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The COVID-19 pandemic has caused a worldwide decline in growth, employment, and productivity. These economic disruptions have pushed CEOs and CFOs to plot new pathways. That will ensure their companies’ future health in these unpredictable times. The smartest among them are using corporate venture capital (CVC) to secure investments. This will position their businesses to flourish when normal order resumes.
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 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.
Corporate Venture Capital 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. They 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
Startups and Entrepreneurs
One thing that has frequently been observed during economic downturns is the opportunities that emerge.
Some of the biggest and best entrepreneurs and startups are born during times of crisis; for example, the recession of 2007/08 saw Airbnb and WhatsApp’s birth, to name just a few. Many of these companies have gone on to revolutionise their respective industries.
Recession-Proof Capital
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 startups achieve their dreams, powering a generation of employment, taxes, and ancillary industries.
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Alpesh Patel OBE