This is an amazing time for venture capital and entrepreneurship. Venture capital investments all over the world are at historic levels. Venture and angel funding has crossed the $100bn mark globally in 2015. In the United States, we are on track to reach five year highs with more than $54bn invested to date in 2015. China has surpassed Europe in terms of venture funding raising over $31bn already in the first three quarters of 2015. Valuations have climbed to unprecedented levels as well, with companies like Uber now valued at $51bn. Although the IPO market has seen some challenges, companies are quite comfortable staying private given the lucrative sources of funding and high valuations. Mega rounds of more than $100m financings to VC-backed companies have drastically increased in 2015. So far, we have already been over 170 mega-rounds, including 68 in the third quarter of 2015, which cumulatively raised more than $19bn. So, there has never been a more exciting time to start a new company or for corporates to play a key role as well.
Historically, corporations have invested in startups to keep an eye on upcoming technologies, to seek possible acquisition targets or even to block new products that could compete with their own. Driving financial return on their investments, while always preferable, was way down the list. Finding the right balance between the strategic and financial roles is one of the biggest challenges for corporate venture groups all across the world. But there is the strategic fit to the corporation that is propelling corporate venture activity to record numbers.
Corporate venturing is on the upsurge – both in the US and globally. In 2015, large sums of capital were deployed by corporates globally, as the data in this publication shows. Large public corporations are sitting on huge cash balance sheets and their venturing units are participating in large venture capital financing rounds. For example, Alibaba Group participated in China based mobile taxi-hailing app, Didi Kuaidi’s $2bn series F round, while Google was also key to Jet.com’s $500m series D round. Corporate venturing units have grown from 181 before 2004 to more than 1,000 units in the first quarter of 2014, and it is up by a third in just the past four years. Over 60% of corporate venturing units are located outside of the US. It should be no surprise to note that over 48% of the top Fortune 100 companies have a corporate venturing arm.
In the US corporates deployed $2.3bn in 240 deals to the startup ecosystem during the third quarter of 2015, accounting for 14.1% of all venturecapital dollars invested and 21.5% of all deals. Corporate venturing has gained in influence as well. Corporates have participated in 24% of total deals globally for the past 4 years. Corporate participation reached an all-time high taking 26% of all deals in Q3 2015.
Today, corporate participation is tremendously important in this ecosystem. We all know technology and innovation has accelerated at such a pace. Corporates cannot just sit and wait for technology to mature before they see the potential leverage point. They need to monitor closely and be active participants in what is going on, as everything is shifting so fast. For corporations, this is key for the vitality and sustainability of their business as they are driven by technology and data in virtually every industry.
As of December 2015 there are 144 unicorns, or startups with valuations $1bn or more and 13 deca-corns (with valuation $10bn or more). Obviously there is talk in the venture and startup worlds and in the general public about there being a bubble and concern on valuations. For startups, it is even more important, to be not distracted and work towards scaling their company early on as the competition is fierce, due to expanded access to capital. So it becomes imperative for entrepreneurs that in addition to pursuing innovative solutions, they work towards developing long term strategic partnerships with corporations much earlier than we saw 10 years ago.
The ultimate delivery to consumer and channel of the innovative solution needs to be achieved sooner. A startup cannot go under the radar and work on something for a long time before there is a solution, as by the time the launch occurs the world might have moved on.
Corporate institutional partnerships
There is partnership created right from the early stage involving the traditional financial investor. The success of this partnership has a strong role in creating these young innovative companies and supporting them. The corporation guides them and could be a customer or introduce potential customers, helping the entrepreneur to develop his or her strategic direction and in building the company. This type of partnership today is much closer than before in driving really innovative solutions.
Business and overall societal impact
The Linux operating system started as a gleam in the eye of a Finnish university student, Linus Torvalds, who simply wanted to find a better way to connect his new PC to his school’s computer system. Now it’s one of the underpinnings of the 21st century economy. IBM is working with the Linux Foundation’s newly formed Open Ledger Project (OLP) to help advance the blockchain technology. The OLP will develop an enterprise grade, open source distributed ledger fabric, APIs, language-specific software developer kit and specifications, with the aim to free developers to focus on building industry-specific applications, platforms and hardware systems to support business transactions.
Several leading venture capitalists, corporates and financial institutions have been actively investing and exploring the various applications of the blockchain architecture. At IBM, we believe that the best path forward for block chain is for the tech industry, government, and the business community to consolidate their efforts around a single open source blockchain foundation that is developed and governed in an environment of transparency and cooperation. Through this open source collaboration,
IBM intends to contribute existing codebase, intellectual property and enterprise expertise in hopes of advancing the blockchain technology for business. IBM is also helping our clients discover what blockchain can do for them and developing commercial products that will serve particular domains or cut across industries.
I would like to conclude by emphasising that there is tremendous opportunity that exists for startups and corporates alike. It is in the best interests of both startups and large corporations to forge successful partnerships and develop innovative solutions that could have a potential long term, global and societal impact.
This is the foreword for our World of Corporate Venturing 2016 supplement, which comes out next week to coincide with our GCVI Summit in Sonoma County, California, by the chair of Global Corporate Venturing’s Leadership Society, Claudia Fan Munce.