Corporate venturing losing appeal

Corporate venturing in Europe continued to fall in 2002, down 38% to €337m from €544m in 2001, according to the European Venture Capital Association’s 3rd Corporate Venturing European Activity Report 2002. The number of investments by corporate venture funds was also down from 474 in 2001 to 377 in 2002, with 54% of the investments going to start-ups and 41% to expansion deals. Germany leads the way in corporate venturing with German companies accounting for 47% of deals done.

Although corporate venturing programmes are often considered strategic activities by the corporate parent, the survey indicates that financial gain is a key factor in 76% of the funds surveyed. Divestment at cost increased to €303m in 2002 from €244m in 2001. Write-offs accounted for 50% of divestment at cost, as corporate funds continued cleaning up their portfolios. Trade sales accounted for 25% and sale of quoted equity added a further 16%.

European corporate venturers raised €58m for their funds from independent sources in 2002, a decline of almost 70% from 2001, when €179m was raised. Other corporates were the main source of independent fund raising during 2002 compared to banks and financial institutions in 2001.

Most sectors received less investment than previous years. Biotechnology was the exception with 32 companies receiving funding from corporate funds compared to only 19 in 2001. The major sectors for investment were computer software, consumer products, telecommunications hardware and biotechnology, which together accounted for 49% of total investments by volume and 51% by value during the year.

Alan Duncan, director at Prelude Ventures and a member of EVCA’s high-tech committee with responsibility for EVCA’s corporate venturing initiatives, said: “It is not surprising to see that the 2002 EVCA data confirms a slowdown in European corporate venturing investment as this mirrors what has happened with most of the European venture industry. It is, however, encouraging to see that 377 companies received funding from corporates during the year and that the levels of syndication reported have increased.”