Corporate venture capital has been on its way out for a while,
but it isn't quite gone. And now it's hinting at a
comeback--with some big names behind it.
European wireless heavyweight Orange S.A., one of France's
largest companies, didn't even begin venture activities until
late 2000, after the Internet bubble had burst. And Orange
isn't alone. Applied Materials Inc., a Santa Clara, California,
multinational maker of semiconductor manufacturing equipment,
started a new venture fund last fall. Nestle S.A., the Swiss food
giant, kicked off its VC unit in March 2002.
These companies are serious, too. Orbotech Ltd., a NASDAQ-listed
Israeli maker of printed circuit board inspection equipment, began
a VC unit in June and has already invested $7 million in three
companies.
Content Continues Below
Whatever their vision, these companies are certainly going
against the tide. The number of active corporate VC firms shrank
from 381 in 2000 to 272 at the end of 2001, according to the
National Venture Capital Association. Total corporate venture
investments fell from $15.8 billion in 2000 to $4.7 billion last
year, as the number of corporate venture deals was dropping from
1,934 to 880.
"There's been a lot less getting in than getting
out," says Dave Barry, vice president of Asset Allocations,
the Wellesley, Massachusetts, publisher of the Corporate
Venturing Directory and Yearbook.
The climate in the industry creates some advantages for the new
round of corporate venture units. With venture capital scarcer,
they have the opportunity to cut better deals. And don't forget
that competitors are still dealing with existing portfolios of
often-troubled companies they invested in during the bubble
days.
Jeff Brown is one entrepreneur who can testify to the remaining
vigor in corporate venture capital. That's because Orange
Ventures has invested $1.5 million in RadioFrame Networks Inc., the
55-person Redmond, Washington, wireless technology company where
Brown is president and CEO.
"You'll see more of [corporate venturing]," the
42-year-old says. "It makes a lot of sense." Indeed,
corporate venture investors say they can still get new ideas and
new markets for their own goods and services and, in some cases,
keep innovative technologies out of the hands of competitors
through investing in small companies.
Today's corporate VC tends to be more patient, more
strategic, less concerned with cashing out and less willing to
invest in untested ideas. It's difficult, however, to
characterize a group of companies with ties to industries as
disparate as telecommunications, biotechnology, software and many
others.
Some corporate investors mainly want to identify and get stakes
in companies they may someday acquire. Others want to tap into
promising technology. A few are like traditional venture
capitalists, purely interested in return on investment.
For entrepreneurs, corporate venture offers several pluses. Jeff
Brown liked Orange because it could someday be a major user of
RadioFrames' technology, which improves performance of wireless
networks inside buildings. Other entrepreneurs like corporate
investors because they can get early access to the larger
companies' next-generation technologies.
That was one of the benefits for Alisa Nessler, the 44-year-old
CEO of Austin, Texas-based Lane15 Software. The 50-employee company
sells software for managing next-generation computer data networks
and needs advance warning of trends and technologies in
microprocessors and computer systems. Investments from Intel
Capital and Dell Ventures, as well as other VC firms, ensure
Nessler has an insider's knowledge.
If you're interested in corporate investors, start by
feeling out suppliers, customers and others you do business with.
Nessler says Intel's interest in financing her start-up showed
up unexpectedly in early conversations about her company's
technology. Also network heavily with other entrepreneurs, bankers,
angel investors and professionals such as attorneys and
accountants. Most corporate investments come through referrals,
especially from traditional VCs who want the benefits of corporate
sponsorship for their investments.
Corporate investors rarely invest by themselves, preferring to
group with traditional venture investors, usually in later stages.
But they do invest in young firms; Nessler's company was about
a year old when it landed its first rounds. If you can get
traditional VC financing, you can probably get corporate
venture.
"It does look like some large companies are re-evaluating
their goals and their portfolios," says Nessler. "But I
still see corporate investment."
And time may be on your side if you can wait for the venture
environment to return to, if not millennial frenzy, at least
healthy activity. That day isn't far off, according to Mike
Dolbec, a former corporate venture capitalist with 3Com and current
head of Orange Ventures. "By the time you print this
story," he predicts, "the pendulum will have swung full
circle."
Contact Sources