Corporations continue to be active investors in younger companies. Stats indicate that the number of corporate investments doubled between 2009 and 2014 to 888 completed deals as reported by Pitchbook, the online deal database.
This growth in corporate investment is critical to provide capital for younger companies because traditional venture capital continues to be difficult to obtain and the public financing market has become less receptive (click here).
My colleagues and I have experienced this growing corporate interest in younger companies with several successful transactions.
The historical impediment to corporate investment, what was known as the “not invented here syndrome” at large corporations, seems less common today. Instead, large corporations appear to recognize that younger companies may be cost-effective and more agile in initial development. Large corporations have come to accept that investing in or acquiring a younger company can serve as a valuable product pipeline filler.
We’ve seen large corporate investors join financial investors in an investment round with the corporate investor receiving no special status or rights, such as a right of first refusal upon the company’s sale.
A couple transactions have taken the form of acquisitions with a purchase structure that included an attractive initial payment and an “earn-out” payment tied to the technology’s eventual commercial success.
Today, when my colleagues and I represent companies to raise capital, we regularly include strategic corporate investors and acquirers on our list of potential candidates. We structure our engagement compensation arrangements to encourage the pursuit of a broad range of outcomes. Our goal is to give our clients options from which to choose and the comfort that all options have been pursued.
To read the stats about corporate investing prepared by Pitchbook, please click here.
Please contact me to discuss your company’s capital market goals.