In late August, the Wall Street Journal noted an unnerving trend:
Nearly 30% of all venture-funded companies, as of the second quarter of this year, “will likely be out of money by year-end”, reported the Journal, citing a recent Silicon Valley Bank (SVB) report.
And, the Journal also reported, more than a quarter of all venture-backed firms are both shrinking and unprofitable, per SVB research.
Clearly, something is not working well in the state of venture capital — and founders realise it.
For that reason, more growth-stage firms are looking beyond traditional venture firms and, increasingly, toward corporate venture capital or CVC—which is becoming the go-to option for a rising number of founders in today’s uncertain economic ecosystem.
In fact, as the traditional venture model is faltering, corporate venture is reaching new heights.
Last year, 12% of US rounds were solely backed by a corporate investor.
Corporate-led funding rounds account for larger and larger shares of total venture investment, per an August Crunchbase report. Last year, 12% of US rounds were solely backed by a corporate investor. That was the highest share ever recorded by Crunchbase.
And with more than 7% of all US rounds backed exclusively by CVCs so far this year, 2024 is set to be the second-most active year on record for corporate venture investment, per Crunchbase.
This isn’t just a US trend. The number of corporate-backed deals is rising globally, particularly in healthcare. As Global Corporate Venturing reported in June, “The amount of funding rounds that included a corporate backer has been on the increase since the beginning of 2024.”
As traditional VCs are sitting on a growing pile of dry powder, corporate venture is making big bets.
This May saw three CVC-led deals exceeding $1 billion. And the same month, there was a 75% year-over-year rise in corporate-backed funding rounds in the health sector, per Global Corporate Venturing.
Corporate venture capital is shining.
Why? Because CVC offers more than money.
Synergistic symbiosis
Traditional VCs primarily provide financing with a focus on delivering returns to their investors. They’re often led by talented investors who have helped masterfully incubate highly successful future companies. However, sometimes they focus too much on growth at all costs. This can result in a relationship that is purely transactional, where the emphasis is on achieving high returns through rapid scaling, sometimes at the expense of long-term strategic alignment and sustainability.
In contrast, corporate venture offers tangible advantages to founders which most traditional VCs cannot, extending far beyond the transactional and financial. When CVCs are both strategic and financial they best serve the portfolio company and the other financial investors.
CVC offers:
Alignment with corporate goals
CVC investments align closely with the strategic objectives of the investing corporation. CVC integrates investment strategies with the corporate goals of the investor. This alignment helps startups navigate market complexities and leverage corporate resources to achieve their strategic aims.
Access to industry expertise
One of the standout advantages of CVC is the access it provides to industry expertise. CVC investors, often leaders in their respective fields, offer invaluable insights and knowledge. This industry expertise helps startups avoid common pitfalls, refine their products and understand market trends from a seasoned perspective.
Enhanced distribution channels
CVC also provides portfolio companies with access to extensive distribution networks. Unlike traditional venture firms, which may offer limited support beyond capital, CVC opens doors to established distribution channels, facilitating market entry and expansion in ways that are crucial for scaling a business.
Potential business partnerships
Strategic partnerships are another benefit of CVC. Many CVCs, like MSD Global Health Innovation Fund, provide kick-start budgets and assign portfolio success managers to accelerate and drive partnerships. These partnerships can lead to collaborative ventures, co-marketing opportunities and joint development projects. Such collaborations are often pivotal for startups looking to leverage the resources and networks of larger corporations to drive growth. For example, our portfolio companies collectively have more than 50 active engagements within Merck.
In-the-trench insights
My perspective on why corporate venture capital provides founders with a unique set of practical advantages derives from my first-hand experience, leading the investment arm of MSD since 2010. Over the past 14 years at MSD’s Global Health Innovation Fund, my team and I have led investments in more than 70+ portfolio companies. and we manage a $600m evergreen fund.
Although I strongly believe in CVC, I am not saying traditional VC isn’t important and doesn’t have its place in the world of financing companies. We often partner with VCs and will continue to do so. A mix of both financial VC and strategic VC can be a win-win.
What I am saying is that I’ve seen the unique advantages CVC gives founders. And TransVoyant’s partnership with MSD GHIF is a case in point.
“A deposit in the bank is not the most important aspect of selecting a long-term partner.”
Dennis Groseclose, TransVoyant
“There is plenty of money available in the capital markets, but a deposit in the bank is not the most important aspect of selecting a long-term partner,” explains TransVoyant president and CEO Dennis Groseclose. “Instead, experience has taught me to think of the 4 Cs.”
Financial capital is certainly important for Mr. Groseclose, whose Virginia-based firm provides AI-driven supply chain optimisation and monitoring. But so too are intellectual capital, relationship capital and human capital, he emphasises.
“MSD GHIF’s ability to rapidly connect us to new customers across the global life sciences ecosystem, their proven knowledge and experience with business and technology needs in this same ecosystem and their ability to help us find top talent were the driving forces behind choosing them,” says Mr. Groseclose, formerly chief technology officer of Homeland Security’s Transportation Security Administration. “Partnering with Merck was about far more than financial capital.”
MSD’s partnership with CargoSense provides another window into CVC’s uniquely beneficial role for growth-stage firms.
MSD’s global distribution channels which CargoSense accessed was more valuable than any one-time capital infusion from a traditional VC.
“The supply chain team at MSD is responsible for thousands of parcel shipments each day,” says Rich Kilmer, CEO of CargoSense. “They worked with us to automate analysis of their parcel program to catch delivery problems in real time and optimise decisions around distribution and packaging at the individual parcel level. The results not only helped us build a better, more resilient product, but also expand into new markets.”
Here to stay
Corporate venture’s appeal isn’t a flash in the pan.
There will be quarterly ups and downs, but the long-term trendline is up and to the right.
Consider the big picture:
In 2013, corporate venture capital accounted for 34% of all dollars raised by US startups, per the NVCA 2024 Yearbook; in 2023, corporate investment represented 48% of total dollars invested.
In 2023, corporate investment represented 48% of total dollars invested in US startups.
And as Global Corporate Venturing’s 2024 report showed, corporate venture funds are stable with 60% surviving the three-year mark — a sign of durability in an industry of change and an era of uncertainty.
Founders know that while traditional venture exists to help them too; corporate venture firms—rooted in the stability of their large, successful parent companies—will provide them with the new types of opportunities they need to flourish.
Bill Taranto is president of MSD Global Health Innovation Fund and vice president of MSD Global Health Innovation Group.