VC Insights

Paul Kedrosky | Senior Fellow, Kauffman Foundation


Among the many major changes in the venture capital market in recent years is the increasing role of corporates, both as investors and as buyers. While that activity hasn't entirely offset a weaker IPO market, it has helped.

In the last two years corporate venture investing has passed pre-dotcom levels. We will see more than 200 investments done by corporate venture investors in 2012, which is ahead of 1999 activity. Corporate firms like Google Ventures have become key players in the venture market.

Corporates have also become much more active acquirers of early-stage companies. Last year we had a record number of acquisitions, 458, up from 442 in 2010. And we are on a pace to beat that figure again in 2012. According to the NVCA, almost one-quarter of those companies sold for an appealing 10x or more their total venture investment.

What is fueling higher corporate investing & buying activity in young companies? Money and turmoil. The total combined cash on the balance sheets of major technology firms (i.e., Amazon, Apple, Facebook, Google, Microsoft, etc.) now exceeds $155-billion, up from $40-billion in 2004. Add to that the combined $1.2-trillion market capitalization of these companies, and you have immense buying power.

The money is being put to urgent use. The rise of mobile, cloud, big data and other trends have thrown major technology companies into turmoil. They are scrambling to buy companies that fill out their strategies and keep them from being disrupted, which has created a boom time for startups (and their investors) that find the right niche.