Prediction:
More than 1,500 corporate investors will make a deal in the US during 2022.
Rationale:
Corporate VC (CVC) investment has been on the rise, but it has not simply coincided with the same investors making more deals. As startups have become able to quickly challenge large corporations for portions of market share, the need to incorporate emerging technologies and increase the breadth of product offerings has made startup investment a necessary strategy alongside internal R&D programs according to PitchBook Analysts. New CVC investors are coming not only from high-tech industries but from legacy industries threatened by disruption.
Caveat:
Predicting a market crash is not the caveat, but current public market volatility, and continued stress induced by COVID-19 and its many variants, could lay the foundation for corporate investors to look at their cash bases and decide to protect their capital until fear subsides. If this were to occur, it could cause fewer CVCs to launch, and keep inactive corporates from making deals in 2022.
Past years’ outlooks have included predictions of CVC growth but have focused on the dollars and financing counts rather than on the number of unique corporate investors. Corporate investment has grown significantly in recent years, topping $100 billion in deal value participation through Q3 2021. Deal count over the last decade has grown from just over 600 deals in 2011 to 2,300 deals in 2020, with 2021 seeing a boom to more than 2,600 deals through Q3, even before including our lagged data estimates. With this level of growth, it is natural that the number of unique CVCs would also significantly increase over that time. Many CVCs invest out of relatively smaller pots of capital, at least compared with the average VC, limiting the ability to materially increase the number of investments per year, and corporates without dedicated sourcing teams cannot be expected to make a large number of deals. So, with growth in deals, comes growth in investors. When we look at the growth in the number of CVC investors, it is interesting to note which industries have seen recent additions. In 2021, Alaska Air (NYSE: ALK), Scotts Miracle-Gro (NYSE: SMG), and Ryder System (NYSE: R) entered the investment market, all highlighting the changing nature and growing startup bases in more traditional, legacy industries. As startups are able to grow faster and challenge corporations sooner in their lifetime, emerging tech investments are a valuable way for corporates to iterate their products and develop new offerings while still leading in market share. We expect more corporations in legacy industries to continue adding venture investing to their growth programs moving forward. Another reason we remain bullish on CVC investment is that the COVID-19 pandemic placed a spotlight on nontraditional investors, which includes CVCs, with the belief that these firms would pull back from investment when economic adversity hit. While the predicted economic destruction did not fully occur, nontraditional investors, including CVCs, doubled down on the strategy—likely because venture investing has been a major source of growth over the past decade. It is also worth noting that of the 1,400-plus CVCs that have made an investment in the US this year, 769 of those had not made a VC investment in the five years prior to 2021. The high number of new, or previously dormant, corporates alludes to continued growth in the number of corporate participants in VC; it also indicates an increase in the number of investment opportunities. Venture dollars are important for companies to grow, but more and more, it seems that companies and their existing VC investors also view corporate partnerships as essential.
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