Corporate Venture Capital Is Reaching New Heights

Is corporate venture capital (CVC) — the investment of corporate funds directly in external startup companies — the future of VC funding?

The numbers don’t lie. Global CVC activity reached record highs in 2017: $31.2 billion in funding across 1,791 deals, according to CB Insights. That’s up nearly 19% over 2016 in terms of deals completed, and 18% in total capital invested, and triple what the figure was in 2013. Just Q4 of 2017 saw a record 470 CVC deals, totaling $9.3B in funding – the most since Q3 2015 — amid the global upswing in venture capital.

That means corporate VCs took part in about 16% of the 11,042 VC deals last year, covering about 19% of the $164 billion in VC transaction value.

Among the sectors with the most activity are healthcare and consumer packaged goods, as corporates look to gain an edge on organic, healthy, sustainable options. These investors are most active in countries like India, China and the UK.

CB Insights recently laid out the key stats in its 2017 report on the state of CVC:

66% increase in new CVC investors year over year: 186 newly active CVC arms invested throughout 2017. The number of CVCs active at the seed stage also grew by 45%.

GV most active CVC, GV & CapitalG invested in most unicorns: GV was the most active CVC in 2017, investing in over 70 deals. CapitalG (Google Capital) invested in the most unicorns.

Healthcare experiences deals and dollars spike, mobile and internet deals boosted by activity in Asia: Healthcare deals backed by CVCs were up 17%, while funding was up 27%. Mobile deals increased by 26% in 2017, while internet deals grew by 10%.

China, India, and the UK deal activity reaches new highs: CVC deals and dollars to Chinese companies increased 94%. India and the UK also saw record deal highs.

Massachusetts reaches deal and dollar highs, California funding boosted by $1B+ to Lyft: CVC investment in Massachusetts increased in 2017, with healthcare taking 47% of deal share. Funding participation to California increased to a high of $11.8B in 2017, despite reaching the 4-year low of 418 deals.

Download the full report

This is all happening for one reason: Growth in corporate R&D departments has stagnated and companies are looking outside for growth and innovation. Corporates have spent the last few decades ignoring their own internal innovation departments and now have no choice but to shop for the latest technologies, the newest developments and the cutting edge insights at smart startups.

The good news is that this activity has played a role in promoting the venture economy overall. There is a reason that VC and CVC activity reached historic highs in 2017 — and is on track to break more records this year — and this realignment of corporate innovation is it.

At iSelect, we’ve been deeply involved with CVC for some time, investing alongside a long list of corporates in a range of different industries, including Johnson & Johnson, Boston Scientific, Ascension Ventures, Archer Daniels Midland, Bunge, John Deere and more.

The partnerships are valuable for us, bringing new capital into the innovative industries like agriculture and healthcare where we are investing. But they also benefit the corporates involved, putting them directly in touch with the innovative entrepreneurs who are creating the products and the business models of the future, enabling them to indirectly support the kind of work that isn’t being done by corporate R&D departments anymore.

That’s a win-win.

Consideration

With 2021 well underway and with public markets still strong, we think it is an important time to highlight some of the key private market, venture investment themes that iSelect fund has identified for the year. We believe technologies transforming the Agriculture, Food and Wellness markets will flourish, with a focus on four areas: technologies that enable better food choices to drive better health outcomes, technologies that drive better, more profitable farm operations, technologies that drive the Consumerization of Healthcare, and biome-based treatment technologies. At iSelect, we invest for impact AND performance. We offer qualified investors access to emerging growth companies through our national venture capital strategy. Our unique structure allows our investors to continue to invest in these companies as they develop.

Timing

Why is now the right time for venture? The answer is that now is not explicitly the right time. Venture is something we need in our economy at all times. Now is not better than any other particular time. The question is, why ever stop? When we look at the challenges we’re facing in food and healthcare the reality is there is someone, somewhere who has an insight about how to build a product that will solve those problems. And if they put the right resources to it, they will succeed. As long as we need new technology to make life better or make our lives more enjoyable, we need venture capital to help fuel those entrepreneurs.

What is iSelect as a product?

iSelect is a very unique product, but when you break it into its parts it’s fairly easy to understand. On the front end we’re a traditional venture capital fund. We have a diligence process. We have an investment process. We have categories of industries where we have focus and real expertise, and we invest in companies in those areas that meet requirements for the fund. On the back end we’re unique in that we don’t raise a large amount of capital at one time and deploy it over the life of our fund. Each deal that we bring onto the fund, our investors have to prove and determine to invest in that deal. We have to constantly prove our diligence standards. It’s accessible, transparent and easy for investors to come in and see our comprehensive process.

What is the ideal iSelect company?

We are looking for founders that are passionate and we want the problem they’re trying to solve to be big, real, and painful. We want the solution to be revolutionary and we want our capital to be able to help them solve that problem. We want to know that they have customers involved and that the solution they’ve come up with actually meets those customers’ and market needs. And we want the team to be capital efficient with the money they’re spending.

What does the ideal iSelect company look like?

We’re looking for a company that has an opportunity to have a 10x return to our investment or greater in a period of three to seven years. What excites us at iSelect are companies that are solving big problems. We want companies that are going to be the Monsantos of the future. Not just in the size and the scope, but the impact they have on people’s lives. We want to create positive impacts on people’s lives, so we invest in areas like agricultural production and areas like producing healthy foods for our kids. They are problems that impact real people’s lives on a daily basis. That’s what we’re trying to do at iSelect. We’re trying to solve the big problems out there. Find ways to bring capital to the entrepreneurs who are the real heroes out there getting up every morning, beating away at these things that are problems that you and me and everyone else faces in their everyday lives.

What is iSelect?

iSelect is a venture capital firm. What that means is we look at hundreds and hundreds of different companies and we apply tough diligence standards to each of them, looking at whether the team has a good plan for growing the business, whether the team is qualified and credible, and more. We do that to resolve the few who provide the best opportunities for investors. And then iSelect takes that smaller set of investments and goes to investors who are interested in venture capital and provides a way for them to invest in these companies, either individually or all at once. We co-invest alongside other venture capitalists. We source transactions through to an exit where the company would become public or get bought. And we manage that whole investment process on behalf of our investors.

Corporate Venture Capital Is Reaching New Heights, and That’s a Good Thing

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