Corporate Venture rising...

Credit to Paul Kedrosky who alerted me to the latest data from the National Venture Capital Association (NVCA) regarding corporate-sponsored venture cap funding. According to the NVCA, the recent quarter marked a high point for corporate VC funding (in both dollars and as a percent of total venture funding) not seen since 2002.

• Corporate Venture Activity on the Rise

Paul contends this is a great contrarian indicator, which makes some sense intuitively (although I don't have the empirical experience in my own right to agree or disagree with his contention). Either way, one has to wonder what this says about the state of corporate outlooks. The pessimist in me would point to the litany of write-downs we had to endure during the last 90s cycle of corporate led VC and has me worried that companies are making poor use of their cash hoards by putting money into a discipline they're not ideally suited for. But the optimist would like to think it's a sign that corporations are confident enough in the medium- and long-term tones of business that they can push innovation with marginal dollars versus a more mundane (if not shareholder friendly) use for the cash.

Where do you stand on this issue? Is this a warning sign that the VC bubble is about to burst? Or are you in favor of this trend as an indication of a health long-term outlook for corporate spending outlooks?

nvca vc kedrosky corporate vc woodrow

Comments

[Wood]

Tom,

Great questions. I'm certainly not the definitive expert on Corporate VC and, frankly, I think each corporate VC program is probably different in both its construct and mandate.

I know that SAP Ventures has traditionally been more autonomous historically in that Jeff, Liz Reeves and the rest of the team haven't had to make their investments with an immediate bent toward how they might fit within SAP proper.

If you look back at the bubble, corporate VC was out of hand as companies were trying to hit home runs as they saw all these dot coms explode. You probably remember that many staid, slower growth companies were actually pushing to be higher valued based on the FV of their venture holdings. Problem with that is, six years later, most of those holdings were worthless and eventually written down to zero.

The Netweaver Fund is particularly interesting in that:

A) It's not under the SAP Ventures umbrella
B) It's going to take larger stakes than Ventures does typically
C) It DOES have a specific mandate to foster the Netweaver ecosystem

I've written about the Netweaver fund several times, if you care to give a look:

http://woodrow.typepad.com/the_ponderings_of_woodrow/2006/08/netweaver_fund_.html
http://woodrow.typepad.com/the_ponderings_of_woodrow/2006/05/lisa_reeves.html

Best,

Jason

[Thomas Otter]

Jason,
These questions may merely highlight my ignorance....

The question I've asked myself after reading this is what's the purpose of a corporate VC?
I dont think it is really about the return on capital, because they would be better giving the money to someone else to manage (you perhaps?), or if awash with cash, giving it back to shareholders...

I guess things like SAP ventures are about picking up on new but related trends before they become mainstream. I'd be interested on your take on the Netweaver fund and how this complements or collides with SAPs other venture activities.

Do any companies outsource their VC to VC firms? (Instead of running an inhouse fund, they have an external firm run the fund, but with a set of investment constraints set by the company?)