- Venture capital funding into startups has drastically slowed.
- In a bid to find other sources of cash, startups have turned to corporate venture capitalists.
- Corporate venture capital grew in 2022 and looks to grow again in 2023, bucking the broader downturn.
European venture capitalists are sitting on billions in dry powder.
Amid a global tech downturn, investors are more thrifty with the cash they deploy to startups. Continuing a pullback in funding activity in 2022, venture capital into European startups fell by 32.1% in Q1 of 2023, per Pitchbook data.
Faced with the prospect of raising down rounds at slashed valuations, startups are turning to an alternative mode of funding — corporate venture capitalists.
A corporate venture capital firm, or CVC, is the investing arm of a specific business. GV, for example, is an investing arm of Google. Funded by its parent company, a CVC doesn’t adhere to the typical 10-year venture capital cycle, which could be a lure for founders not looking for a quick exit. They can offer startups their network, corporate resources, and specialist expertise.
As a result, CVC is often a very attractive option – especially if broader market validation is still needed, according to Ekaterina Almasque, general partner at enterprise software and deep-tech firm OpenOcean and former head of Samsung’s Catalyst Fund. That’s because they focus more on strategic value than return on investment, she said. Such funds often mirror the parent company’s strategy closely, with the Catalyst Fund investing across 5G and cloud infrastructure.
In the case of deep-tech firms, this deeper understanding can be crucial in bridging the gap between research and development in a lab, and bringing a product to market, Almasque said.
CVC funding into early-stage startups surged in 2022, bucking a wider slump in VC investment. This left many startups unable to raise cash for scaling in a risk-averse market, something Almasque referred to as startup “death valley.”
Finnish quantum drug discovery startup Algorithmiq partnered with Presidio Ventures, the arm of Japan’s Sumitomo Corporation, during its recent $15 million Series A. That gave the startup access to a strong life sciences network, said cofounder and CEO, professor Sabrina Maniscalco.
Working with CVCs can bring industry knowledge, and access to helpful resources when developing new products, said Luis Valente, cofounder and CEO of iLoF, a startup that has developed a digital library of biomarkers for diseases. Securing funding from Microsoft and OSRAM Ventures was a strategic decision, said Valente, as both corporations are leaders in AI and photonics — a market that iLoF is eager to tap into.
They can also help cement important, money-making commercial partnerships, said cofounder and CEO of diagnostics startup Scan.com, Charlie Bullock.
Still, there can be downsides that startups have to grapple with.
CVCs can be less tolerant of growing pains and are quick to end their support, Almasque added.
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