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Three Defining Trends in Corporate Venture Capital Right Now
In 2012, BCG boldly proclaimed that corporate venture capital (CVC) “appears to be here to stay.” BCG’s report noted that, although corporate venture capital had been historically “prone to boom-and-bust cycles”, it had finally secured a stronghold across a broad range of industries. Today, 77% of Fortune 100 companies invest in venture capital, while 52% have established their own corporate venture capital arms.
We’re merely two months into 2020 and, already, the corporate venture capital landscape looks notably different than it did at the beginning of 2019. Here are three trends that are defining the 2020 corporate venture capital landscape.
1. Artificial intelligence.
Experts widely consider artificial intelligence to be the fourth industrial revolution. Its impact has the potential to transform every industry and every business, regardless of shape or size. Experts at Gartner predict that, by 2021, an impressive 80% of emerging technologies will have AI foundations.
It’s not surprising that overall venture capital investment in AI reached a record high in 2019. According to research by CB Insights, artificial intelligence startups raised a record $26.6 billion in 2019 across more than 2,200 deals, a notable increase over the 1,900 deals totaling $22.1 billion of 2018.
By all means, corporate venture capital has been eager to secure its fair share of investment in artificial intelligence companies. According to research by CB Insights, in terms of corporate venture capital investment, Intel Capital and Google Ventures topped investments in artificial intelligence startups in 2019. A close look at Intel Capital’s recent investments in AI underscore the vast potential tied to artificial intelligence innovations, especially in the hardware space:
- Cloudpick Limited: The Shanghai-based startup is transforming the traditional brick-and-mortar shopping experiencing by building technology that enables intelligent, cashier-free stores.
- Untether AI: The Toronto-based startup is developing high-performance AI chips that are specifically designed for neural net inference.
- SambaNova Systems: The Palo Alto-based company, which was founded by Stanford University professors, is building machine learning and big data analytics platforms. In a rather rare demonstration of the companies potential, Google Ventures also joined Intel Capital in the latest investment round.
2. Venture Capital as a Service (VCaaS).
There are no two ways about it. Corporate venture capital is difficult work. As Bain has shrewdly acknowledged, corporate venture capital firms, “often find it difficult to shake the conservative mindset that not only hinders corporate VC activities but is the very antithesis of a successful VC strategy.”
Bain is one of a slew of firms that has opted to launch Venture Capital as a Service (VCaaS) arms. The concept is simple. VCaaS entities manage funds for corporations that have their sights on investing in promising startups, both don’t have the resources or willingness to develop dedicated corporate venture capital arms.
Another VCaaS making big waves is Pegasus Tech Ventures. Pegasus has more than $1 billion in assets under management across for over thirty large corporations, including Asus and Sega. Because Pegasus, and other VCaaS providers, have one dedicated team overseeing investments for multiple corporations, it aims to reduce the operating costs involved in launching a dedicated corporate venture capital arm.
But perhaps the most lucrative potential benefit of VCaaS providers over dedicated corporate venture capital arms is incentive alignment. As serial entrepreneur and CIO contributor, Ben Bloch has explained, “Startups don’t have to cater to one corporate investor who may try and bend the strategy to suit specific needs. The VC firm can act as a firewall In this way, a multi-fund co-manager is far more attractive than a single investor.”
Africa has experienced considerable recent traction in terms of disruptive startups. In 2019, investment in Africa-based startups topped $1B, significantly more than the $726M raised in 2018. What’s more, in 2019, more than 90 Africa-based companies surpassed $1M in funding.
Africa’s recent peak in interest is, no doubt, a reflection of the signing of the African Continental Free Trade Agreement by more than 55 member states of the African Union in 2018. If the agreement is successfully executed, it’s projected to spawn an African market that is responsible for more than $3 trillion. To put that into perspective, this would be the world’s largest free trade region.
Africa’s recent success as a startup hotbed has attracted considerable interest from corporate venture capital entities. In late 2019, for example, Visa announced its intention to purchase a 20% stake in Interswitch, a firm that specializes in payment processing. It’s not hard to pinpoint why Visa wanted a stake in the Nigeria-based unicorn. Interswitch owns Verve, Nigeria's most used payment card, which accounts for the vast majority (18 million of the 25 million) of payments cards in circulation in Nigeria.
Toyota also sees potential in Africa. Its corporate venture capital arm, Toyota Tsusho Corp, has established an investment arm called Mobility 54, which is specifically targeted at Africa-based investments, specifically Mobility as a Service (MaaS) and CASE (Connected, Autonomous, Shared, and Electric) startups. Mobility 54’s first investment was Sendy. The Kenya-based company has built an on-demand platform that connects clients to drivers and vehicles to deliver goods through East Africa.
Corporate venture capital was once known as “tourist capital”, as a result of its high cyclicality and the fact that it tended to gain momentum in the “high season” when markets were strong and lose momentum when markets were weak. Over the past decade, corporate venture capital has become much less cyclical and a more reliable path for a more innovative future. As the average company lifespan of giant companies decreases, corporate venture capital will continue to attract the interest of corporations.
2020 is sure to be another exciting year for corporate venture capital.