If you remember the irrationally exuberant days of 1998-2000, you may recall that many major corporations began or were tripping over themselves to start corporate venture arms. With all things dot com being hot at the time, the goals for corporate VCs (CVCs) included deriving strategic benefits via access to these emerging companies as well as financial returns via IPOs that would go only up and to the right. Things didn’t quite work out that way.
Note: The full 54 page Corporate Venture Capital Activity report is available on CB Insights on the research tab. It is free to register for CB Insights and can be done here.
So with incessant chatter about a bubble, we analyzed CB Insights’ data on 200+ corporate venture capital arms to see if the exuberance was back among the corporate venture capital set. Are they partying like its 1999?
The answer is that they clearly are not. Based on their deal and financing activity, CVCs are making bets but at a very measured pace. CVCs participated in 11% of all venture deals that occurred in Q1 2012 totaling $1.09 billion in financing – the lowest amount in the last five quarters. The 84 deals that were completed also marked the fourth consecutive quarter that corporate deal volume declined.
Some summary graphs, stats and highlights below:
Hey Big Spender
Corporate VCs spent $5.5 million more per deal than the average size of all VC deals in Q1 2012. This continued the trend of deals involving CVCs being larger than traditional VC only deals.
Later Stage Deals Preferred by CVCs
The average deal size was helped by a relative paucity of early stage investments by CVCs. Early stage investments made up only 32% of all corporate venture group deals. In contrast, aggregate VC stats show that 48% went to early stage deals.
CVCs increasingly prefer investing when some of the market or technology risks have been mitigated or when a company has found “product-market fit” in VC parlance.
Friends With Benefits – CVCs Love to Co-Invest
Over 90% of deals in which CVCs participate have at least one co-investor. The average CVC deal has 4.3 investors and the median is 4 investors.
Have CVCs Already Gotten the Instagram Bug?
Funding from corporate VCs into the mobile & telecom sector in Q1’12 fell 45% vs. Q4’11, but nearing the end of June, we have already tracked over $120 million in funding for Q2’12 representing a 62% increase.
We expected an Instagram Effect for VCs in Q2’12 and it seems CVCs have been bitten with the mobile bug based on an early read of the Q2’12 CVC mobile data.
Green Tech Corporate Funding Falters
Corporate funding to the green sector fell to a five quarter low and deal activity remained weak. Texas was a lone star as it received increased CVC funding on the back of investments by CVCs into companies focused on the oil and gas industry.
Healthcare Receives Little Aid From Corporate VCs
Like Green Tech, CVC investment to healthcare has mirrored the overall drop in healthcare venture capital activity. Additionally, deal activity, which we view as a more accurate gauge of investor sentiment dropped 36% after maintaining healthy levels for the previous four quarters.
Internet Sector Bucks Overall Downward Trends
While overall corporate VC deals have fallen for four straight quarters and funding is down 20%, corporate venture deals in the internet sector have increased for the third straight quarter and funding is up 30%.
CVC Activity in NY and Mass Falls to 5-Qtr Lows
CVC funding fell for the fourth straight quarter in both NY and Mass. In Mass, both deal volume and funding dropped to Q1’11 levels. Meanwhile, deal volume in New York went down 38% since Q1’11, while funding fell 54%. NY continues to be an early-stage investment hub for corporate VCs with seed deals boosting NY’s mobile sector. By contrast, Mass drew 0 activity to mobile investments.
California Takes Hit But Maintains Clear Pole Position
Bolstered by corporate funding to internet companies, California took 60% of national corporate funding. For four out of the last five quarters, California’s share of funding has exceeded its deal share as California-based companies continue to be recipients of more and larger deals from corporate VCs.