The past three quarters has seen a record number of new CVC launches predominantly coming from outside traditional regions for venture investing.
There were a number of trends identified back in spring as likely to happen or be accelerated by the coronavirus and its covid-19 disease: some corporate venture capital groups, about a fifth, would struggle to invest; disruption would shift nascent units into starting and cash-rich into doing more; and funding mechanisms would evolve.
Out of the 4,000 or so active corporate venturing groups in the past decade, about 1,000 have yet to do a deal this year having done at least one last year, according to GCV Analytics.
Two hundred or so, however, have already in the first nine months of this year done more deals than the whole of 2019 and there’s been record new launches of CVCs in each of the past three quarters. This is part of the ‘greatest explosion of managers’ identified as likely back in April.
These launches have predominantly come from outside traditional regions for venture investing.
The funding mechanisms are also evolving. Spain-based phone operator Telefónica has seeded its new Tech Ventures fund focused on cybersecurity with nine portfolio companies and a €6m ($7m) pot to find 15 more deals. It is also open to third-party investors. Other corporations, such as car maker Ford, have been doing likewise.
Having hundreds of experienced venture investors open up to third-party capital should be a boon to limited partners (LP) increasing desperate to find alternative sources of risk-adjusted returns above the effective negative yields set by interest rates.
As Priya Rajan at Silicon Valley Bank noted on its webinar yesterday from the bank’s State of the Markets Q3 2020 report, emerging managers (usually those with less than a decade’s experience which translates in three or fewer funds) raised 2% of all money committed so far in 2020. Two percent.
Founded in 2011, Wayra is Telefónica’s Open Innovation Hub with presence in 10 countries and hundreds of portfolio companies and exits and its own use case of requiring cybersecurity. Which might seem a safer bet to an LP – freshfaced team with little track record or value-add or a deep portfolio cherry-picked for them and customer/supplier validation?
Corporations are also mindful of the cash and expense involved in running a dedicated CVC unit as an effective LP. This creates exciting hybrid opportunities for the thousands of companies still working out their best strategy.
US phone operator T Mobile is starting its CVC through a partnership with venture-capital-as-a-service firm Touchdown to target 5G. VC firm NEA is reportedly exploring a stake sale to bake in ties with its investor base.
As the industry matures all options become feasible and usually in some degree of combination.
