Eighty-three corporate venturing funds from either a sole or a predominant corporate backer have been raised this year – a record.
The top 10 funds with a sole commitment by a corporation raised more than $8bn, according to Global Corporate Venturing (see table).
The largest funds, by China-based media group Tencent and US-based gas provider Chesapeake, raised $1.5bn and $1bn respectively.
However, an aggregate figure for the total can only be estimated at $12bn – based on an average of $150m per fund, seen by academics as the optimum size for venture capital vehicles – as a quarter of the launches declined to reveal the size of their programmes.
The figures also exclude a number of accelerators, among them those of US technology companies IBM and Citrix, set up to mentor and back start-ups, as well as funds where multiple corporations are broadly equal limited partners (LPs – investors) and have a role in their investment processes, such as the $300m Energy Technology Ventures fund backed by General Electric, ConocoPhillips and NRG Energy or the €30m ($40m) Ecomobilite Ventures set up by French companies SNCF, Orange, Total and TSA Peugot-Citroen.
The funds were raised across geographies and sectors.
The US and Asia were predominant, with a number of European companies starting corporate venturing funds to invest in those regions, including car maker BMW’s $100m iVentures and consumer goods maker LVMH’s $640m L Capital Asia fund, in the wake of the economic slowdown in the eurozone.
A number of emerging markets-based companies have also begun venturing programmes, including Saudi Arabia- based Sabic.
But the reach of corporate venturing has extended as the smallest corporate venturing launches were below $10m, including UK-based advertising agency BBH and US games developer TinyCo.
And corporations were more confident about setting up their own funds or having an increased say in the strategy of a venture capital fund, rather than passively committing to a limited-life, blind pool managed by an independent venture capital (VC) firm. Although there are some exceptions, such as DCM’s A-Fund, backed by Japan-based Gree and US search engine Google, and Kleiner Perkins Caufield & Byers’s sFund, the overall flow of such commitments has been falling.
Trade body the European Private Equity and Venture Capital Association said while corporations made up 12% of commitments made in the first nine months of the year, compared with 11.3% in the whole of 2007, the overall amount by value had shrunk. In 2007, European VC funds raised just more than €10bn, compared with €1.7bn in the first nine months of this year, the organisation added.
A similar pattern in VC fundraising has been seen in the US, with $12.25bn raised in 147 funds in the first three quarters compared with $30.7bn in 2007, although the trade body does not publicly detail the LP base by type.
Mark Heesen, president of the US trade body the National Venture Capital Association, said: "Economic instability continues to affect the ability of venture-backed companies to go public [initial public offering – IPO] which, in turn, has prevented many venture firms from delivering solid returns to their investors. Until we begin to see a steady and sustainable flow of quality IPOs that return cash, limited partners will remain on the sidelines and the venture industry will continue to contract."
Unlike corporate venturing, where more than half of the top 10 were debut programmes raising at least $100m, the first-time VC funds in the US were smaller.
The largest new VC fund in the most recent period was New York-based Raine Partners, which raised $72.5m. The US trade body said a new fund was defined as the first fund at a new firm, although the general partners (managers) of that firm may have previous experience investing in venture capital.
Corporate venturing launches this year often relied on recruiting a mix of seasoned professionals from peers and VC funds to leaven internal managers transferred to the new units to provide cultural and political links to senior managers at the parent (see personnel analysis overleaf).
And at the most recent NVCA board meeting, attendees said the trend of staff transferring from VCs to corporate venturing units would result in continued moves to take advantage of the available capital to invest in increased numbers of entrepreneurs next year.