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Will Corporate Venture Capital Arms Dominate VC Marketplace?

While venture capital investment as a whole fell in 4Q15 corporate venture capital investing held steady, making 2015 the biggest year for corporate venture capital since the height of the dot com boom.

A report by the National Venture Capital Association found that corporate venture capital groups poured $1.2 billion into 199 deals, and represented 10.3 percent of dollars invested and 21 percent of deals made during the fourth quarter of 2015.

The report adds: “In keeping with the trend we witnessed throughout the year, corporate venture groups continue to play an increasingly active role the entrepreneurial ecosystem, seeing the merit in investing in startups to both fund innovation and meet their strategic goals,” said Bobby Franklin, President & CEO of NVCA. “It’s encouraging to see corporate venture groups developing more of a taste for early stage investing.”

For many VC arms of big companies it’s about innovation, not necessarily profit, from these deals.

Tech Crunch reports: “Intel has made it clear it doesn’t just want to nurture ideas and get some good technology to play with. It also wants a good return on its investment. Not all of these companies care about that. For some, it’s simply about getting the energy and creativity, the idea, and the rest is just a bonus.”

The article continues: “But not everyone feels they have to achieve both. Workday launched a venture fund in July and its goal was primarily strategic, not financial. The idea was to learn from these companies and have them share ideas and approaches with the engineering team.”

While many of the most prominent deals have come from the tech sector, big players in all sectors are looking to invest in innovation.

Entrepreneur reports: “Corporate venture capital investments are on the rise, with companies joining 357 deals in the first six months of 2015, according to VC data clearinghouse CB Insights. The tech sector doesn’t hold a monopoly on corporate VC; in recent years, healthcare, financial services, telecommunications, entertainment, construction, energy and insurance companies have joined the investment act, too, with players like GE, Comcast, MasterCard, Lowe’s and HCA taking a seat at the table.”

The Entrepreneur piece goes on to examine why start-ups are interested in working with corporate VCs: “Money and street cred aren’t the only reasons for startups to seek corporate investors. Besides understanding the intricacies and challenges of the market, many corporate venture arms offer support services and partnership prospects, including technical aid, mentorship, leadership and efficiency training, distribution channels, joint development opportunities and introductions to potential customers.”

In Inc., Lisa Calhoun, general partner at Valor Ventures and an Inc. columnist, predicts what the venture capital market can expect in 2016 – more corporate deals.

She writes: “Many corporations are choosing to invest in small companies to inspire their innovation process. They get rewarded in many other ways than pure financial returns–including creating stronger suppliers, putting control levers in their industry, testing products, de-risking innovation, and engineering less expensive acquisitions. In 2015, corporate venture participated in about one out of five deals in the United States or Europe, and one out of three deals in Asia. Founders will increasingly study how to attract and engage these deep pocketed investors. That creates greater competition for traditional financial VCs to differentiate and prove their value to entrepreneurs.”