Companies are playing an increasingly important role in helping nascent businesses grow and develop by providing money in return for a minority stake in what some are calling a "golden age" of corporate venturing.
The launch of Global Corporate Venturing 12 months ago has for the first time made it possible to gauge the size of the industry by number of programmes across the 10 main economic sectors.
There are more than 365 corporate venturing programmes, broadly split, at least 30 in consumer, 61 in industrial, 15 in services, 17 in transport, 32 in financial services, 20 in energy and raw materials, 25 in media, 42 in utilities, more than 50 in information technology and 75 in health.
This is a conservative number as several firms, such as Canada-based communications company Rogers, are understood to be in stealth mode before launching a corporate venturing team. The figure also underplays the expansion of a number of programmes as firms add personnel and money allocated for investment.
By comparison, an estimated 350 corporate venturers invested $16bn in 2000 and made up about 16% of the entire venture capital investment that year. The dot.com implosion in 2001 wiped out previously-booked earnings and many investments causing corporate venturers to retreat rapidly. By the first half of 2007 in the US, corporate venturers invested the much smaller amount of $1.3bn, which was 8% of the venture capital total.
The latest expansion means, based on the average size of a corporate venturing programme at $100m to $200m, the industry’s assets are between $35bn and $70bn. By contrast, the US venture capital industry alone manages about $350bn raised between 2001 and 2010, excluding the $76bn raised in 2000.
The pace of corporate venturing launches has increased (click here for table). In the first quarter, 26 funds or programmes were launches with an aggregate of more than $5bn committed or being raised, including $1.3bn for US publisher International Data Group’s two funds in China and internet services company Tencent’s $760m Industrial Collaboration fund. By comparison, independent venture capital firmsin the US, the world’s largest market for such investments, raised $12.3bn in 157 funds last year, according to US trade body the National Venture Capital Association (NVCA).
There have also been some notable spin-outs, including Holtzbrinck and Nomura’s Phase4, and indirect commitments to third-party funds, such as $300m for Energy Technology Ventures by General Electric, ConocoPhillips and NRG Energy, drug company Eli Lilly’s Mirror funds and the UK’s Business Growth Fund backed by the largest banks in the country, to funds raising more than $5bn.
In the year since Global Corporate Venturing was launched last May, $2.3bn was committed to 30 programmes. The increase in corporate venturing programmes has also encouraged an increase in deal activity in the past year, partly due to emergence from recession – venture investing is highly correlated to gross domestic product.
According to NVCA data for the first quarter of last year, there were 107 US deals (14% of the total). Based on Global Corporate Venturing analysis, there have been 176 US deals in the first three months of this year (246 globally). In the past 12 months there have been 567 US deals using NVCA and Global Corporate Venturing statistics.
Data provider Dow Jones estimates corporate venturing to have made up 7% to 8% of the Chinese venture capital market last year, 10% of the European total, and 12% of the US, although corporate venturing units are involved in more than a third of consortiums backing IT and healthcare companies.
Globally, corporate venturing units invest primarily in the pre-proft stage of an entrepreneur’s development, but there are regional variations. Chinese corporate venturing and venture capital focuses primarily on profitable businesses before their flotation, according to Dow Jones.