Like people who have lived through great battles, natural disasters or reality-based TV programs, survivors of the venture capital downturn band together. Now the industry’s chief trade association is providing a venue for these survivors to lick their wounds and ready for battles ahead.
The National Venture Capital Association (NVCA) announced last week that it formed a special group for corporate VCs brave enough to stay in the game. The NVCA Corporate Venture Group (CVG) was founded to “fulfill the information, education and networking needs” of corporate VCs, according to the NVCA’s announcement. Mark Klopp, managing director of Eastman Ventures – the venture capital unit of the Eastman Chemical Co. – chairs the new corporate group.
The CVG hopes to offer a kind of one-stop shop for entrepreneurs, traditional VCs and others to connect with the corporate program that best suits their needs. It also will provide a venue for corporate VCs to network and reach a consensus on issues relating to venture practices.
To say that corporate VC declined in recent years would be an understatement. In 2000, corporate VCs pumped about $17 billion into deals, according to the NVCA and Thomson Venture Economics (publisher of PE Week).
In 2001, that number was about $5 billion, a 70% decrease. Corporate VC activity has continued to decline, albeit more steadily. In 2003, corporate venture capital programs invested $1.1 billion.
Corporate VC groups were hit twice by downturns in the public market that followed the tech boom of the late 1990s. Corporate VC portfolios were beaten up by a marketplace that quickly obliterated companies it had formerly put in the IPO fast lane, and corporate VC units found themselves answering to parent companies increasingly desperate for cash and re-focusing on their core businesses.
But despite being decimated, corporate venture programs have things going for them in 2004 that they didn’t have in 2000.
“The very fact that the NVCA is introducing corporate venture capital is itself an interesting signal,” says Ari Ginsberg, a professor at New York University’s Stern School of Business. “Even with some of the thawing we’re seeing in the IPO market it’s clear that there is venture capital money around that’s not being put to good use and VCs continue to be wary about investing.”
Ginsberg adds that corporations haven’t been under siege the way that VCs have been as an industry the last few years.
Corporate VCs, infamous for paying too much for deals, have benefited from industry-wide lower valuations. Also, the economic downturn has left a larger pool of more experienced corporate employees (or ex-employees) with venture capital investing experience.
In addition, corporate VCs have shown an increased willingness to form syndicates and partnerships with traditional venture capital firms. Corporate venture capital groups that let a traditional VC take the lead in deals are more likely to survive downturns than those that try to lead deals.