Berlin Money for start-ups is scarce, financing is suffering from the economic crisis and the turnaround in interest rates. Now, for a long time, unpopular financiers are moving into the focus of young companies: venture capitalists who indirectly belong to companies, so-called corporate venture capitalists (CVCs).
CVCs are not exempt from the mood of crisis either. They invest much more selectively, are burdened like traditional investors by rising interest rates on loans due to the sluggish economy – and at the same time are dependent on the interests and economic situation of their anchor investor.
But some now want to seize the opportunity to exert more influence in the start-up scene and grab larger shares in young companies. “CVCs sense their chance,” says Niclas von Woedtke from the law firm TaylorWessing. “We don’t get nervous so easily because we focus our goals on the long term,” explains Sohaila Ouffata from BMW i Ventures. It was only in March that the venture capital branch of the car company invested in the electric motor start-up Deepdrive.
For a long time, CVCs were considered the second-choice investors in the start-up industry. Founders were cautious because they feared information would be siphoned off or they would immediately become a takeover candidate if the offer really appealed to the large corporation.
In fact, CVCs aren’t just about metrics. That is what the head of the investor Wayra, belonging to the Telefónica Group, says, Florian Bogenschütz. At Wayra, the focus is also on how many contracts portfolio start-ups conclude with Telefónica or what additional benefits a start-up’s offer can provide existing customers, said Bogenschütz. Among other things, Wayra has invested in the AI tool Tucan.AI.
But these synergies follow understandable criteria, CVCs have become highly professional in recent years. “Anyone who wants to be successful as a CVC must first and foremost be a good venture capitalist – regardless of who is behind the lender,” says Tobias Henz, start-up expert at the consulting firm McKinsey. CVCs are currently benefiting from the fact that start-up valuations have returned to a “tolerable level” and that CVCs can therefore have a say and participate in more deals again.
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This is also the case at BMW i Ventures. After the CVC completely withdrew from Series B financing rounds during the corona crisis, BMW i Ventures is now involved again. “Now these rounds of funding are back within our capabilities as valuations have fallen given the macroeconomic environment.”
In recent years, many CVCs have emerged in Germany. Many large companies now have a venture arm and CVCs have become an established part of the VC scene.
This development has also contributed to the fact that they are now among the most active investors in Europe after the traditional venture capitalists à la Earlybird, Speedinvest or HV Capital. And this is ahead of private equity companies, which usually put higher sums on the table per deal, but are not involved as often.
No decoupling from a crisis situation
The financing crisis is also having an impact on the CVCs. The industry is hoping that after the complete slump in the fourth quarter, the situation picked up again at the start of the year. Data from the Pitchbook data service, created exclusively for the Handelsblatt, shows that after just under EUR 600 million in the final quarter from January to March, CVCs invested at least EUR 800 million again. The number of deals also rose again, but fell far short of the activities reported at the start of 2022.
Evonik is one of the largest CVCs in Germany. The chemical company closed its sustainability fund of over 150 million euros just last year. Jonas Ide, investment manager in venture capital at Evonik, does not want to be deterred by the macroeconomic challenges: “Our deal flow is still very strong and we have already invested this year.”
Ide does not see Evonik as a second-class investor: “We not only invest money in the start-up, but also actively support it with our technical know-how, for example in scaling up the processes or with our market access.” CommerzVentures also scores with this , which closed its third EUR 300 million fund last year. “We strive for long-term partnerships and are actively involved in the further development of the company in order to achieve mutual success,” said co-managing director Stefan Tirtey.
And according to the start-up expert from the Bitkom industry association, Daniel Breitinger, this is attracting increasing interest in the industry, particularly in the current tense economic situation. The pressure to quickly establish oneself on the market is stronger and the large corporations can help with that. This is also how Marcus Behrendt from BMW i Ventures handles it. It is better not to calculate with BMW when investing, but “if BMW ultimately becomes a customer, we have done everything right”.
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According to Pitchbook, a total of 11.8 billion euros was invested in European start-ups from January to March, 32 percent less than in the same period last year. In Germany, only 1.5 billion euros were invested in young companies in the three months. In 2022 it was a total of 14.5 billion euros. Insolvencies are increasing, as recently shown by the bankruptcies of start-ups such as Avocargo and Alpakas.
Breitinger is therefore campaigning to support the sector more, be it through the future fund or the agency for leap innovations. Christoph Stresing from the German Start-up Association said: “A fundamentally different player with different focus is required for a sustainably strong financing environment. In addition to independent VC funds, this also includes CVCs.” Ide from Evonik also believes that the start-ups benefit the most when they have both traditional investors and CVCs on board.
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