Corporate Venture Funds
Coming of Age?
Companies are under tremendous pressure to foster a steady stream of innovation, thanks to both shareholder and customer expectations. One way to pursue innovation is through a corporate venture fund: corporate capital or in-kind investments in emerging firms. Although only 19% of survey respondents report that their company currently has such a fund, nearly half expect the number of funds in their industry to increase. However, it’s possible that reality may not live up to this perception, since only 12% of companies without venture funds expect to establish one themselves during the next two years. Nevertheless, broader market trends indicate that corporate capital is a growing force in the venture game. Both the number of funds and the percentage of overall venture dollars coming from such funds has been on the rise since 2009. In 2012, over 15% of venture-backed deals had some involvement from a corporate partner, the highest proportion since 2008.1
Why have a corporate venture fund?
About two-thirds of respondents (62%) feel a venture fund provides a company with a competitive advantage. In fact, there are a number of advantages to investing in early stage companies from a corporate investor’s point of view. A primary one is that executives at the investing company can quickly get up to speed on new areas of innovation that may be outside their core competencies, giving them a broader view of new market opportunities. It also has the potential to accelerate the growth of the emerging company by leveraging the know-how, brand and resources of a typically larger, established company.
If the strategic fit ends up being a strong one, the investing company often has the right of first refusal on any acquisition offer, so it doesn’t lose the advantage once the emerging firm is ready for prime time. However, acquisition is not necessarily the main objective of many corporate venture investments; the vast majority of respondents (79%) say that fewer than half of their investees ultimately end up becoming controlled subsidiaries.
For information about the Corporate Development survey report, please contact Chris Ruggeri, M&A services leader, Deloitte Financial Advisory Services LLP.
M&A business case forecasts: Managing uncertainty and maximizing deal value
Watch the Dbriefs webcast replay.
Exploring M&A excellence.
Merger & Acquisition library
One-stop for insight and advice.
Deloitte Corporate Finance
Leader in global middle market investment banking.
Corporate Development 2012 report
Leveraging the power of relationships in M&A.
As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.