Growth of Corporate Venture Capital

Corporate venture capital (CVC) refers to venture capital investments made by established companies in startup companies. Through CVC, corporations can gain insights into emerging technologies, access innovative products and talent, and pursue new growth opportunities. CVC has become an important strategic avenue for companies across industries to stay competitive in an increasingly uncertain, rapidly changing business landscape. This article traces the evolution of corporate venturing over the past several decades.

Beginnings in the 1960s

In 1914 the chemical manufacturer DuPont made one of the earliest CVC investments in the United States by backing a young startup called General Motors. However, the establishment of more systematic CVC programs did not begin until the 1960s when large American conglomerates like 3M, Dow Chemicals and DuPont began experimenting with multiple minority equity investments in young technology firms. The investments were relatively small, ad hoc, and driven by individual business units rather than a centralized strategy, but some early successes generated interest in CVC as a way to stimulate innovation and identify disruptive technologies outside the core business.

Growth in the 1970s-90s

CVC activity expanded significantly through the 1970s and 1980s, as more corporations formalized their venture programs. The number of active corporate investors grew from under 50 in 1975 to over 250 by the mid-1980s. Firms like Exxon, General Electric, Johnson & Johnson, Monsanto, and Intel emerged as prominent CVC players during this period. Investments were primarily focused on next-generation technologies relevant to the corporation's business sectors. Many CVC units were set up as subsidiaries with autonomy and incentives to generate financial returns.

However, the CVC wave saw a relative downturn in the 1990s, as several companies shut down or reduced venture investing after disappointing results. Factors like lack of alignment with business units, insufficient experience with startups, and pressure for short-term earnings growth led to the decline. The tech-bubble bust in the late 1990s further dampened corporate venturing activity. Nevertheless, some firms like Microsoft, Cisco, Lucent, Deutsche Telekom sustained their CVC efforts through the decade.

Resurgence since late 1990s

Corporate venturing regained momentum from the late 1990s, driven by the rapid growth and success of entrepreneurial startups across sectors like internet, biotech, fintech, media, healthcare. As the pace of innovation accelerated, established companies found themselves compelled to adapt to technological advancements and emerging competitors. They did so by employing a multifaceted approach that encompassed internal R&D, partnerships, acquisitions, and venture investments. CVC subsequently surfaced as an appealing avenue for firms to gain early exposure to and ownership of innovations within and beyond their ecosystem.

During the 2000s, CVC experienced a rapid ascent, witnessing a fivefold increase in annual investments in the United States, surging from under $5 billion to over $25 billion. Prominent CVCs were launched by Intel, Google, Comcast, Eli Lilly, Walmart, GE, Cisco, Microsoft, Samsung and Amex during this period. Europe and Asia also saw significant growth in corporate venturing activities. A vibrant ecosystem of innovation that includes accelerators, startups, and VC funds has supported the latest CVC boom.

Current landscape

Today CVC is widely embraced as an open innovation strategy combining financial returns with strategic value. CVC units are professionally managed with dedicated resources and structured processes. While technology and healthcare account for a major portion of deals, CVC programs have expanded across industrial, consumer, financial, agriculture and energy sectors. Leading corporates invest billions of dollars annually through their venture units across startups' life cycle from seed to pre-IPO. With an increasing share of innovation being funded by venture capital and disruptive innovation accelerating, corporate venturing is poised to become even more relevant for incumbent firms.

Figure 1: New CVC units launched globally per year (2011-2022)

Source: Global Corporate Venturing (2023)

Despite the economic cycle fluctuation, the total number of CVC units continues to rise: in 2022 there were over 100 new CVCs launched. As of 2023, there are over 2,500 active CVC units globally, increasingly owned by smaller parent companies in various industries: almost a fifth of them belong to companies with yearly revenues under $1 billion USD.

This trend is particularly prevalent in Silicon Valley, where numerous high-growth startups such as OpenAI, Stripe, Coinbase, SurveyMonkey and Hubspot have already launched their own CVC programs.

Future outlook

Corporate Venture Capital has evolved from its tentative experiments in the 1960s to become a multi-billion dollar strategic growth engine. While it was initially dominated by large technology corporations, CVC now encompasses a wide range of industries and companies of all sizes.

With VC emerging as a key conduit to access external innovation, CVC programs and practices are maturing rapidly across the globe. Corporate venturing activity is expected to continue flourishing as companies increasingly look beyond their boundaries for strategic advantage.