In a difficult month for global markets, with big slides and volatility in equity markets as concerns grow around the eurozone crisis, corporate venturing groups are confident.
Global Corporate Venturing tracked 67 investments worth $1.39bn in May. This was down against the 83 worth $1.46bn in April and the 80 in May last year worth $1.72bn.
However, deals hatched at the end of the month normally take time to track, suggesting May investment levels may have been similar to April.
Andrew Gaule, founder of corporate venturing advisory company Corven Networks, said: "Corporate venturers still have a high level of confidence in investing. In those corporates which have funds, the teams are being supported. The number of deals is still positive. I am getting a feeling the traditional VCs [venture capital firms] are being less active."
Gaule added this was unsurprising given the large cash piles corporates had, saying the decision to invest in corporate venturing for many was linked more to a corporate’s overall strategy than the effect of such deals on the balance sheet.
The biggest investment of the month was a quasi-corporate venturing investment, US-based software company Microsoft’s $300m deal backing the spin-out of
e-reader Nook from Barnes & Noble. The second-largest deal was Japan-based internet retailer Rakuten Group leading a $100m investment in US-based social network Pinterest.
There were 11 exits and one initial public offering (IPO), raising a total of $18.98bn. However, much of this total came from just one deal, the flotation of social network Facebook, backed by corporate venturing groups including Microsoft and Russia-based internet services company Mail.ru, which raised $18.4bn. Facebook’s share price had fallen about 30% from its flotation’s opening price at press time. In April there were eight exits and one IPO, worth $841.2m, while in May last year there were 11 exits and 4 IPOs, worth $2.95bn.
The US, typically the strongest area of activity, was even more dominant in May’s dealflow with 52 investments, 78% of the total, compared with the roughly two-thirds of investments the world’s biggest economy often accounts for, as it did in April. The next most active country was the UK with five deals. There were two deals in China and Israel. Countries with one deal were Belgium, Germany, India, the Netherlands, Norway and South Africa.
However, corporate venturers are said to be more active in emerging market deals than the May figures suggest.
Gaule said: "The discussion I am having with a number of corporate VCs is about expansion in emerging, high growth markets. This may well not show up in the data. Some of these deals are likely to be different from the traditional venture capital type of investment, with the corporate venturing unit doing direct investments through a fund.
"Instead it might be a grant or a collaboration deal, where the venture unit is working with the research and development or the commercial departments."
The most active sectors were media and consumer, accounting for 21% of investments each. Unusually information technology accounted for only 12% of deals, down from 24% in April. However, in part this change in investment levels may reflect that consumer and media deals are often related to technological advances. The third most active sector was healthcare (15%), followed by services (13%). Clean-tech accounted for 7% of deals, down from 11% in April as sentiment towards the sector generally has dimmed, financial services was 5%, while industrial and utilities were both 3%.
The number of A rounds was down again in May, to 19%, from 23% of activity in April and 39% in March, although they remained the most common types of deal. B rounds were 16%, at a level broadly similar to March and April, C rounds were 10%, down from 25% in April, D rounds were 18% and E rounds and beyond were 9%, up from 7% in April. Seed rounds were 5%, stake purchases were 10%, mergers and acquisitions were 5%, while 8% of round types were undisclosed.