Is corporate venture capital (CVC) — the investment of corporate funds directly in external startup companies — the future of VC funding?
The numbers don’t lie. Global CVC activity reached record highs in 2017: $31.2 billion in funding across 1,791 deals, according to CB Insights. That’s up nearly 19% over 2016 in terms of deals completed, and 18% in total capital invested, and triple what the figure was in 2013. Just Q4 of 2017 saw a record 470 CVC deals, totaling $9.3B in funding – the most since Q3 2015 — amid the global upswing in venture capital.
That means corporate VCs took part in about 16% of the 11,042 VC deals last year, covering about 19% of the $164 billion in VC transaction value.
Among the sectors with the most activity are healthcare and consumer packaged goods, as corporates look to gain an edge on organic, healthy, sustainable options. These investors are most active in countries like India, China and the UK.
CB Insights recently laid out the key stats in its 2017 report on the state of CVC:
66% increase in new CVC investors year over year: 186 newly active CVC arms invested throughout 2017. The number of CVCs active at the seed stage also grew by 45%.
GV most active CVC, GV & CapitalG invested in most unicorns: GV was the most active CVC in 2017, investing in over 70 deals. CapitalG (Google Capital) invested in the most unicorns.
Healthcare experiences deals and dollars spike, mobile and internet deals boosted by activity in Asia: Healthcare deals backed by CVCs were up 17%, while funding was up 27%. Mobile deals increased by 26% in 2017, while internet deals grew by 10%.
China, India, and the UK deal activity reaches new highs: CVC deals and dollars to Chinese companies increased 94%. India and the UK also saw record deal highs.
Massachusetts reaches deal and dollar highs, California funding boosted by $1B+ to Lyft: CVC investment in Massachusetts increased in 2017, with healthcare taking 47% of deal share. Funding participation to California increased to a high of $11.8B in 2017, despite reaching the 4-year low of 418 deals.
This is all happening for one reason: Growth in corporate R&D departments has stagnated and companies are looking outside for growth and innovation. Corporates have spent the last few decades ignoring their own internal innovation departments and now have no choice but to shop for the latest technologies, the newest developments and the cutting edge insights at smart startups.
The good news is that this activity has played a role in promoting the venture economy overall. There is a reason that VC and CVC activity reached historic highs in 2017 — and is on track to break more records this year — and this realignment of corporate innovation is it.
At iSelect, we’ve been deeply involved with CVC for some time, investing alongside a long list of corporates in a range of different industries, including Johnson & Johnson, Boston Scientific, Ascension Ventures, Archer Daniels Midland, Bunge, John Deere and more.
The partnerships are valuable for us, bringing new capital into the innovative industries like agriculture and healthcare where we are investing. But they also benefit the corporates involved, putting them directly in touch with the innovative entrepreneurs who are creating the products and the business models of the future, enabling them to indirectly support the kind of work that isn’t being done by corporate R&D departments anymore.
That’s a win-win.