Latest trends in corporate venture capital


Financier Worldwide Magazine

January 2017 Issue

January 2017 Issue

While corporate venture capital (CVC) began to invest in software and telecommunications around 40 years ago, its inexorable rise has continued unabated as the world’s largest corporations have begun to invest in every sector, as well in new technologies and emerging companies. With the need for growth has come a demand to identify disruptive opportunities and protect against the rapid innovation faced by many industries in an increasingly uncertain economy.

It is interesting to note how the CVC industry has developed over the past 10 years. Initially renowned for insisting on deal terms that were more aggressive and restrictive than those sought by their venture capital counterparts, certain CVCs were notoriously restrictive business partners, forbidding their portfolio companies from engaging with competitors who may have been useful customers and narrowing exit opportunities. Such stories seem archaic in today’s landscape, where CVCs can provide significantly more value beyond just finance. As the corporate venturing industry has matured, the number and size of deals has also significantly increased and it is clear that CVC is being taken more seriously than ever before.

Corporate venturing has witnessed astonishing growth over recent years. Before 2004 there were just 181 corporate venturing units; by the end of 2015 this had grown to more than 1500 with more than 48 percent of Fortune 100 companies having a venturing arm. This growth is not just a US phenomenon, however, with over 60 percent of such units located outside the US. More than half of all current CVCs were formed after 2009.

With such a material increase of players in the market, it is, therefore, perhaps not surprising to note the significant increase in the number of CVC investments over the past five years, rising from 698 announced deals in 2011 to 1790 deals in 2015. 2016 is expected to have broken all records once again.

In addition, CVCs have participated in 24 percent of all venture deals over the last four years, accounting for an all-time high of 26 percent of all global deals in the third quarter of 2015.

There are numerous explanations for the rise in corporate venturing. Cyclical improvements in the balance sheets of corporates since the financial crisis of 2008 has resulted in many large corporations sitting on large balance sheet reserves, while striving to maintain market leadership. Faster cycles of innovation and technology adaption have led to the rapid demise of certain incumbents in various sectors and an increased demand in order to avoid being marginalised. There is a growing awareness that external engagement and investment (in distributed research and development and open innovation) are key to a corporate’s approach to innovation. Research and development within a corporate can often be slow, thanks in part to poor internal communication and bureaucracy, and focused on improved efficiencies rather than developing truly disruptive opportunities.

CVCs can often provide founders with more protracted exit timetables, unlike VCs which are always the ‘seller’ and usually require an exit event within a shorter period.

A new form of corporate venturing has grown with the acknowledgement that, to be successful, decisions regarding portfolio companies need to be made with less central control. Such a move toward the independence of the venturing arms is coupled with acceptance that corporate venturing is a strategic tool for business longevity and is not particularly suited to quarterly measures or reporting.

Reasons for investment

The rationale for corporate venturing is markedly different from that of the venture capital and private equity worlds. Research undertaken by Global Corporate Venturing, a publication and data provider for the corporate venturing industry, has found that, unlike private equity and venture capital firms, CVCs are looking for a blend of strategic and financial returns. Of the respondents to Global Corporate Venturing’s annual survey in 2015 (the GCV Survey), the reasons given by CVCs for having such an investment strategy were, first and foremost, to form an ecosystem (58 percent); to make strategic decisions (55 percent); to secure market intelligence (48 percent); to make financial returns (42 percent); to make acquisitions easier and increase their pipeline (33 percent); to understand high-growth companies and venture capitalists (25 percent) and to licence technology (20 percent).

Interestingly, only 20 percent of respondents cited strategic returns as the sole reason for investing and less than 5 percent were seeking only a financial return.

Investment trends

Deal size. While the number of deals recorded has increased two-fold from 2012 (780 deals) to 2015 (1790 deals), the sums invested have increased five-fold from $14.06m in 2012 to $75.38m in 2015. The average deal size has also doubled from $22.3bn in 2012 to $55.4bn in 2015, with 20 percent of respondents to the GCV Survey having completed in excess of 50 deals and 70 percent having completed more than 10 deals.

The aggregate sums invested by CVCs varies quite materially, with 38 percent of CVCs investing less than $50m historically, 28 percent investing more than $300m and 10 percent investing more than $1bn.

