Looking past the economic downturn, big companies are charging back into venture capital, seeking new technology and teaming with start-ups and venture firms.
In the highest numbers since the dot-com boom era of 2000 and 2001, corporate venture capital funds last year invested in 21 percent of 3,900 start-up deals and poured 8 percent of $31 billion in all venture money into young firms, reports the National Venture Capital Association (NVCA) and PricewaterhouseCoopers.
Corporate venture capital is down slightly in the first quarter because the economic climate has made companies more cautious.
But as the U.S. market matures and the global economy grows, the venture arms of hundreds of U.S. and overseas companies – IBM, Novartis, Samsung, Intel, NTT DoCoMo and others – are searching harder for promising start-ups in technology, energy, the life sciences and other sectors.
The IBM Venture Capital Group, for one, is hunting in China, India, Europe and Latin America for young firms. The group – which shares its patented technology, marketing and distribution partners with start-ups – has 1,300 venture-backed partners worldwide, says managing director Claudia Fan Munce.
“To grow,” she says, “all corporations are continuously expanding their portfolios and working with cutting-edge venture start-ups.”
During the Internet boom, some corporations poured billions of dollars into shaky start-ups and got burned when the dot-com crash hit in 2001. Today, though, rather than cash out quickly when their start-ups go public on the stock market, more corporate giants are following the lead of IBM, helping to build the new firms over 10 to 12 years.
“We’ve come full circle,” says Tracy Lefteroff, global managing partner at PricewaterhouseCoopers. “Corporations are investing for strategic reasons, looking for new technology and products that fit their corporate missions.”
Likewise, start-ups benefit from a global corporation’s technology, distribution and marketing clout. But if the start-ups become successful, their partners could have a lock on buying their products or the firms.
“It’s a give-and-take, mutually beneficial relationship, like finding a spouse,” says John Park, a partner at the Morgan Lewis & Bockius law firm in Palo Alto, Calif. “But if you’ve got great technology, the Ciscos and Intels of the world will work with you and make concessions.”
Managing director Steven Weinstein of the $650 million Novartis Venture Funds, the venture arm of the Swiss health care titan, says that Novartis offers two funds: Novartis Venture, which provides capital to start-ups with no licensing or other commitments involved, and Novartis Option, which gives Novartis the right to buy a start-up’s new medical related technology.
“The entrepreneur has a choice of which flavor of capital he prefers,” Weinstein says.
