24 August 2017

Companies Boost Startup Spending

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Corporate venture-capital arms funneled almost $5 billion into startups in the first half of the year, a jump of about 45% from a year earlier and the highest level since the dot-com era, as executives expanded their horizons for growth and tried to stay ahead of rapidly changing technologies. Executives are looking for less risky ways to innovate, revamp their business models and earn higher returns on their piles of cash. Seed funding, for example, had the largest increase for any round, with a rise of almost 70% from the first half of last year to $15.7 million, according to Dow Jones VentureSource.

Beyond the traditional technology and pharmaceutical industries, there is an expanding array of companies muscling into the venture-capital market, including 7-Eleven Inc. and Patagonia Inc.

Corporate VC funding is also pouring in to fill the gap left by some traditional lenders, which are still reluctant to extend credit to smaller companies with shorter track records and avant-garde ideas. Despite a recent uptick, small-business lending has yet to return to prerecession levels. Small-business loans accounted for just 21% of commercial loans at the end of the first quarter, the tiniest share in two decades, according to the most recent data from the Federal Deposit Insurance Corp.

While traditional venture-capital funds are still active, corporate VC arms are elbowing in on an increasing number of deals, especially at middle and later stages. According to CB Insights Inc., corporate VCs participated in almost 40% of the largest funding rounds by private technology companies last year, double the participation in 2009.

There are also some companies for which the financial returns are less important than the mission. That includes Patagonia. It started its own VC unit last year called $20 Million & Change with “the purpose of funding like-minded startup companies” that are disrupting their industries by being more environmentally friendly. Patagonia is looking for investments in “clean power and the food-supply chain.” In addition to financial measures, Patagonia also sets environmental goals.

Click here to access the full article on The Wall Street Journal. 

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