Round of investment. With a rapidly escalating level of investment arising from CVCs, an increasing proportion of this capital has been going to later investment rounds. This trend is meaningful from an economic standpoint, as the further the emerging enterprises grow and the more capital they raise, the less risky they become as investments and, in turn, the higher the investors’ willingness to provide them with further funding. It also illustrates the increasing maturity of the CVC ecosystem.

Research by CB Insights revealed that in the first quarter of 2015, CVCs led on 60 percent of the largest ‘late stage deals’ and the average deal size with CVC participation continued to exceed that of venture capitalists. The rise of this latter category of mega-CVCs is a notable new trend.

Returns. Internal rates of return have reflected the current growth and optimism in the market with approximately 13.5 percent of respondents to the GCV Survey seeing an internal rate of return of more than 30 percent. Almost one third of respondents have seen a rate of return in excess of 20 percent and 60 percent of respondents are seeing a greater than 10 percent rate of return. Only 9 percent of respondents reported a negative internal rate of return on their investments.

Emergence of ‘tech verticals’. As technology becomes ubiquitous, development time has become truncated, leading to a heightened need for innovation. Both institutional and corporate venture capitalists are increasingly focusing their investments into new, vertically oriented sectors which are being driven by social, mobile, cloud and machine learned technologies.

Geographical regions. In 2015, the US continued to dominate the investment headlines with over 1000 corporate venturing deals completed for the first time. By comparison, the second most active market was China with 176 corporate venturing deals. While the US has been a little less dominant than in previous years and Asia has been slightly more prolific, there has been a marked increase in the number of deals completed in Europe. Europe’s share of deal making rose from 9 percent of all global deals in 2014 to 19 percent of all global deals by the conclusion of 2015.

The largest exit of 2015 was the $2.8bn sale of Ganji in China, backed by Nokia Growth Partners, while the largest investment of 2015 was the $5.3bn buyout of California based Informatica, supported by Microsoft and Salesforce.

The UK itself saw a pretty dramatic rise in CVC activity with an eight-fold increase in annual investments since 2011. The most sizeable deals of 2015 occurred in July with the $1.2bn investment in O3B Networks and the $320m investment in Immunocore (the latter representing Europe’s largest private life sciences financing).

Israel is also seeing a significant burst of activity, including Johnson & Johnson Innovation’s investment in MedTech and AT&T Ventures investing in data analytics and cyber security, and is on course to increase its deal flow by 50 percent in 2016. India is another jurisdiction seeing marked increases in number and diversity of deals.

New players

The CVC landscape continues to become increasingly diverse. While ‘traditional’ sectors such as technology, healthcare, transport, media and telecoms continue to witness further growth, we are also now seeing the entry of less traditional industries such as ‘big industrials’ with the formation of Caterpillar’s CVC unit, Caterpillar Ventures. In 2016 we have also witnessed venture arms being launched in various sectors of the consumer packed goods industry such as Burt’s Bees, Campbell Soup and Sesame Street.

It is worth noting that of all the global CVC deals concluded in 2015, 85 were by those making their first investment, including such notable debutants as Twitter Ventures and Workday Ventures.


It can be argued that the ecosystem for CVC and startups has never been so healthy. While a level of scepticism has been evident regarding the valuations of certain ‘unicorn’ investments (i.e., venture backed companies with valuations in excess of $1bn) and potential over-funding of early stage businesses, the CVC industry clearly sees enormous opportunities for continued growth.

From a startup’s perspective, CVC continues to offer excellent opportunities, including: product validation and the acceleration of technology development in certain strategic areas; routes to market that would otherwise not be available to early stage companies; potential exit routes whereby the CVC acquires its portfolio company or otherwise licenses its products (unlike venture capitalists); adding talent to the portfolio company and access to industry experts; becoming a valuable customer (as seen with Coca-Cola and Proctor & Gamble, for example); and enabling participation in incubators or accelerator programmes established by many CVCs (such as Intel’s ‘Education Accelerator’ and Qualcomm’s ‘Robotics Accelerator’).

As the CVC market becomes increasingly competitive, the opportunities for companies seeking funding and strategic opportunities for a compelling business case have never been as strong.


Neil Foster is a partner and Tim Davison is special counsel at Baker Botts LLP. Mr Foster can be contacted on +44 (0)20 7726 3411 or by email: Mr Davison can be contacted on +44 (0)20 7726 3413 or by email:

© Financier Worldwide


Neil Foster and Tim Davison

Baker Botts LLP

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