There are signs that the investment market may resettle in 2024 and CVCs are emerging from this rocky period stronger than when they entered it.
Last year, 2023, was the year that CVC achieved escape velocity – when we demonstrated that we, as
an industry, are here to stay.
While venture capital has never been dull, this was the most challenging of years, with high inflation
impacting our parent companies, and the venture market resetting or failing to reset. It was also a thrilling year, with strong momentum around climate and cyber and the explosion onto the scene of generative AI.
While last year I focused on the trouble ahead, there are now signs that the market may resettle in 2024
and CVCs are emerging from this rocky period stronger than when they entered it.
The numbers bear out this optimism. Despite the macro environment, there was still a steady stream of new CVC units spun out in 2023, approximately 65.
Taking a wider view, the number of active CVCs operating globally has experienced approximately 10x
growth over the past decade. This ongoing expansion in the face of market uncertainty supports my belief in not just the resiliency of CVC, but also its maturation and elevation into the ranks of the other central pillars of business operations.
CVC as business critical
CVC may once have been viewed as either a luxury or an experiment at the periphery of an organisation. No longer. Now, just as companies understand that they need a marketing or engineering department, they also know that CVC is a critical ingredient in creating their future. They rely on CVCs for both innovation and partnering. CVCs are often viewed as the eyes and ears of the ecosystem, while the business units themselves take these learnings and put them into action.
However, while CVCs often serve as the entry point for new technology or ideas into a corporate, they have also unquestionably become critical to driving engagement. Indeed, more than 40% of CVCs now have a strategic partnering platform.
The increasing importance of CVCs to the parent company showed up in the survey as resilience. More
CVCs are making it beyond the milestone of the first three years. Of those surveyed, 60% were with CVCs. that were more than four years old and 43% in the expansion stage of 4-6 years, a signifi cant increase from 35% last year. And CVC funds are sizable, with 25% having funds larger than $300m and 14% more than $500m.
Maturation of the industry
In addition to the deeper entrenchment of CVCs into the innovation strategies of corporates, there is also
a growing professionalism in the industry. Many new CVCs are being established with elements of best practice, likely learned from earlier pioneers in the market. More than half (52%) now aim for VC level
returns. Just less than a third of CVCs operate in one of the more independent legal structures and, of those, 56% offer financial upside to their teams.
“The operational chasm between institutional investors and CVCs draws ever smaller.”
In one of the more surprising statistics from the survey, more than half of CVCs use portfolio construction models. The operational chasm between institutional investors and CVCs draws ever smaller.
This is an exciting development, as macro-economic uncertainty means it is increasingly important for CVCs to excel at asset management – indeed, it is key to their stability and longevity. CVCs are always able to take shelter in the storm by leaning into their strategic value, but asset management considerations must be weighed now, too. This is a maturation of the industry that we should all feel proud to witness.
As the dust settles on the 2023 venture market, we as CVC practitioners can look towards 2024 with
optimism. Our corporates expect a lot from us – more than ever before – and yet I believe our industry is ready to meet the challenge.
Jacqueline LeSage is managing general partner of Munich Re Ventures, and chairwoman of the GCV Leadership Advisory Board.
