The Wall Street Journal recently noted the increasing importance of the corporate venture capitalists in the innovation ecosystem. http://blogs.wsj.com/venturecapital/2012/10/31/corporate-vcs-here-to-stay-this-time-study-says/tab/print/.
They base their conclusion on a recent BCG report which describes the change in corporate venture capital. http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-120570. I have seen three of the four cycles in the BCG report and I agree that this cycle is different because of the critical role of innovation in large companies. Innovation has become essential for large corporations and corporate venture is a significant tool to manage innovation. As the BCG report notes in conclusion: “Considering the benefits that venture investing offers when best practices are employed, the real question is whether corporations can afford not to join the game.”
The BCG report focuses on the return of corporate venture capital, but another critical trend is the rise of Chief Innovation Officers (such as Debby Hopkins at CitiBank and Marie Quintero-Johnson of Coca Cola). These executives coordinate their company’s innovation strategy using tools from corporate venture to internal piloting, internal research and development, collaborations and mergers and acquisitions. The role of the Chief Innovation Officer was described in a very perceptive analysis by James Mawson in the September 2012 edition of Global Corporate Venturing www.globalcorporateventuring.com.
In the midst of a financial and economic crises, and in the midst of uncertainty associated with a historic presidential election, the DLA Piper 2008 Technology Leaders Forecast Survey found that industry leaders have a host of concerns, but are fundamentally optimistic about future opportunities. http://www.dlapiper.com/tech_survey_release/. The survey is part of our first Global Technology Leaders Summit.
These top executives revealed that 75% of them have been adversely affected by the economic slowdown. Only 15% of respondents think the U.S. economy is likely to rebound in the first half of 2009 and more than half of respondents (55%) believe the IPO market will not begin to rebound until at least 2010. With responses received between September 23 and October 6, the survey was conducted as Congress debated the $700 billion bailout bill and during a tumultuous two weeks on Wall Street.
Approximately 90% of respondents do not believe the IPO market will return until at least the end of 2009 which is not surprising given the extent of the current economic crisis and the shutdown in the IPO market that occurred following the Tech Bubble Burst in 2000.
These views of liquidity issues have clearly affected the views of venture capitalists which have a very different view of the financial crisis than executives of technology companies. Nearly half (47%) of finance and venture capital respondents say the current financial crisis will have a more adverse impact on the technology industry than the Technology Bubble Burst of 2000. However, 67% of technology company entrepreneurs and leaders disagree. We think the difference between the two groups was largely due to the emphasis of venture capitalists on exit issues such as M&A and IPOs – which are likely to be more adversely impacted in the near term – than longer-term operating results.
These concerns are also reflected in the recent pronouncements by venture capital firms such as Sequoia Capital and Benchmark which I have summarized in my earlier post. http://www.lawandlifesiliconvalley.com/blog/?p=77
Matt Aslett of 451 Group notes that announced venture capital investments in open source vendors in the third quarter of 2008 was down 12.2% over the third quarter 2007, from $87.2m to $76.5m. The overall market itself is down 6% overall.
Given the fact, that the first quarter of 2008 was the largest ever for open source investments and that second quarter investments were also significant, this reduction is unsurprising. Matt noted that the open source market is small enough so that even one missed deal can effect the statistics. His analysis also notes that the deals in this quarter are more late stage and the average deal size is larger ($9.6m); only two Series A/Seed deals were announced. For more information, see Matt’s post. http://blogs.the451group.com/opensource/2008/10/16/vc-funding-for-open-source-down-12-in-q3/.