectations of founders.