Corporate venturing is so hot right now that a major US network is making a TV show about it. It may not draw viewers at levels to rival that of Pop Idol, but it does highlight how much corporate venturing is in the spotlight, and how far it has come from the shadows.
In April, the corporate venturing team at Silicon Valley Bank took a closer look at the market dynamics in the first quarter of 2014. Our methodology is not unique. We took data from external sources such as CB Insights, Pitchbook, Crunchbase, Datafox and Mattermark, along with our own CRM data, and the results demonstrate just how significant the top corporate venturing groups are in the venture community overall.
We know that participation is at record levels, but where are the dollars dropping? Consider that $4.4bn was invested by corporates in North America in Q1 – a 44% increase on the same quarter in 2013. Half the funding went to internet companies – a 183% increase on the same quarter of 2013. Second, behind internet, is mobile, with 81 deals and $912m in funding. Fintech start up funding also experienced exceptional growth with a 157% increase year on year.
Not surprisingly, the top corporate investors leave a clear fingerprint on the data, as most of them invest heavily in what they know best. While mobile funding was 11% of the total, this represents a 141% increase over the first quarter of 2013, with Intel, Cisco, Qualcomm and Google making significant investments.
The dominant dealmakers are placing even bigger bets, investing at early stages, looking beyond just the US market, and betting on relatively nascent areas such as the internet of things (IoT).
In 2013, IoT deals overall grew 11%, with funding for early-stage start ups increasing 49%. Recently, Cisco committed $150m for innovation at early-stage IoT companies. “Our passion is to see and understand cool stuff before the broader market does, whether through internal development or working with other companies,” according to a blog by Hilton Romanski at Cisco.
In April, Silicon Valley Bank brought thought leaders together from leading corporate venture and corporate innovation teams (Microsoft, Cisco, Intel, Qualcomm, Samsung, Dell, Comcast, EMC, Bosch) with the most active VCs in the sector and 12 founding CEOs of the most innovative companies, all clients of SVB. We are watching with interest the deals that take place in this sector in 2014.
In the first quarter of 2014, seed financing deals accounted for 27% of total corporate venturing deals, according to CB Insights, while series A and series B rounds accounted for 23% each, with Intel Capital the outright leader in series B financing. Compared with Q1 2013, seed financing was up 21% and series A and series D up 54% while series B declined by 4%. Early-stage (seed and series A) start ups accounted for 67% of exits in 2013.
Companies from North America are capturing about half of all corporate venturing investments. But North America should have Asia in its rear-view mirror – investments there reached $2.2bn in Q1 2014 – half the investment level reached in North America and a stunning 895% increase over the same quarter a year earlier. Underscoring this trend, in April we saw Intel Capital unveiling a $100m investment fund to accelerate innovation of smart devices in China.
“Innovation in smart devices and the internet of things is heralding the evolution of a new ecosystem for computing technologies,” said Arvind Sodhani, president of Intel Capital. “We are investing to accelerate this exciting new ecosystem, extending from new smart devices and sensors to networks to base stations to servers to big data analytics.”
Silicon Valley Bank recently released the Innovation Economy Outlook, its annual survey of global technology and life science executives. Ten years ago, traditional venture capital more clearly dominated the scene. While that is still relevant, corporate venturing is growing in relative importance, the report found.
Among US executives planning to raise funds, 43% in the survey say they expect to receive venture capital, down marginally from 48% who tapped that source in 2013.
One of the big shifts here is that, while 40% of executives took angel money in 2013, only 23% expect to seek angel investments in the future. There are likely to be several factors at play – as companies mature they seek larger investors, and increasingly younger companies can bootstrap for longer as the cost of setting up is so low, and can turn to crowdfunding as an alternative to angel funds.
The trend reverses when it comes to corporate venturing investments. In 2013, 9% of executives raised corporate venture capital, while 16% expect to engage corporates in the future.
These alternative sources of innovation capital are not only starting to catch up to venture capital but we at Silicon Valley Bank believe they could eventually surpass venture capital firms in funding activity. Watch this space. Maybe that TV network is on to something after all.