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Corporations catch the VC wave

Big corporations have returned to the venture capital scene with a vengeance. Figures just published in the US by the National Venture Capital Association show that corporate venture capital groups were involved in more than a fifth (21.4 per cent) of all deals and invested nearly a tenth (9.2 per cent) of the total dollars. This is ahead of last year and a considerable improvement from the post-bubble low of 2003, when companies provided just 6.4 per cent of the total money in deals.

There are a variety of possible factors contributing to this resurgence of corporate interest in funding start-ups. First, several years of healthy profits have strengthened balance sheets to the extent that further capital expenditure only erodes margins. So, in addition to share buybacks, companies are willing to find other uses for their spare cash. A more recent factor driving investment in VC is a growing awareness that disruptive technology is appearing in all mainstream business sectors. To combat this, some large companies have decided to invest in early stage companies that provide such technologies, rather than spending a fortune later on to catch up or buy the same companies when they have become a lot more valuable. Tellingly, they are buying mainly later stage, not start-up companies, with relatively mature technology.

Few have the inherent capabilities to invest on their own – with some notable exceptions such as IBM, Intel and Siemens – and choose to invest or co-invest with established venture capital houses. Whichever route they choose, the investments tend to be substantial. The benefits for the VC environment are clear – it receives a double boost of increased assets, and the experience and clout that established companies can offer their smaller brethren. At the same time it is of some concern that flows of corporate capital into growing companies fluctuate so wildly. If investing in such companies is so important within corporate strategy, why not build it permanently into the capital investment model in the same way that a company might invest in new infrastructure? After all, venture capital is a long-term concept. In past decades companies appeared to realise this, even if they did not use the term "venture capital". Seeding and developing affiliated companies used to be a principal activity – in some cases it led to the creation of vast conglomerates.

But that was in the days when investors gave management more time to deliver results. Now, the imperative is on quarterly or annual results and the custodians of companies either succeed immediately in financial terms or they are replaced within a year or two. This is not the timeframe in which venture capital operates and in times of economic stress corporate investment will surely disappear as fast as it came.  This is to be expected and there is nothing reprehensible about it. But it is one reason why, in a severe economic downturn, venture capital does not just slow down, but tends to shut down.

The Week's Deals

Agendia, the Netherlands-based molecular diagnostics company, has raised €25m in fourth round funding from Gilde Investment Management, Global Life Science Ventures, ING Bank and Van Herk Group. Agendia uses genomic profiling to provide cancer diagnostic tests for pathologists, oncologists, clinicians and patients. These provide an understanding of the complex molecular characteristics of a tumour, which can be used to predict factors such as its ability to spread. The company recently received FDA approval for two of its tests and is now concentrating on introducing the tests in the US, whilst also expanding its activities in Europe and Asia.

Solarcentury, the UK-based provider of solar photovoltaic systems, has raised €19.9 (£13.5m) from Foursome Investments, Good Energies Investments, Scottish and Southern Energy, VantagePoint Venture Partners, Vantania Holdings and Zouk Ventures. Solarcentury’s products are used for micro-generation purposes, such as on roofs of houses and commercial buildings. Within the UK, Solarcentury has installed solar systems on the Eden Project, Vauxhall Cross Bus Terminal and the UK’s largest solar system on the CIS Tower, Manchester. The latest investment is to be used towards European expansion.

BridgeCo, the Switzerland-based provider of digital home networking products, has raised $17m (€12.5m) from Advent Venture Partners, Balderton Capital, Cipio Partners, ETV Capital, Earlybird Venture Capital, Fidelity Ventures, Intel Capital and Wellington Partners Venture Capital. BridgeCo builds silicon and software technologies that connect consumer electronics to home networks and the internet. The company says that there are 500 million new consumer electronics products purchased annually, with predictions that within a few years at least 25 per cent of these will incorporate networking capability to access internet-sourced content.

Syntune, the Sweden-based developer of single-chip tunable lasers, has raised €5.1m from InnovationsKapital, Teknoinvest, Vision Capital and undisclosed private investors. Syntune's lasers have applications ranging from fiber-optic communications to sensor systems. The company says the investment will allow it to ramp production more quickly and grow its customer base.

The Week's Exits

Chipidea Microelectronica, the US and Portugal-based provider of analogue and mixed signal intellectual property for the wireless, digital consumer and connectivity markets, has been acquired by Nasdaq-listed MIPS Technologies. Under the terms of the deal, MIPS will pay $147m (€107m) in cash, with an additional performance-based milestone payment in shares to be made in 2009. Reasons for the purchase were cited as a broad product base, an impressive array of customers worldwide and excellent financials. According to MIPS the combined entity will be the world's second largest semiconductor design IP company, behind UK-based ARM, and the number one analogue IP company.

VOICE.TRUST, the Germany-based developer of biometric voice verification technology, has sold a majority stake to Marcel Boekhoorn M&A for €16.5m. VOICE.TRUST’s technology is designed to allow enterprises to integrate biometric voice verification and secure automation capabilities into enterprise network security, service desks, mobile payment, e-commerce, banking and other self service automation solutions.

Mobotix, the Germany-based developer of digital video surveillance systems, is planning an initial public offering later this year to fund development of new products and expansion of its sales network. The size of the offering has not been disclosed. Investors in the company include Equinet Venture Partners and Co-Investor AG.

People Moves

MobileLabs, the Germany-based developer of mobile phone software, has confirmed that Peter Caron has been appointed interim chief executive in place of previous co-chief executives Alexander Schneider and Rüdiger Premm. Elsewhere, Rex Dorricott has taken over as chief executive of UK-based Exony, replacing Ian Ashby who left the company in August.

 

Most Accessed Companies

CellGuide, the Israel-based fabless semiconductor and software company, has attracted a lot of attention this week. CellGuide provides GPS and Assisted GPS products for wireless and other mass-market consumer devices. The company says that its product-line sets a new price and performance standard compared to conventional GPS chips, making on-board GPS possible for more mobile phones and consumer products. Investors in the company include Giza Venture Capital, GlenRock Israel and US politician Arnold Schwarzenegger.

Pevion Biotech, the Switzerland-based bio-pharmaceutical company, has also recieved a lot of attention. Pevion uses its proprietary virosome-based technology platforms to develop prophylactic and therapeutic vaccines. The company's development pipeline includes vaccines against breast cancer, malaria and hepatitis C. Pevion, which raised a series A funding round earlier this year, was originally set up as a joint venture in 2002 by the vaccine company Berna a Crucell Company and peptide manufacturer Bachem.