On March 19, the annual Technology Day of the Munich Network took place for the 8th time. This event is one of the key events for the German VC scene. In line with a recent trend in Germany, this year’s conference focused on Corporate Venture Capital (CVC) and accelerators (conference program – in German language).
My background is in the IT industry, where – at least from a global perspective – CVCs traditionally are not the dominant force, since there is a lot of capital available from independent venture capital firms. Therefore, it was quite a surprise for me to see how important CVCs have become in other industries and in the German venture funding scene.
Here are some highlights I took away from the conference.
Corporate Venture Capital Is on the Rise Globally
Michael Brigl from The Boston Consulting Group (BCG) presented a recent BCG study on corporate venture capital (study, registration required). BCG found that the percentage of large enterprises pursuing CVC activities has increased significantly across all relevant industries. The highest percentage was found in the IT technology industry, with engagement rates now at 70%, up from 50% in 2007. The number 2 industry is pharmaceuticals, and number three is the telecom industry with a 57% engagement rate, up from 37% in 2007.
And in contrast to previous cycles, BCG believes that this time, the corporate venture arms are here to stay – because now they are a strategic:
“We strongly believe that this time it is different. Venture investing appears well on its way to establishing a firm foothold in the corporate world as companies look to nascent companies not just to generate financial returns but also to complement their R&D efforts, penetrate fast-growing emerging markets, and gain early access to potentially disruptive technologies and business models.”
Corporate Venture Capital Is a Big Deal in Germany
Many large German corporations or corporations active in the German market established CVC entities in the last couple of years – for example the following companies that participated in panel discussions:
- Bilfinger (since 2012)
- BMW (since 2011)
- Bosch (since 2008)
- Evonik (since 2012)
- Telefonica: Wayra
- Telekom: T-Ventures
- Vodafone (since 2000)
Many of the CVCs have significant funds to invest and therefore, they contribute a significant portion of the total venture funding that is available in Germany. Venture and growth investments in Germany totaled 1.23 B€ in 2012: 521 M € in seed, early stage and later stage investments, plus 709 M € in growth investments (source: BVK press release – English and BVK-Statistik 2012, Tabelle A6a – in German).
Compared to the US with 26.5 B$ invested in 2012, venture capital investment in Germany is clearly lagging behind: at a currency conversion rate of 1.30, the German VC investment in 2012 was about 1.6 B $. That is, venture investment in the US was more than 16 times higher than in Germany. However, the total US economy is only about 5 times bigger than the German economy (GDP based on purchasing power parity).
Corporate Venture Capital (CVC) activity is on the rise globally. In the German market, which is characterized by a relatively small venture capital sector, CVC contributes a significant part of total available venture funds. German startups should also consider CVC as a potential source of investment.
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