The losses endured during the dot.com bust mean most corporations in the UK have retreated from corporate venturing. However, corporate venturing is key to investment in start-up and medium-sized businesses. It is on the rise, but needs support from policy makers and government.
The UK is still the first port of call for companies wanting to invest in businesses in Europe, but its position is fragile. Global competition to attract corporate venturing is intensifying and political ambivalence towards this issue urgently needs addressing.
Corporate venturing has a troubled record. Investment from corporates in third-party firms has tended to expand considerably towards the end of the economic cycle. Most recently, many corporations invested late in the technology bubble of the 1990s and then retreated from their venture capital initiatives after the dot.com bust.
However, corporate venturing is once again on the rise and attracting the interest of policymakers as it becomes clear that those companies which did not sell off or dissolve their venture capital units are out-performing companies without a minority investment strategy. More importantly, corporations are aware that an opportunity now exists to start investment at the beginning of the business cycle rather than the end.
The RSA is exploring how business investment can be encouraged to start flowing again.
Corporate venturing has a clear role to play in growing parent firms, start-ups and medium-sized enterprises. It can encourage inward investment, boost jobs and, ultimately, GDP.
However, a growth in corporate venturing will not happen in the UK by accident. The UK needs to provide the right conditions to encourage talented investors and entrepreneurs and larger business to come to the UK as a welcoming shore where value can be added and exported across the globe. .
There are a number of measures the government could consider as ways of strengthening the ecosystem to encourage and support corporate venturing. Policy makers could consider:
Encouraging venturing connectivity. A first step would be to establish a forum designed to encourage UK-based executives to consider starting or expanding their venturing programmes
Developing the existing Enterprise Capital Fund to establish an innovative co-investment scheme to aggregate medium-sized corporations interested in a specific sector
Using fiscal measures to remove barriers to and incentivise corporate venturing