CVC #9: Top 4 takeaways from unpacking current VC/CVC environment
Various market reports and surveys have surfaced in the past days and weeks, illuminating the current landscape of Corporate Venture Capital (CVC) and Venture Capital (VC). In this dynamic environment, I have summarized my key takeaways of these latest publications, coupled with direct links to the source material, ensuring you have instant access to the pulse of the CVC and VC:
CBInsight.com State of Venture Q32023
2023 state of CVC report by Counterpart, SVB and pitchbook data
European Investment Fund (EIF) VC survey 2023
German Startup Monitor from Startup-Verband and PwC
1) VC market shows slight volume growth again in 3Q on pre-peak level
After a series of declining quarters since its peak in 4Q 2021 at USD 183.0 bn, the funding volume saw growth again in 3Q 2023, totaling USD 64.8 bn —an increase of USD 6.4 bn (11%).
This growth was primarily propelled by mega-rounds, constituting about 46% of total funding in 3Q 2023. Notable mega-rounds included H2 Green Steel (USD 1.6 bn), Anthropic (USD 1.2 bn), Northvolt (USD 1.2 bn), ROX Motor (USD 1.0 bn), Redwood Material (USD 1.0 bn), and Stack (USD 1.0 bn).
The number of deals further decreased from its peak in 1Q2022 of 12,168 to 6,111 in 3Q2023. Compared to previous 2Q2023, this is a 11% decrease. In terms of top VC investors based on deal count Andreessen Horowitz (26 deals), 500 Global (23) and Insight Partners (23) are leading with more than 20 deals each in 3Q.
2) Europe demonstrates its building-up more strengths
Europe showcased growth and self-reliance in the current environment having build-up knowledge and VC/CVC infrastructure in particular for funding till Series C/D’ish (I still see a lack of mega rounds covered purely by European VCs). Two 3Q data points are showing encouraging results:
Funding: Funding in Europe surged by 24% in 3Q2023 vs 2Q2023 mainly driven by mega-rounds. Compared to its peak European deal volume declined by 55% versus a global decline of 65%.
Exit: 38% of exits go to Europe-based companies, leading the the share globally of exits slightly ahead of the US of 35% based on CBInsights report
Most active investors according to CBInsights have been HTGF | High-Tech Gründerfonds (18 deals) and Seedcamp (11) in the region in terms of deal count.
3) Corporate Venture Capital are all-weather investors increasing chances of success for startup
As outlined before, Corporate Venture Capitalists are known for their strategic goals alongside financial objectives. In today’s market environment this means in particular to make strategic, mid to longterm bets. As the VC market overall has slowdown significantly as outlined above, CVC has seen reduced activity as well.
The deals with CVC participation has slightly decreased in 2023 so far to 50% by deal value, which is on average across the last 10years. In terms of deal count, the percentage of CVCs participating has dropped to 23%. The lower percentage in deal count results from the fact, that CVC usually focuses more on growth stage startups and less on pre-/seed investments, which has a higher deal count with lower volume.
Overall, I see CVCs weathering the storm and staying committed thanks to build-up expertise, critical mass and reputation. This pays off as well in share price - according to the State of CVC report “Not only have S&P 500 companies that actively invest in startups outperformed the broader market over the longterm, but YTD performance has also outpaced the market”. For startups as well, CVC funding is critical and increases their chances of a successful exit (39% CVC-backed startups have a successful exit versus 33% non-CVC funded). Even clearer is the picture for startups out of business - having CVC on the cap-table decreases the risk of going out-of business from 24% to 18%.
4) AI is a driver in 2023 and a driving force in CVC
Artificial Intelligence (AI) emerged as a pivotal driver in 2023, with mega-rounds witnessed in companies like OpenAI, Anthropic (2nd largest deal in 3Q 2023 with USD 1.2bn), Mistral and 21Labs. Not only solutions offering foundational AI layer services are seeing huge demand, I experienced as well strong interest in product level as well as environment level (e.g. governance, risk-management).
CVCs and corporates are strongly participating in such rounds and are betting on AI, which makes sense for both sides from my perspective. AI can be for the corporate a product and revenue accelerator as well as increasing the efficiency. For the startup, gaining market share in a competitive race is important and locking in a corporate partner with strong signaling is key.
As part of a recent German Startup Monitor study, for 52% of German startups AI has a clear relevance for their business model with 82% already leveraging AI tools in their startup. This is confirmed as well by the recent EIR survey, in which “in 2023, Artificial Intelligence is the new sector mentioned more frequently as the most promising for VC investments in the near future”.
My outlook / predictions:
Trying to peer into the future, my predictions for VC/CVC environment are as follows:
I anticipate the VC deal volume to remain relatively stable over the next few quarters, albeit with some fluctuations. Simultaneously, I foresee the decline in deal counts reaching its bottom at around the current level of 6,000 deals.
Failed funding rounds with out-of-business startups and significant down-rounds will continue to grow in upcoming quarters, mainly driven by inflationary VC money in 2020 and 2021.
I predict the CVC deal count and its percentage in the global VC landscape to rise as corporations increasingly open to engage in earlier investments.
Furthermore, the realm of AI investments is set to expand in terms of deal count with an increasing number on product layer as well as for AI environment.
Finally, happy to point towards Global Corporate Venturing as they are collecting inputs currently for their annual CVC survey. I highly recommend participating as it provides usually great insights into our CVC industry... here is the link.
If your are interested in more reports and diving further into current market environment, feel free to ping me or leave a comment - happy to share.
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Disclaimer: The views and opinions expressed in this post and under my Corporate Venture Capital newsletter are solely mine as the author and do not necessarily reflect the official policy, position, or opinion of my employer. Any content provided are my personal views and not investment advice.