Brand owners test venture capital model

02 November 2012

NEW YORK: Big brand owners are increasingly using venture capital investments to encourage and access innovative ideas being developed by start-ups, a study from the Boston Consulting Group has shown.

The consultancy stated that 756 major companies – like Google, the online giant, BMW, the carmaker, and GE, the conglomerate – have corporate venture capital (CVC) units in place, suggesting this area has "come of age".

Based on an assessment of the 30 largest players in 17 industries, it reported that 70% of top technology firms now possessed a division dedicated to this activity, compared with 50% in 2007.

The pharma sector registered an expansion of 13 percentage points during this period, to 63%, while telcos were up by 20 percentage points to 57%.

Precisely 50% of the biggest media and publishing houses employed teams with direct responsibility for such efforts, a 23-point gain since 2007, when automakers saw a lift of seven points to 33%. 

Consumer goods manufacturers logged an improvement from 13% to 30% between 2007 and 2012, the analysis added. Elsewhere, the relative figure for construction firms exactly doubled to 20%.

"A distinguishing feature of the current wave of corporate venturing is that industries such as consumer and construction that for the most part did not engage in CVC activity in earlier decades are entering the arena," the study said.

In further evidence of this area's rising importance, R&D spending among technology companies fell from 11.5% to 11% of sales between 2007 and 2011, with pharma also off from 16.5% to 15% here, as priorities changed.

"Over the same period, CVC penetration in both industries rose, reflecting a growing recognition that venturing is a necessary complement to internal R&D – so necessary, in fact, that companies are beginning to transfer a share of their innovation investment from R&D to their venture units," BCG said.

Corporations in the technology segment also made the greatest number of CVC investments, some 484, between July 2010 and June 2012, ahead of media owners on 273 and healthcare groups on 229.

In terms of the broad fields receiving funding, IT posted the highest score on 513, beating healthcare with 287, media on 247, clean technology on 243 and consumer products on 127.

Data sourced from Boston Consulting Group; additional content by Warc staff