Startups Dependent on Corporate VC Cash May Feel a Chill
Increasingly, corporate venture capital firms that have been longtime players in the tech space have been shutting down, or getting shut out of new funds from former strategic LPs. With the VC industry already ripe for consolidation, one has to wonder whether or not the VC scene will only be paid a brief visit by the corporates. If so, quite a few startups may be hard up for cash come next funding round. It begs the question: how long will corporate VC really be here for, this time?
Take Pinterest—should Rakuten decide the social network isn’t meeting expectations, the startup will have a tough time securing new capital, and certainly wouldn’t be reeling in any $100-million-plus checks for an up round.
No different than a VC fund trembling at the loss of an anchor LP, dozens if not hundreds of startups face an uncertain future absent not only GPs, but potential acquirers. Research in Motion, Nokia and Hewlett-Packard are all strategics that once had venture portfolios; now, it is uncertain whether any of these companies will exist in six months as we know them today.
Among those that once received backing from Hewlett-Packard’s now stagnant investment shop are Verdiem, a Washington startup that aims to improve energy efficiency within PC networks, and Mimeo, the on-demand printing service. It has been years since Verdiem raised a round, and Mimeo, which raised new funds about a year ago, is said to have done so without H-P (which provided it with backing, along with Draper Fisher Jurvetson and HarbourVest Partners, in the past).
Perhaps private equity firms like HarbourVest can step in to fill the void that will increasingly be generated by strategics. Growth equity and LBO shops will also have to fill in for what will likely become a growing number of failed VC funds that became unable to capture LP capital (that is, at least, if cues being offered from mega-pensions like CalSTRS and CalPERS prove true for other limited partners). After all, H-P’s quiet exit from the VC investing, smartphone and tablet scenes was just a sign of things to come for other strategics, like Nokia. And Research in Motion (which, through BlackBerry Partners Fund, still has stakes in more than a dozen companies) may not be far behind. News broke over the weekend that Research in Motion may–mercifully–spin off a startup it acquired less than a year ago. Less-developed properties will face an uncertain future if they geared offerings primarily toward the Research in Motion platform.
In a future forecast to include fewer VC firms and less capital, it remains to be seen how some already outsized rounds will justify future valuations. Perhaps instead of strategic capital, many of these startups should be pursuing strategic M&A, instead.
Russ MacTough said on August 13, 2012
What is the basis for this? Because 3 large corporates you cited have pulled back, that’s indicative of an industry-wide trend? CVC has made up more and more of total VC every year, and there is more cash on corporate balance sheets they can’t effectively deploy than ever before. What about: Intel, Google, Qualcomm, Cisco, SAP, Samsung, Panasonic? Not to mention the prevalence of CVC in life sciences. Before you post something like this that can skew an entrepreneurs willingness to work with a strategic partner, you should make sure it’s accurate.
vc said on August 13, 2012
Agreed. This article is extremely misinformed.
Jonathan Marino said on August 13, 2012
Intel, SAP, Google, I’ve all seen these players as regular investors in the tech VC space–you’ve got an excellent point on that. But Panasonic will be out, very, very soon: the company’s new CEO has declared a shift toward ‘white goods’ like washer/dryers, and away from things like televisions. All the VCs I just listed above, won’t be in the game too long.
I haven’t seen a very active Samsung in the VC space yet, but I could be wrong (or they could be geared more toward acquisitive). As for life sci, that wasn’t meant to be a part of today’s column–I’ve seen a good amount of investing from big strategics filling in for cash-strapped VCs. Hopefully, we’ll see MORE strategics, and not less, making deals–because venture capital firms in the tech space will perhaps be more hard up for capital than even life sciences investors were in recent years. Lastly, I wouldn’t want to skew an entrepreneur’s strategy one way or another (and, if you’re running a company, please, don’t make strategy shifts based on what a blogger says).