Corporate Venture Capital ("CVC") and strategy

This is the first of a three-part series on CVC - "setting the scene"

There seems to be a general trend towards more and more companies staying private rather going public through an IPO, especially in developed markets. Statistics reveal that, globally, more money is spent on merger and acquisition (M&A) activity than is raised via IPO – and that the ratio has over the recent past, hit a two decade high.

While the magnitude above might seem surprising, it is even more prominent in highly regulated, process intensive industries such as financial services and healthcare, where some of the best-known household names are 100+ years old. Traditionally this has been the case because of the complexity and moat effects these industries provided. However, with the rise of a second machine age characterised by cambrian explosion of machine intelligence, platforms and crowdsourced intelligence, it has become imperative for incumbents to innovate at a faster pace and collaborate with startups proactively.

The new paradigm is one of constant collaboration with a startup that is nimble and how both can leverage one another's strengths. This is a theme that I have discussed previously, and my colleague Ashwin Kumar touched on when he discussed our investment in Trumid in July. The key question is what incentives are necessary to elicit such behaviour?

In recent years, corporate venture capital in financial services has emerged as a key vehicle that acts as that bridge. It has become a more important source of funding, especially at growth and later stages in multiple industries, but more so in highly knowledge / data / relationship and regulation heavy fields such as financial services.

This concludes part one of my three-part series on CVC. You can find part two here and part three here. Feel free to coment!