Capital Markets

Corporate VC Investment at 4-Year High

In Q2, corporate venture capital groups participated in 195 deals, or 22.2 percent of all venture capital deals completed.
Stephen TaubSeptember 19, 2006

Corporate America is bullish on new businesses. In the second quarter of 2006, corporate venture capital investment reached its highest level since the first quarter of 2002, according to a new report.

In the second quarter, corporate venture capital groups participated in 195 deals, or 22.2 percent of all venture capital deals completed. These deals accounted for $602.5 million, or 9.2 percent of all dollars that venture capitalists invested during the three-month period, according to the MoneyTree Report, issued by PricewaterhouseCoopers and the National Venture Capital Association (NVCA) and based on Thomson Financial data.

Corporate venture capital is defined as operating corporations investing directly in portfolio companies, either on a sole basis or alongside traditional, independent venture capital funds. These corporate entities are also sometimes called strategic investors.

The increased activity has been steadily rising during the last 18 months. “The uptick in corporate venture capital activity suggests that large companies are currently in a position to look to the future and take some risks as it relates to new technologies,” said Mark Heesen, president of the NVCA, in a press release. He added that corporate commitment to venture capital has ebbed and flowed over time as companies regularly get pulled by both the need to meet short-term earnings goals and to invest for the long-term.

During the first six months of this year, 358 companies received corporate venture capital dollars. In 2005, a total of 535 companies received funding from the same source, up from 516 the prior year, and just 437 in 2003, when financing in general dried up in the aftermath of the early century recession. The sectors receiving the highest percentage of corporate dollars in the first half of 2006 were telecommunications, biotechnology, and software at 15.3 percent, 15.2 percent, and 14.6 percent, respectively, noted the report.

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