The State of Global Corporate Venture Capital (CVC) and Corporate Accelerators
Corporate Venture Capital
Large companies have long seen the value in Corporate Venture Capital and the many benefits it brings to corporations, both strategically and financially. Corporate venture capital is the practice of directly investing corporate funds into external startup companies, usually done through joint venture agreements and the acquisition of equity stakes. To ensure success in the agreement, the investing company may also provide the startup with management and marketing expertise, strategic direction, or a line of credit.
A strategically driven CVC primarily aims to increase the sales and profits of the venture company by making deals with startups that use new technologies, entering new markets, identifying acquisition targets, and accessing new resources. Whereas financially driven CVCs invest in new companies for leverage.
In contrast to the existing corporate venture capital initiatives, corporate accelerators not only provide direct and indirect financial support to startups but also aim to achieve additional objectives with more comprehensive startup support models. There has been a surge of corporate accelerators worldwide due to an increasing number of companies establishing programs to internalize the opportunities presented by external startups (Weiblen & Chesbrough, 2015).
Companies launching corporate accelerators are from diverse industries, for instance, Walt Disney and Spring in the USA and Citigroup and Samsung in Israel. Several corporate accelerator programs have multiple international locations, such as Google, which exists in three countries in Latin America. As such, corporate accelerators are a global, cross-industrial phenomenon.
The Rise of Corporate Venture Capital
CB Insights reported that there is a steady growth of new CVCs. 259 newly active CVC firms invested for the first time in 2019. Moreover, there are roughly 1,000 CVC funds that made their investment in the past five years. In total, 941 CVCs engaged in deals in 2019 (CB Insights). Moreover, CVCs make up a larger portion of the VC ecosystem. CVC investors participated in 25% of all VC-backed deals throughout 2019, an increase of 2 percentage points over 2019.
Corporations have increasingly invested in external startup companies to stay ahead of disruptive technologies and gain insight into entrepreneurial ecosystems globally. In 2019, companies around the world took part in a record 3237 corporate venture capital deals. The number of CVC players, amassing to almost 2000 corporations, has also grown, according to Global Corporate Venturing (GCV) Analytics.
Effects of COVID-19
The COVID-19 pandemic has led to corporate venture capital activity being down during most of 2020. However, new corporate venture capital investors have continued to negotiate deals. In fact, according to GCV Analytics, 368 new corporate investors were recorded participating in venture capital, twice as much as the previous year. Despite the coronavirus affecting industries globally and causing mass disruptions, corporations continue to participate in venture capitalism to prepare for a post-crisis market.
The 2019 Global CVC Report
A recent study released from CB Insights showed the global corporate venture capital activities over the past years from 2014 to 2019. The report also shows insights on corporate venture capital deals across regions and vertical industries.
- Global CVC-backed deals and funding reach record highs, reaching a record high in 2019. The growth, however, was considerably slower in 2018.
- CVC-backed deals and funding to China-based companies declined.
- Silicon Valley attracts fewer CVC-backed deals due to non-technology center interest increases.
- CVC investment in AI companies reaches an all-time high.
- Healthcare companies grow to become among the most active CVC investors in digital health.
The Next Chapter For CVC
Strong Growth in Global CVC Activity
According to the study of CB Insights, Global CVC Activity continues to grow indicating three important trends that show that the industry is maturing and turning away from financing innovation startups for transformational startups.
Three Important Trends:
- Increase activity in starting CVC funds.
- Growth in deal participation for CVCs.
- Increase in CVC activities and larger ticket sizes.
In order to stay ahead of the curve, certain changes must be done and applied to corporate venture capital strategies. These changes have been used by several businesses around the world to create successful partnerships with start-ups in their entrepreneurial ecosystems.
- Boost up the CVC initiatives in line with global trends
- Integrate CV activities to the core to drive transformation
- Collaborate within your ecosystem
- Patience for the end results
- Nourish a culture of successful investing and partnering with startups