As seen in Global Corporate Venturing, July 2017 issue.
Since 2000, half of the companies in the Fortune 500 have disappeared -- either gone bankrupt, were acquired, ceased to exist or fell off the list. It’s a stunning number. The expectation is that this trend is set to continue and everyone is racing to stay relevant. We’ve seen a tidal wave of non-tech companies starting up venture funds, accelerators or innovation initiatives and so far there is no slowdown in 2017.
Corporate venture is not just a nice-to-have, it’s a must-have for many industries – ranging from carmakers to financial services to WalMart to Kellogg’s. Now more than a quarter of the top 1,000 companies with the largest budgets have a venture capital arm, according to PricewaterhouseCoopers.
No one-size-fits-all approach
Every day in my job I spend time looking at the various investment and innovation models, and there is no one-size-fits-all. Today, venture initiatives swing from entirely financial investment plays to entirely strategic ones designed to keep up with digital natives. Most fall somewhere in the middle.
The urgency is palatable. Consider the findings in the most recent State of the Markets report published by my colleagues at SVB Analytics, a non-bank affiliate of Silicon Valley Bank: Tesla’s market cap rose 91% over the past two years (as of March 31, 2017) overtaking Ford’s market cap which fell 28%. What is most striking is that Tesla delivered 76,000 cars last year versus Ford’s 6.7 million. In the lodging industry, Airbnb’s market cap (in the same two-year time period) rose 212% compared to leader Marriot, which increased 17% only as a result of an acquisition. Third-place Hilton saw its market cap plunge 34%. The takeaway is that the new market models are keeping even the most established companies on their toes and looking for new innovation.
CVC deals triple in past five years
This is very good news for entrepreneurs: Venture dollars, corporate expertise and access to customers and distribution channels are flowing to almost every industry.
The number of deals with a corporate venture partner has more than doubled in the past three years, from 871 in 2013 worth an aggregate $16.9bn to 1,961 worth an aggregate $83.2bn in 2016, according to GCV Analytics. Corporate investors are also increasingly dominant in later stages of investment. We are seeing some of the world’s best-known companies placing big bets. Among recent examples:
WalMart, which has operated innovation labs internally for several years, in March launched a venture capital arm, called Store No. 8. Unlike the internal lab, this venture is designed to invest in innovative online retailers and build partnerships with startups.
Porsche set up a tech-investment subsidiary in 2016, and in May announced a tech center in Silicon Valley, with 100 employees and a goal of investing in new companies and growing relationships with venture-capital companies. It also has invested an eight-figure amount in two Israel-based venture capital funds and plans to also open an innovation office in Tel Aviv.
Northwestern Mutual is creating a $50 million fund focused on early stage companies in consumer finance, digital medicine, data analytics and technology infrastructure. Northwestern Mutual Future Ventures will invest between $500,000 and $3 million in each company.
Food giants seek moveable feast
In May, consumer products giant Unilever’s venture arm announced it was investing $9 million in home meal kit company, Sun Basket. (Sun Basket is an SVB client). The company, which says it now reaches more zip codes than any grocery retailer in the U.S., expects to use the capital infusion to expand operations and manufacturing to give customers more choice in their home-delivered kits.
Unilever was early into venture activities, dating back more than a decade. But General Mills, Campbell Soup Co. and Kellogg Co. publicly launched their venture investment arms in the past 18 months. In General Mills’ case, like WalMart’s, the company moved from a focus on innovating internally to a model of investing in outside startups. And, interestingly, Kellogg’s venture arm chose the name 1894 – the year the company was founded.
Google, Microsoft, Saleforce boost venture investments
Of course, a lot of the venture investments continue to be made by the tech giants. In May, Salesforce Ventures announced a new fund for cloud-consulting startups. Google and Microsoft venture arms are showing a heavy interest in AI.
Startups are seeking cash infusions to develop products and execute go-to-market strategies. Corporations, whether bellwether tech leaders or 123-year-old cereal makers, are looking for smart investments to complement their financial or R&D strategies. We are all winners, as these kinds of matches will no doubt help accelerate innovation.