The venture capital industry is experiencing a pullback from the highs of 2021, but that doesn't mean corporate VCs are sitting on the sidelines — especially when it comes to AI.
In 2022, 26.2% of all U.S. venture funding rounds included an investment from a corporate venture capital investor. That's the highest such percentage ever recorded, according to venture capital data firm Pitchbook.
The number of companies, and their in-house VC firms, that led venture capital deals also hit a high. There were 634 CVC-led rounds last year totaling $22.4 billion in value. That's up from the previous high of 596 deals for $17.6 billion in 2021.
More CVC-led deals occurred in 2022 than from all of 2002 to 2009, according to Pitchbook.
Total U.S. VC deal value involving CVC participation totaled $108.2 billion in 2022. That's down from 2021's high of $160 billion but still above pre-pandemic figures.
Pitchbook's analysis found that corporate venture investors have remained more active startup funders than other nontraditional investors, such as private equity and asset managers, which have taken larger steps back during the current VC downturn.
"CVC investors are really different than other types of nontraditional investors because of the strategic role that they are playing," said Pitchbook analyst Kaidi Gao.
While PE investors, hedge funds and other types of nontraditional startup investors may be pumping the brakes as the window for initial public offerings has closed for much of the VC ecosystem, corporations continue to invest to get close to new technologies that could help their businesses.
"They invest really early on and tap into those technologies that may be hugely beneficial or of strategic importance to the parent organization down the road," Gao said.
In 2022, more than 2,000 CVC investors participated in U.S. startup funding rounds. That number is less than 1,000 as we near this year's midpoint, Gao said, but CVC investors have participated in about 24% of all deals this year, close to last year's number of 26.2%. Gao said that shows that the corporate investors that are active continue to do so at a strong clip.
In 2021, Nationwide Mutual Insurance Co. added $250 million to its VC arm, increasing the amount available to invest in startups to $350 million. Despite the slowdown in the general VC market, Nationwide hasn't changed its pace of startup investing, said Brian Anderson, a partner at Nationwide Ventures, which makes three to five new investments and two to five follow-on investments each year.
"The world of capital has certainly changed over the last few years, with interest rates and equity market pull-backs," he said. "We’ve stayed pretty consistent in making investments in new companies and supporting the portfolio. ... For us, we want to continue the course."
AI fuels CVC
As AI, and generative AI specifically, has taken over the tech world, companies are setting up new funds to make sure they're investing in the white-hot startup sector.
In March, Salesforce Inc. launched a $250 million generative AI fund. It quickly doubled down on its AI investing plans by increasing that fund to $500 million earlier this month.
Workday Inc. earlier this year announced it would put an additional $250 million into its Workday Ventures fund to invest in emerging technologies like generative AI.
Amazon.com Inc. has announced an accelerator for generative AI startups, and even OpenAI, the buzzy AI startup behind ChatGPT, has launched its own $175 million fund to invest in promising generative AI startups.
"There are definitely a lot of incumbents that are trying to tap into [generative AI]," Gao said.
Investors double down
Lockheed Martin Corp. last year grew its total venture fund to $400 million. The fund launched in 2007 with a $100 million commitment. The defense contracting giant told DC Inno it has no plans to slow down as it aims to stay abreast of tech innovations across AI, quantum computing, robotics and other industries.
Lockheed Martin Ventures earlier this month invested in a Boston 3D-printing startup.
In February, United Airlines Inc. launched a $100 million investment fund targeting sustainable aviation fuel technology and startups.
Shopify Inc. recently unveiled more about its startup investing strategy through a new website.
Expect strong companies to keep investing in startups
Gao said 2023 has been a challenging year for many startups, and the second half of the year won't be much better. Pitchbook expects more pressure on the tech startup sector, and "a lot of mediocre companies are going to run into trouble," Gao said.
Quality companies, however, will continue to find funding, Gao said, and corporations with strong balance sheets will continue to invest in promising upstarts.
"We do believe CVCs with parent organizations that have a strong liquidity position are going to continue [investing]," Gao said.
