Corporate venture capital groups are taking a more assertive role than ever to engage innovators who are developing new technologies, products and services across a wide range of industries.
Since 1995, corporate venture capital investment as a percentage of total venture capital investment has grown by 80 percent and the number of corporate venture groups has continued to rise. In 2013 alone, corporate venture groups invested $3.1 billion in 693 deals, which represented 10.6 percent of all venture capital investment, growing from $1.5 billion in 539 deals in 2005, according to data from the National Venture Capital Association and Thomson Reuters (publisher of peHUB and affiliate publication VCJ).
Previous cycles of the 1960s, 1980s, and early 2000s corporate venture investment were driven primarily by corporate motives for strong financial returns. The current cycle, which started in 2005, has been driven by the fundamental need for corporations to work alongside entrepreneurs in order to innovate more quickly and efficiently; get early insight and access into disruptions; and quickly penetrate emerging markets.
Launched in 2000, IBM’s Venture Capital Group (VCG) has actively created its own networks among IBM, startups and clients to drive innovation in the marketplace, accelerate partnerships and gain insight for internal strategy development.
Today, the IBM Venture Capital Group partners with 300 top-tier venture capital firms and their portfolio companies around the globe to help guide and influence IBM’s strategic decisions. The IBM VCG is an essential component of IBM’s corporate strategy. Working with startups and the venture capital community is a key factor driving IBM’s ability to build and strengthen new markets such as cognitive computing, cloud, mobile and big data/analytics.
In addition to helping to guide IBM strategy, the IBM VCG works with many of IBM’s largest clients to share our advice and experience to help drive their innovation strategy and understand key investment trends in their industry and adjacent industries to identify new growth opportunities.
Recently, the rising importance of cloud and mobile software have fed the new surge in corporate venture. With the focus on software comes a new emphasis on the opportunities to make new markets in technology and business. IBM’s new partnership with Apple demonstrates a commitment to driving innovation in mobile enterprise computing.
Beyond the more than 100 apps that will be developed by IBM and Apple, this new class of smart and secure enterprise apps will foster greater focus of innovation to the enterprise market, an area of mobile that is poised for growth and will transform how work is done across a variety of industries.
The growth of corporate venture units is also driving change in the investment networks being formed to include partnerships with institutional venture firms and corporate venture group syndicates. An example of the value of such a network is the IBM Watson Venture Fund. The fund was created as part of IBM’s January 2014 establishment of the IBM Watson Group, a new business unit dedicated to the development and commercialization of cloud-delivered cognitive innovations.
IBM has invested $1 billion into the Watson Group, including 2,000 new hires, a new headquarters in New York and a commitment of $100 million in venture investments to support a new ecosystem of software application providers building Watson-powered apps in the IBM Watson Developers Cloud.
It is clear that corporate venture capital is becoming a strategic “must-have” at leading organizations, with corporate venture units entering deals at earlier stages than ever. Series A investments nearly doubled from July 2010 through June 2013, indicating corporations’ increasing eagerness to capture new ideas early, as well as their growing skills and sophistication in venture.
At IBM, we are eager to keep our finger on the pulse of these opportunities and continue engaging the startup ecosystem to drive innovation and create new business opportunities.
Claudia Fan Munce is managing director of IBM Venture Capital Group, vice president of corporate strategy at IBM and a board member of the National Venture Capital Association (NVCA).
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