Corporate Venture Capital: Avoid the Risk, Miss the RewardsAuthor: Falk Bielesch, Michael Brigl, Dinesh Khanna, Alexander Roos, Florian Schmieg
Date: October 2012
Corporate venture capital (CVC) investing is back in style. Some of the most prominent names in the corporate landscape, including BMW Group, General Electric (GE), and Google, have established formal venture-capital units and made well-publicized investments in start-ups. Many other firms are following suit—indeed, more than 750 corporations worldwide currently have venture units in operation or hold venture investments, according to the industry publication Global Corporate Venturing (GCV). Moreover, corporate venturing has expanded from its traditional strongholds in technology and pharmaceuticals into fields as diverse as machinery, power and gas production, consumer, and construction.
Is the current surge of CVC activity just another spin of the cycle? Is today’s CVC wave doomed to recede, just as the wave of the 1960s ebbed when equity prices collapsed in the early 1970s? Will corporate venturing again fall out of fashion, as it did following the crash of the stock market in 1987 and the bursting of the dot-com bubble in 2000? Or is it possible that this time it’s different?
We strongly believe that this time it is different. Venture investing appears well on its way to establishing a firm foothold in the corporate world as companies look to nascent companies not just to generate financial returns but also to complement their R&D efforts, penetrate fast-growing emerging markets, and gain early access to potentially disruptive technologies and business models. In short, CVC is moving inexorably from fad to fixture.
Yet while much has changed in CVC in the past several years, the ground rules remain the same. The companies that win the CVC game are still those with clear and well-reasoned investment theses and well-defined strategies for internalizing and commercializing the knowledge and innovations of their portfolio companies. Their VC units have the skills to tap the resources of a large corporation even as they operate with the speed and nimbleness characteristic of the start-ups they invest in. And their executive management recognizes that although venture investing is inherently risky, the greatest risk is not to invest at all.
A survey of the history of CVC investing since the 1960s reveals three distinct boom-and-bust cycles. The differences between them and the current cycle help explain why this time CVC appears to be here to stay.
Geography: Europe, North America
Type of study: Consulting research
Relevant for: LPs, GP Venture capital, Fund of funds, Associate