The importance of early-stage investments should not be underappreciated. For example, as recently observed in the last quarterly Silicon Valley Venture Capitalist Confidence Index® “approximately 49% of all job creation in the U.S. since the year 2000 has come in the areas of early and expansion stage businesses with early stage* investments experiencing a rise of 47% and expansion stage venture capital of $10 billion representing a 37% increase.”
A number of recent reports documented how the prolonged financial instability temper the appetite of traditional venture capital funds for early-stage investments and how traditional VC funds are shifting their investments away from the high-risk, early-stage financing of startups, into later-stage opportunities and existing portfolios (in spite of consistently above-average returns –in sectors such a biotech– as highlighted by the study of Booth & Salehizadeh).
Against this background, investment funds set up by established corporations (CVC) are beginning to dominate early-stage financing of firms in a range of sectors. More importantly, as observed by sector analysts “not only are corporate venture funds playing a larger role in the early-stage scene, but now some are able to dictate terms in which they have an exclusive first option to acquire the funded company— deals that formerly would have driven away other investors.”
Go to our October 2013 magazine for more of this article.