The last several years have seen a push by corporations in America and elsewhere to get involved in venture investing.
While the strategic benefit is relatively obvious, the unknown is whether these early-stage company backers can earn a return.
At least until now. More than 40 percent of corporate venture outfits have IRRs of 10 percent or greater on their portfolios, according to a new study by Global Corporate Venturing. In addition, more than 20 percent of corporate VCs report an IRR of 20 percent or more.
Global Corporate Venturing looked at 95 large and small venture units. Half had invested $50 million to $300 million and 9 percent had put more than more than $1 billion to work.
The surprise is the relative consistency of returns, a result that may have a strong correlation to today’s market of rising valuations. Slightly more than half of the organizations have portfolio IRRs of 5 percent to 20 percent, the study found. Only 13 percent have negative IRRs while another 10 percent have IRRs that are just barely positive.
What’s impressive is the number reporting strong returns. This 20.8 percent of organizations that come in with 20 percent or greater IRRs may offer a reasonable sense of top-quartile performance.
Another interesting observation from the study is that corporate venture departments remain small. More than three quarters of organizations have five executives or fewer, the study found. Also, 41 percent have no more than two.
Yet organizations are active. Nearly half have 25 deals or more.
Venture investing has grown rapidly in the past few years. About 1,200 are presently investing, double the number five years ago. Last year, corporate VCs worldwide participated in 1,734 deals, the study said.