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How corporate venture capital is changing the relationship between startups and large companies

While global volumes in this modality are growing, investments in China and the USA, the most obvious markets, have been decreasing, making room for others

Vinícius Cordoni

03.Apr.2021 11:55 BRT

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The concept of corporate venture capital (CVC), in which large companies create their own innovation hubs to strengthen their ecosystem or invest in new growth paths through startups, is increasingly growing. And as the overall volume of CVC investments grows, so do the shares of markets still underexplored, such as Brazil‘s.

A CB Insights‘s study points precisely to the growth of the CVC market worldwide, which reached $57.1 billion in 2019 against $17.9 billion in 2014, an increase of 218.9% – Brazil‘s accounted for about $157 million of the total in 2019, according to Distrito Dataminer, a monitoring tool for the Brazilian innovation platform Distrito.

The report also sheds light on the fact that, while the general numbers rise, companies’ contributions in China and Silicon Valley have been proportionally decreasing in the United States. This means that multinationals are increasingly looking for solutions from less explored markets, such as Brazil.

The Corporate Venture Capital 2020 report, prepared by Distrito in partnership with Valetec Capital, shows that 65.8% of this type of investment in Brazil was carried out by multinational companies with local operations in the country; simultaneously, 34.2% of them came from Brazilian companies.

This is the case with Visa, with its Acceleration Program, and Telefónica, owner of the Brazilian carrier Vivo, which has the Wayra innovation hub. The second, in fact, has existed since 2012 and has already supported more than 75 companies, such as the HRtech Gupy, which today is responsible for the entire recruitment program at Vivo.

In terms of investment volume – and to no one’s surprise – the financial sector (17.8%), alongside retail (16.4%) and technology (15.1%), lead the investments. The health sector, with an 8.2% share, has also stood out. When analyzing the number of deals by segment, fintechs and ad techs stood out in corporate preferences.

And in practice, how does it work? The example of Gupy and Vivo shows us something important. Experts point out that large companies’ efforts are often connected with KPIs, or key performance indicators of the company, already aiming for growth in specific areas.

Even so, this does not mean that all supported initiatives must necessarily meet the company’s core business. It is not by chance that financial, logistical, and technological solutions are sought after by virtually everyone, as they help strengthen the business on several fronts.

CashMe, a startup created within the real state developer Cyrela, is an example of this. It is a fintech, now a subsidiary of the main company, which makes loans to other construction companies, condominiums, and individuals, using real estate properties as collateral.

Embracing startups internally is not the only way for large corporations. Investing in early-stage startups also makes sense for these organizations. Distrito’s data show that about 74% of CVC’s contributions in Brazil went to companies in this phase.

Which does not mean, according to the report, that these investments will necessarily turn into complete incorporation of startups by the big ones. On the contrary, only 20% of the invested companies end up being acquired completely.

The conclusion is that there is no right formula. From the need to undertake and seek new solutions, which is imperative, large companies have several ways to ensure that current demands are met and that new offers are developed.

Who doesn’t remember, for example, the partnership between Banco Votorantim and Neon? A traditional bank and a fintech startup joining forces to bring together both of their platforms. Or Next, a neobank created by Bradesco to attack the same market? There is always more than one way to achieve the same result.

Translated by Fabiane Ziolla Menezes