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Corporate venturing set to grow

Corporate venturers in Europe raised EURO2.5 billion last year and committed over EURO1 billion in 632 deals, according to the first European Venture Capital Association Corporate Venturing Activity Report. Corporate venturing represents around five per cent of total European venture capital investment, while in the US, the figure is closer to 15 per cent, revealing significant potential for growth in this sector.

The report focuses on direct corporate venturers, which invest in minority stakes of below 25 per cent in unquoted businesses. The average size of a corporate venturing team is seven, including support staff, managing portfolios in the region of EURO49.6 million.

Of the EURO2.5 billion raised, EURO874.5 million was from the parent organisation and EURO1.7 billion was raised from independent sources, such as banks and pension funds.

In terms of sector, 23 per cent of total investment was in software, 18 per cent in Internet technology and 14 per cent in telecoms businesses. By country, UK, France, Germany and Sweden received most investment.

Corporate venturing has been growing in popularity and a survey produced by the London Business School earlier this year suggested that companies with both corporate and financial VCs performed significantly better on IPO than those with just financial venture capitalist backing.

Further findings from the report reveal that around 74 per cent of direct corporate venturers had established subsidiaries specifically to run their corporate venturing programmes with specific pools of capital earmarked for investments rather than allocating sums on a case-by-case basis.

One such example is UK-based research organisation, QinetiQ, which has set up a subsidiary called QinetiQ Ventures with GBP25 million for investment. The fund will invest in new businesses created by QinetiQ and aims to be fully invested over a three year period in seed round investments in around ten new companies.

Francois Austin of the Corven Group, which combines a corporate venturing consultancy with a venture capital business, said corporate venturing has been building a better reputation for itself than in the past. “There is a far better clarity in corporate venturing than there was three years ago when a lot of corporate incubators were set up, most of which have collapsed. These corporates have now realised that there is a clear distinction between working as a corporate venturer and as a venture capital fund.”

He added that corporates have become more sophisticated and while in the past many were risk-averse, this is changing. Rather than nurturing their own seed businesses, large corporates are now more likely to invest in an independent start-up which will help to accelerate a project the parent is developing in-house and which it will eventually be able to carve back into the business.