Since 2000, half the companies in the Fortune 500 have disappeared – either gone bankrupt, been acquired, ceased to exist or fell off the list. It is a stunning number. The expectation is that this trend is set to continue and everyone is racing to stay relevant. We have seen a tidal wave of non-tech companies starting up venture funds, accelerators or innovation initiatives and so far there is no slowdown in 2017.
Corporate venture is not just a nice-to-have, it is a must-have for many industries – ranging from carmakers to financial services to Walmart to Kellogg’s. Now more than a quarter of the top 1,000 companies with the largest budgets have a venture capital arm, according to PricewaterhouseCoopers.
No one-size-fits-all approach
Every day I spend time looking at the various investment and innovation models, and there is no one-size-fits-all. Today, venture initiatives swing from entirely financial investment to entirely strategic plays designed to keep up with digital natives. Most fall somewhere in the middle.
The urgency is palatable. Consider the findings in the most recent State of the Markets report published by my colleagues at SVB Analytics, a non-bank affiliate of Silicon Valley Bank. Tesla’s market cap has risen 91% over the past two years, overtaking Ford’s market cap, which fell 28%. What is most striking is that Tesla delivered 76,000 cars last year versus Ford’s 6.7 million. In the lodging industry, Airbnb’s market cap in the same two-year time period rose 212% compared with leader Marriott, which increased 17% only as a result of an acquisition. Third-place Hilton’s market cap plunged 34%. The takeaway is that the new market models are keeping even the most established companies on their toes and looking for innovation.
CVC deals values quintuple in past three years
This is very good news for entrepreneurs. Venture dollars, corporate expertise and access to customers and distribution channels are flowing to almost every industry.
The number of deals with a corporate venturing partner has more than doubled in the past three years, from 871 in 2013 worth an aggregate $16.9bn to 1,961 worth an aggregate $83.2bn in 2016, according to GCV Analytics. Corporate investors are also increasingly dominant in later stages of investment. Some of the world’s best-known companies are placing big bets. Among recent examples:
• WalMart, which has operated innovation labs internally for several years, in March launched venture capital arm Store No 8. Unlike the internal lab, this unit is designed to invest in innovative online retailers and build partnerships with startups.
• Porsche set up a tech investment subsidiary in 2016, and in May announced a tech centre in Silicon Valley, with 100 employees and a goal of investing in new companies and growing relationships with venture capital firms. It has also invested an eight-figure sum in two Israel-based venture capital funds and plans to open an innovation office in Tel Aviv.
• Northwestern Mutual is creating a $50m fund focused on early-stage companies in consumer finance, digital medicine, data analytics and technology infrastructure. Northwestern Mutual Future Ventures will invest between $500,000 and $3m in each company.
Giants boost venture investments
In May, consumer products giant Unilever’s venture arm announced it was investing $9m in home meal kit company Sun Basket – an SVB client. The company, which says it now reaches more zip codes than any grocery retailer in the US, expects to use the capital infusion to expand operations and manufacturing to give customers more choice.
Unilever was early into venture activities, dating back more than a decade, but General Mills, Campbell Soup and Kellogg’s have launched venture investment arms in the past 18 months. In General Mills’ case, like WalMart’s, the company moved from a focus on innovating internally to a model of investing in outside startups.
Of course, a lot of the venture investments continue to be made by the tech giants. In May, Salesforce Ventures announced a new fund for cloud-consulting startups. Google and Microsoft venture arms are showing a heavy interest in artifical intelligence.
Startups are seeking cash infusions to develop products and execute go-to-market strategies. Corporations, whether bellwether tech leaders or 123-year-old cereal makers, are looking for smart investments to complement their financial or R&D strategies. We are all winners, as these kinds of matches will no doubt help accelerate innovation.