After a sluggish Q1, corporate venture capital arms storm back doing more deals, investing more per deal and also engaging in more early-stage higher-risk seed investments.
In Q1 2012, we’d noted that the Corporate Venture Capital community was being pretty conservative. Q2 2012 saw corporate VCs become a bit bolder, doing more deals, participating in larger average rounds and doing more at the early, speculative seed stage.
But this is not dot com days again. Corporate VCs are still investing at a measured pace. CVCs participated in $2.10 billion in financing in Q2 2012 – the highest amount in the last five quarters. The 118 deals that CVCs participated in marked a solid bounce from the Q1 2012 lows and approached the highs seen in Q2 2011. Overall, CVCs participated in 15% of all venture deals that occurred in Q2 2012 (up from 11% in Q1 2012).
Some highlights below. (all the graphs and associated data are in the report)
Show Me the Money
In Q2, deals in which CVCs participated were $7.8 million greater than the overall VC deal average coming in at $17.8 million. While overall VC average deal size has stayed flat at $10 million over the last 5 quarters, deals in which CVCs participate have gotten markedly bigger.
CVCs Get the Seed VC Bug Too
We’ve chronicled the growth of seed VC deals for a while and had noted that CVCs were not doing a ton of these in Q1. Q2 saw an uptick with 14% of deals being of the seed variety. While funding is still going primarily to mid- and later-stage companies, CVCs appear to be getting comfortable with the idea of Seed deals which are a relatively cheap but highly speculative call option on emerging companies – primarily in the internet and mobile sectors. Because seed deals continue to have significant market and technology risk, many, if not most, will not work out. It will be interesting to see if CVC appetite for seed deals continues over the medium-term.
Investment Syndication Remains Important
Since many CVCs prefer deals where financial VCs are participating, it is no surprise that 84% of deals had additional investors. This, however, is a dip from Q1 where 90% of deals had syndicate partners. 6% of deals had 10+ co-investors suggestive of “party rounds” which are often derided since no one investor has enough skin in the game.
The CVC “Instagram Effect”
With the increasing chatter about mobile, CVC funding to sector hit a five quarter high staying strong throughout the quarter. Video, collaboration & communication technologies saw the most love within mobile.
Internet Sector Climbs to Five Quarter Highs
Internet which bucked the downward trend in Q1 2012 CVC activity continued to show strength with funding and deals climbing 60% and 15% respectively vs. Q1 2012. Massachusetts displayed strength within the internet sector climbing to #2 on deals and dollars behind Cali.
Healthcare CVC Shows Some Life
After 3 straight quarters of declining deals and funding to healthcare, CVCs increased their activity to the sector with deals and dollars up 50% and 93% respectively vs. Q1 2012. Perennial #2 Massachusetts stumbled on deals and funding to healthcare in the quarter, however.
Green Tech Deals Blip Up
While still significantly below levels seen in Q2 2011, CVC deals to green tech saw their highest tallies in four quarters. Later stage mega deals boosted the funding tally significantly as often occurs in green tech. The tick up in deal activity is the trend to more closely watch as it’s the better barometer of clean tech investing sentiment.
CVC investors clearly prefer to go west when looking for innovation. California remains the clear winner for corporate venture arms as it pulls in almost 60% of deals and 75% of funding.
New York & Mass Hit Five Quarter Lows on Funding
With Cali’s dominance, New York & Mass get crowded out taking home their lowest share of funding in five quarters. As with VC overall, New York remains a place for relatively small bets as the state pulls in only $30 million across 9 deals. The funding tally represents a five quarter low.