The COVID-19 pandemic has caused a worldwide decline in growth, employment and productivity. These economic disruptions have pushed CEOs and CFOs to plot fresh pathways that ensure the future health of their companies in these unpredictable times. The smartest among them are using corporate venture capital (CVC) to secure investments that will position their businesses to flourish when normal order resumes.
As someone who runs a Private Equity fund I am very aware of the importance of capital to the economy.
Why Venture Capital Investment is Needed Now More Than Ever
When economies contract, credit becomes scarce. Now, after vast government stimulus packages for individuals and businesses, cuts in public money and even a return to austerity are on the horizon. For companies looking to expand, innovate and scale-up, CVC investment will be vital.
However, even before the pandemic, CVC was a source of much of the worldwide economic growth across various industries like agriculture, tech and finance. Young companies with the potential to disrupt the market with unique products, technology and new business models have been long-standing recipients of this kind of investment. It’s fair to ask where the booming tech industry might be were it not for outside investment that was prepared to invest the time and energy into understanding the potential of the products.
CVC Investment In UK Tech Firms
Last year, CVC investment saw the creation of seven ‘unicorn’ tech companies in the UK through venture capital investments. Companies like Gousto, Cazoo, Gymshark and green energy provider Octopus Energy are worth more than £1bn dollars each and are set to be a source of high-quality employment for years to come.
Uncertainty brings about a kind of caution that can stifle business. Of course, it’s natural in times of great upheaval for enterprises to become protective and secure near-term revenues and cut spending. But history has shown time and time again that smart strategic investment will see a business emerge from the chaos into a more vital force.
The data is unequivocal on this. Companies that have been the most active CVC investors outperform the market short and long term.
How Economic Disaster Forges The Next Generation of Success
Start-Ups and Entrepreneurs
One thing that has frequently been observed during economic downturns are the opportunities that emerge. Some of the biggest and best entrepreneurs and startups are born during times of crises; for example, the recession of 2007/08 saw the birth of Airbnb and WhatsApp, to name just a few. Many of these companies have gone on to revolutionise their respective industries.
Corporate venture capital necessitates a long-term view of the market, with long term success preferred over short-term, quick fixes. Because of this, VC funds are not as prone to financial conservatism during the recession. If anything, they have often raised such large amounts of capital that they must invest aggressively even during economic downturns.
A Match Made In Heaven?
As the government and banks tighten the belt, a new generation of entrepreneurs will need to seek capital to help them grow and power the economic future. CVC funds will be crucial to helping these start-ups achieve their dreams, powering a generation of employment, taxes and ancillary industries.