More than five years ago, this column, ahead of our first Global Corporate Venturing Symposium in London, UK, said it was the start of a “golden age” for the industry. And so it has proved. The launch of Global Corporate Venturing 12 months earlier had made it possible to gauge more accurately the size of the industry by trying to answer two questions – who does corporate venturing and what do they do?
That first 12-month period to mid-2011, GCV tracked more than 365 active corporate venturing programmes, compared with more than 800 active last year. Launches in the first three months of 2011 included China-based Tencent, which said it would invest $760m – a then unimaginably-large amount for a debut venture fund. In the 12 months following Global Corporate Venturing’s launch in June 2011, $2.3bn was committed to 30 programmes.
In the past month, two corporate venture capital funds of at least $1bnhave been announced – one from HTC and the other from a group of 10 oil majors working together; BMW has quintupled the size of its iVentures programme to more than $500m; and there have been commitments to dozens of other internally or externally-managed venture groups (see news reports).
Similar patterns can be seen in dealflow. Based on GCV analysis, there were 176 US deals in the first three months of 2011 and 246 globally. Over the first quarter of this year, GCV Analytics tracked 423 deals worth a total of more than $18.9bn, with 265 in the US – more than the global total five years earlier.
In total, GCV Analytics has tracked about 7,500 deals since the start of 2011. Full analysis of 2016 along with a unique survey in collaboration with Stanford, Harvard and Chicago universities will be in GCV’s annual review, World of Corporate Venturing 2017, published at our Global Corporate Venturing and Innovation Summit in Sonoma, California, next month, but we have a sneak peak at some of the survey respondents’ insights in this issue (see report).
The early visionaries, those who maintained their corporate venturing units during the regular economic shocks over the past 20 years, and early adopters in this latest wave from 2010 after the ending of the global financial crisis have benefited from more entrepreneurs, in more countries raising more money than at any point since the dot.com peak around the turn of the millennium, and companies increasingly wanting to buy them as well as invest in them (see exits analysis).
The democratisation of entrepreneurship, combined with a wider range of providers of capital than just traditional venture capital – whether angel or crowdfunded, philanthropic or impact, corporate, university and government – mean more startups have launched and raised money at higher valuations than could have been imagined a decade ago just before Apple launched its iPhone and Facebook connected the western world.
It appears, therefore, counterintuitive, but this golden age has now ended – these easier days for corporation, government and university venturers are over. The cottage industry of VC firms being seen as the best providers of capital to fast-growing entrepreneurs has been disrupted. The few remaining successful VCs able to do five or more deals a year and compete with deeper-pocket rivals have stepped up and professionalised.
Venky Ganesan, chairman of US trade body the National Venture Capital Association (NVCA), at its joint event with GCV in late October (see review), using data from PitchBook, showed how the VC industry had consolidated, with 211 US firms doing at least five deals a year now compared with 1,000 or more in 2000, and with 60% of money now raised in funds being secured by the top 16 firms.
The NVCA is planning its strategic review this month to decide how it can best meet its main members’ need for government lobbying in Washington DC under the new administration of Donald Trump within the context of the wider industry’s overall goals.
The other VCs, effectively zombies until the past few years trickled some new funds into their pockets again from generous limited partners, will eke out their lifestyle business until the next downturn causes them to hunker down just when entrepreneurs need them and prices are lower. And at this stage of the economic cycle, scenario planning for variable conditions from next year and having resilient sources of funding and commitment are important for all investors.
But while a golden age for corporate venturing might have ended, there is still room for success, using a greater understanding of the metrics of the innovation capital industry as a service profession, such as hiring, culture, branding, marketing and support to entrepreneurs beyond money, but also sophisticated uses of levers on a startups’ capital structure.
How to succeed after the golden age will be examined in the next issue’s editorial and through a series of in-depth interviews carried out by Bell Mason Group to develop an executive summary delivered at the GCVI Summit in January.