Actually, it’s happened several times.
And the boom-bust cycle washed out some of the world’s biggest corporate venture arms.
In 1976, Exxon was the largest CVC on earth. Then the IPO market collapsed with the oil shocks. By 1978, Exxon had shuttered the CVC unit. Βy the end of the decade only 20 US corporations had an active CVC program. (Fortunately for humanity, 3M’s CVC still produced the Post-it note.)
A second wave of CVC investment crested in the 1980s with a cut in capital gains taxes and the launch of the PC. Xerox’s CVC was crushing it. They generated an IRR of 56%. Then the IPO market collapsed with the stock market crash in 1987. By the end of the 1980s, Xerox had shuttered the CVC unit. The total number CVCs fell by a third.
A third wave of CVC investment crested in the 1990s with the Netscape IPO and dot.com boom. Bertelsmann AG pledged $1B, exceeding the size of total CVC investment at the height of the previous wave. You’ll never guess what happened next.
Okay maybe you will: The IPO market collapsed when the dot.com bubble popped. CVCs took $9.5B of venture losses in Q2 2001 alone.
We’ve now been in a bull market for CVC for over 20 years. CVC dollar volume was up tenfold since 2001. You’ll never guess what happened in 2022. The IPO market collapsed in 2022.
“Corporate Investing is dumb.”
That was human teddy bear Fred Wilson’s view 15 years into the current CVC boom. Is he right? Is the party over? He could be, if CVCs don’t return capital.
Since the IPO market collapse, CVC exits are down 65%. And only 3% of CVC portfolios generated exits in 2024.
SAP; Total Energies; AB Inbev; Coca-Cola bottler Arca Continental – all have shuttered their CVC units.
What’s different this time – new liquidity options.
That one weird trick to ensure long-term CVC survival. (And you thought that you’d never see that meme again.)
Actually there are two:
- Invest for financial returns. Strategic returns are real. But when the parent hits a strategy pivot, a CEO change, or a challenging moment, those “soft” benefits can suddenly seem too soft, and they become optional. And absent financial returns, CVC can look like a cost center the parent can live without.
- Generate liquidity – and do so without waiting for the IPO or M&A markets to open up.
(You can see our mainstage GCV presentation on how CVCs can stay out of trouble in the first place here).
And that’s what’s different this cycle: the secondary market now provides liquidity options – at scale.
We’ll cover secondary market options in greater detail in another post. But the short version is that secondary investment activity – which is a proxy for other non-traditional liquidity vehicles like strip sales, profit participations and other structured transactions – is ripping. 2024 will end with the greatest volume of secondary dry powder raised and available ever – and that’s following a 15 year run with a 17% CAGR in secondary growth.
That’s why 52% of CVCs have considered using secondary markets and 15% have already done so.
That gives CVCs a lot of options to deliver liquidity and avoid being the next to get washed out.
VO2 Partners is a boutique advisory firm that helps CVCs deliver liquidity back to the mothership. Whether it’s driven by reducing balance sheet volatility, topping up dry powder, or increasing focus by divesting non-core holdings – that’s what we do.
