New CVC formation slowed, but not as much as institutional VC
Rachel Gutnick · Follow
The economic climate that impacted startup fundraising in 2023 also affected venture capital fund formation activity, with new venture fund launches dipping to pre-pandemic levels. According to PitchBook-NVCA Venture Monitor, 474 funds raised $66.9 billion in capital commitments in 2023, down from 1,340 funds and $172.8 billion in 2022. New fund formation is down meaningfully from 2021 and 2022, but remains above the median for the prior decade.
While recency bias makes it appear the sky is falling for the venture capital industry, my perspective is that fund formation is normalizing. In this light, I was curious if 2023 market conditions similarly impacted the formation of new corporate venture capital (“CVC”) programs.
This research focuses on CVC funds launched in 2023, where the majority of capital came from a single corporation or multiple corporate investors to fund a venture program, in contrast to typical institutional limited partnership fundraising models. The study leverages data from new CVC fund announcements, tracked by Touchdown’s team throughout the year.
83 CVC funds launched in 2023
CVCs launched 21% fewer new funds in 2023 compared to 2022. This compares with a 65% drop in new institutional VC fund formation in the same period. Institutional venture capital relies on third party entities like pension funds, endowments, and family offices for their capital, whereas the vast majority of CVCs are drawing capital directly from their balance sheets. This distinction in capital sourcing may partially explain why traditional VC fund formation declined more than CVCs.
Of the 83 corporate venture capital funds launched in 2023, 46% were new, first-time corporate venture programs, while the remaining 54% were successor funds for corporations with an existing CVC effort. This reverses the trend of prior years, where our analyses of CVC funds launched in 2021 and 2022 showed that approximately 65% of new funds launched were first time CVC efforts.
Our data showed a 25% increase in the number of successor funds launched in 2023 compared to 2022, but down 10% from 2021. Corporations increasing capital allocations to venture capital and external innovation through successor funds are in line with recent years.
38 first time corporate venture funds: public versus private
Similar to years past, there was an even split between publicly traded and privately held companies launching venture capital funds for the first time.
Geography
The majority of corporations that started new CVC funds were based in North America (45%), followed by Asia (26%).
Industry sector
45% of first time CVC funds initiated in 2023 were started by companies in the IT & Media sector, which we define to include software, media, and financial services companies.
Size of New Corporate VC Funds
The average size of new, first time CVC funds in 2023 was $146 million, with a median fund size of $100 million. The smallest disclosed fund size was $6 million, a seed fund started by Banca Comercială Română in Romania. The largest fund was $1 billion committed by NATO to back startups supporting “safety, freedom and human empowerment.”
Successor Funds
The average size for successor funds was $319 million, over twice the average fund size for first time CVC funds in 2023. Median successor fund size was $200 million, versus $100 million for first-time funds. Successor fund size numbers were on par with 2022 funds, with an average fund size of $322 million and median fund size of $147 million.
Companies such as LG, Aramco and Mars Petcare expanded their allocations for investments in startups, while other corporates launched additional venture funds focused specifically on new sectors or geographies. Sony Group did both in 2023, closing its Sony Innovation Fund 3, and raising a separate $10 million fund to support the growth of its entertainment businesses in Africa.
Corporate fund themes: artificial intelligence
Innovation trends can lead to new venture funds focused on access to emerging technology. For example, “web3” was a top theme for new CVC fund launches in 2022, with 19% of corporate fund launches focused on blockchain, crypto currency, or NFTs. In 2023, only 6% of funds mentioned web3 as an investment focus area, as the technology arguably became more associated with fraud than with economically viable innovation.
In 2023, artificial intelligence (A.I.) captured public imagination as a potentially disruptive innovation, with many corporations creating dedicated investment funds for this technology. 25% of CVCs listed A.I. as a focus for new funds, including first time and successor funds. Examples include Salesforce Ventures announcing its dedicated $250 million generative A.I. fund, and Open AI launching the OpenAI Startup Fund to back companies “pushing the boundaries of how powerful A.I. can positively impact the world and profoundly change people’s lives.”
Perhaps more importantly, over a third of new funds listed sustainability as a fund investment focus. Examples include BP Ventures announcing a $200 million fund to invest in green energy startups and The Coca‑Cola Company partnering with its bottling partners to create a sustainability-focused fund.
Corporate fund structure
While CVC is traditionally thought of a corporation investing its own capital into startups, 8% of new ventures launched in 2023 were collaborations between more than one corporate entity.
Examples of this includes a joint partnership between two companies, as was the case with the Green Bay Packers and Microsoft raising $70 million for a second fund. Some corporations have also used a consortium model, as was the case with United Airlines launching its United Airlines Ventures Sustainable Flight Fund early in 2023, with multiple other corporations as limited partners, including Boeing and Air Canada. Just five months later, United increased its fund size to nearly $200 million with additional corporate investors.
The variety of these structures demonstrates that there are multiple ways for corporations to seek value from investing in startups. With emerging technologies like A.I. and advances in sustainability, there is potential for both disruption and value creation for corporate incumbents. While the rate of new corporate fund formation is down from all time highs, corporations are showing ongoing commitment to venture capital as a tool to access external innovation.
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Rachel Gutnick is a Senior Associate at Touchdown Ventures, a firm that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.
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