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Corporate Venture Capital Deals are Up! Up! Up! in the UK This Year, Whilst Deal Sizes Are Down! Down! Down! Can We Make Any Sense Of This Madness?

Tech Crunch’s sister site Crunch Base is a mecca for all things start-up funding related, and CB Insights, its number crunching, reports and analytics department, isn’t half bad either.

It’s hard to think of a more comprehensive source of start-up data – or a more accurate one.

Tech.eu is great covering Europe, Tech City News bang on the money with latest UK fundraisings, tech.London a great resource for anyone who needs to find out more about London’s start-up ecosystem, Beauhurst & GP Bullhound brilliant for analytics reports – but for sheer Bloomberg like consistency of tracking the progress of so many different companies, from all over the world, Crunch Base is the number 1 resource in our view.

Of course, to get access to the super in-depth data you are normally required to pay not inconsiderable sums to the gatherers of the data – which leads to some tough choices. What does the Financial Times, for example, give me for £45 per month, that I cannot find on Bloomberg, Business Insider or City AM, for free?

Do I really need to pay one thousand dollars per month ($5k for commercial use) for daily excel reports and access to the Crunch Base API, just for the sake of keeping tabs on startup’s metrics, traction etc?

Anyway, we digress; founders, analysts and journalists must make their own decisions about these things. We have merely taken advantage of a free report from CB Insights to try to provide readers with a bit of colour on the latest CVC (that’s Corporate Venture Capital) investment figures, for H1 2016.

In our view, semi-annual rather than quarterly reporting is generally preferable as trend spotters can get over excited by one anomalous quarter and make OTT predictions about what the figures might mean. The reality is, trends are hard to predict, and sometimes, there just isn’t much wisdom to be had from a set of figures that are unable to reflect the cut and thrust of real funding scenarios, in real life.

But you never know when a sharp piece of insight can make a huge difference to a situation, so here goes.

Across the world, CVC deals in H1 2016 were worth $12.7bn across 633 deals. This represents a decrease of 6% in the number of deals when compared with the same period last year, but dollar funding from the deals rose by 3%. 2016 is on track, the data suggests, to set a record for number of new deals, as well as CVC deals at the seed stage. 53 new CVC’s made a first investment in H1 2016, whilst 76 made investments at the seed stage.

Average CVC deal sizes are larger than their VC equivalents, the data shows this consistently over the last 14 quarters, and US deals are the biggest of all, typically above $20m over the last 5 quarters.

Google Ventures has overtaken Intel Capital as the world’s most prolific CVC in 2016 so far. 91% of its deals came from the US, with just 9% taking place in Europe. Google ventures shut down its UK arm this year after 3 years, and almost no investments made – which was a bizarre state of affairs, and possibly, whisper it, a missed opportunity?

Overall, CVC participation in deals was down year on year by 11%, whilst overall funding was down by a significant sounding 41% – although it has to be said Q3 ’15 was an exceptional quarter, with 377 deals done worth $11.3bn on their own. No other quarter in the last 5 years has come close to matching it.

CVCs have also achieved the feat of grabbing a more than 19% share of all Venture Capital deals for the eighth consecutive month, and there are twice as many CVCs today, as there were 4 years ago.

Is it good news for UK start-ups looking for corporate funding, or bad news for scale-ups as deal sizes flatten?

More corporate Seed activity in Britain?

Now let’s turn our attention to the UK.

In Q2 ’16, there were 21 CVC deals concluded in the UK – the most since records began in 2012, some 6 more than the next closest, Q2 ’15 and Q1 ’13.

In terms of the amount of funding raised, however, Q2 ’16 is the lowest for five quarters – £209m playing £313m (Q1 ’16), $553m (Q4 ’15), $432m (Q3) and $657m (Q2).

The most active CVC in the UK was Qualcomm Ventures, followed by SR one, with Google Ventures only in fifth place overall.

So it seems the data is telling us that Q1 2016 saw CVC deals take place at an average value of approximately £24m, whereas the most recent quarter has seen the size drop to just under £10m.

Contrast that with the anomalous Q2 ’15, when the average deal size was £40m, or Q1 ’13, when it was a little over £5m (15 deals, $78m raised).

In short, the brief history of CVC investment in the UK is skittish growth from 2012-15, followed by an explosion in the size, but not the number of deals, followed by a similar explosion in number, with a comparatively sizeable drop in value.

Perhaps, at a push we can say that corporates are increasingly aware of how traditional venture capital works, and are getting better at doing deals. This would certainly be consistent with the groundswell of media coverage they are receiving in the start-up press, and another reason for this, of course, is that CVC’s appear to be getting involved earlier.

Again, this would be consistent with the increase in seed stage deals that CB Insights notes, 76 so far this year globally, more than the whole of 2012 and on course to surpass last year’s record total of 131.

In the last year corporates, who had made tentative inroads into the London start-up eco-system, sponsoring events or launching task forces whose role was simply to put themselves about and try to build relationships with early stage founders with a view towards partnering them in the long term, appear to be getting more serious.

Now there are accelerators, incubators, and plenty of mentoring and co-working spaces, all provided by corporates, plus the emergent cult of the “intrapreneur”, a person or persons who can operate within a corporate as if they were leading a startup, bringing much needed innovation and fresh thinking to help corporates be more disruptive.

Perhaps the biggest losers, if this is really what is happening, might be the “scale-ups”, companies who want to grow and eventually compete with large corporates. It won’t be easy to compete for talent, out maneouveur, or find fresh funding to compete with a reformed corporate which is suddenly offering the best working conditions again, having learned the start-up script.

The evidence as per usual and despite the best efforts of statisticians, is inconclusive – but it could be that corporates are increasingly thinking – we should be buying more companies and using an acquisition led strategy – and if there’s one thing British founders are acquiring a slight reputation for, it’s selling at the first sign of a lucrative exit strategy, rather than battling a Goliath for supremacy. As corporates get more VC, perhaps VC’s will simply have to get more corporate. And some seriously ambitious founders, in the Bezos / Benioff / Spiegel mould, are going to have to make themselves known if London still wants to build decacorns.

 

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