One of the questions we get asked most by entrepreneurs and advisers is: “Is this corporate venturing group that wants to do business with us for real?” The response generally takes this form: “We know they did at least four deals last year and one or more of their executives is active around the market and engages with us.”
Yet the reality is even groups that make our list of the 50 most active firms in a given year can slow their investing dramatically or pull out based on a change of corporate strategy. On the other hand, groups that have had a slow year often claim they are looking for deals but found few opportunities compelling enough in their niche sector. Due to the vagaries of corporate strategy, it is very hard to know which corporate venturing groups will be active in the future, even if they have been significant investors in the past.
What we can say is the wider corporate venturing boom is real. Another blockbuster period came to a close for corporate venturing firms in the first quarter.
Corporate venturers invested $21.4bn in deals in the first quarter – a 45% increase over the fourth quarter of 2015. In many of these cases, financial venture firms are still taking many of the bigger stakes in companies, but it is also common to see corporates take large chunks of growth companies.
The growth in corporate venturing is particularly dramatic in Asia. More than a third of the value of deals we tracked this quarter and in the fourth quarter of last year were in Asia, and market participants are quick to point out this investing is being led by corporate venturing units, both domestic and overseas.
In niche sectors such as applied materials, energy and biotech the leadership role of corporates in the market is also marked. Corporate dollars have played a big part of funding innovation in these capital-intensive sectors as some generalist independent financial venture firms pulled out, although this interest is said to be rising again. In the technology sector, corporate titans like Intel, Qualcomm, Google and SAP are also some of the biggest investors in venture capital.
This panorama in corporate venturing is exciting, particularly in a region most think will see the best growth over the foreseeable future and in some of the most complex and active technological sectors, and with serious dollars being deployed in all markets – no wonder people are taking corporate venturing seriously.
For this reason we have made the theme of the Global Corporate Venturing Symposium in London on June 2 and 3 “The tipping point for corporate venturing”. It seems corporate venturing is more robust than it has ever been, yet we want to discuss how this can remain a stable expansion.
In previous corporate venturing booms, perhaps especially around the time of the dot.com bubble, corporations have waded into venture capital aggressively, and then pulled out of investing due to a change in corporate strategy or losses – some extremely rapidly.
Such behaviour may sometimes be warranted, but it is clear that those who have reaped the most out of their involvement in corporate venturing have been investing consistently for many years. These units have secured support from their organisations to remain in the market, even as the euphoria around startups has turned to fear. Inevitably both the euphoria and the fear are exaggerations, although clearly misjudging the scale of a change in the cycle is also a potentially fatal mistake for any investor.
While in the long run we will all be dead, as John Maynard Keynes quipped, it is clearly of utmost importance for those involved in the discipline that the current apparent tipping point in corporate venturing does not fizzle out. Thoughts are welcome as to what units can do to ensure they approach investing in venture capital in such a way that they do credit to the wider corporate venturing ecosystem.