Corporations are rushing into venture capital in greater numbers, pumping money into startup companies working on the next big thing.
This week Monsanto and Microsoft disclosed their partnership that will invest in agricultural tech firms in Brazil. The investment fund will look for companies developing digital tools for agricultural production.
It was the latest in a string of announcements about companies venturing into investing in startups. A small sampling of recent announcements from companies in technology and other industries:
- Samsung said it would invest $1.2 billion over four years in US startups working on Internet of Things applications.
- ZTE Corp will set up a $180 million fund to invest in mobile application and technology startups in order to diversify.
- HTC formed a consortium of venture funds to invest in virtual-reality startups.
- HP Inc. is scouting for startups developing 3D printing technologies, immersive computing, artificial intelligence, and the Internet of Things.
- Salesforce.com set up a $50 million venture fund as well as an incubator for cloud startups.
- Kellogg has a $100 million fund for investing in food startups.
- Campbell Soup started a $125 million fund for food investments.
- JetBlue has a multimillion-dollar fund for investing in travel and hospitality startups.
Corporate venture funding is not new. Google, Cisco, IBM, and others have run such funds for years. But it is growing.
The percentage of deals with corporate venture participation has risen for nine straight quarters, reaching 23.5% of all venture capital deals during the first three months of 2016, according to the MoneyTree Report by PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. That’s the highest level since the 2008 third quarter, when corporate venture groups were involved in 24% of deals.
“More and more corporations are choosing to launch venture units because they understand how important it is to keep their finger on the pulse of innovation,” Bobby Franklin, president and CEO of NVCA, said. “The benefits of this deeper engagement accrue not only to the parent corporations but also the startups as they draw on the knowledge, expertise and networks of the parent corporations to scale and grow.”
Getting a handle on what startups are working on has become increasingly important for even big companies, who have learned that competitors coming for their customers often bubble up from the startup world.
Investing in startups allows big companies to sample new technologies or product categories that might become part of their businesses without the direct expense of staffing an in-house unit.
Startups, for their part, get another possible investor in addition to the traditional venture-capital firms. When there’s competition for an investment, that’s usually good for the company receiving the investment.
Besides money, startups get a thorough vetting by the investing company, which could give them a stamp of approval with other investors in a later round of fundraising. They also get industry-specific expertise and entrée into the company’s manufacturing operations, sales channels, and marketing resources.
The downside for startups is that the investing company might not share the same vision for the technology or that the startup isn’t allowed the operating autonomy it would like. And prospective customers might not like that a startup is aligned with a competitor.
And, as it turns out, corporate venture capital is ramping up as traditional venture capital has pulled back.
While US startups raised nearly $60 billion in 2015 (the second-highest total in the last 20 years), according to MoneyTree, investment waned in the fourth quarter and into the 2016 first quarter.
Venture investment ebbed on concerns leading up to the UK vote on leaving the EU, a slowdown in the Chinese economy, and a weak market for initial public offerings.
Corporate venture could pick up some of the funding slack.
What kinds of businesses attract corporate venture dollars?
Software companies have been the biggest targets, receiving $1.2 billion in the 2016 first quarter. Biotechnology firms were next with $320 million, followed by computer and peripherals with $306 million.
Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.