A November article in the Economist looked at the drivers for the recent growth in corporate venture capital (CVC) activity, noting that a broad range of companies (from 7-Eleven and Boots to BMW and Citigroup) are making investments in startups.
Setting up VC arms is a way to identify life-threatening changes to their business early, so that they can adapt or, better yet, get in on the act, says Ben Veghte of America’s National Venture Capital Association"
It's clear there has been a surge in this area: the number of CVC units worldwide has doubled to 1,100 over the past five years, and that 25 of the 30 firms making up the Dow Jones Industrial index have one. What's up for discussion and debate are the drivers for this growth. Some view the rising CVC activity as a bubble driven by available cash and a hot IPO market that is likely burst -- as previous CVC booms have done.
Others see new elements: a desire to make strategic investment in new companies that align with corporations' long-term strategies, and a fear that their current businesses could be disrupted by these same class of startups. And there is the lure of faster, less-expensive innovation that these small, agile companies could provide (compared to internal R&D).
What's your view -- will the trend continue? And what's the best purpose for corporate venture capital investments?
-- Segundo Saenz