Over the past few years, corporate venture capital investors have solidified their stature as a reliable source of VC funding. The number of companies launching investment arms has exploded, and the amount of new funds has continued to rise despite the current market volatility.
Ulta Beauty, the largest chain of beauty stores in the U.S., became the latest company to launch a venture arm this week. Prisma Ventures will tap a $20 million fund to back early-stage companies that have the potential to improve the online or in-store shopping experience for Ulta customers. Ulta chief digital officer Prama Bhatt said that after years of developing technology internally, a venture fund seemed like the next step to foster innovation at the company.
“If we think about our purpose, which is to shape the future of the beauty landscape, it seems appropriate to continue that vision by working with startups,” Bhatt told TechCrunch.
Ulta is just the latest corporate venture fund to launch this year. Consumer-focused companies including The Home Depot and Chipotle also announced funds this year, while corporations ranging from drug wholesaler AmerisourceBergen to defense consulting firm Booz Allen Hamilton also debuted funds. Just these four funds bring $450 million to the table.
CVCs have really upped their investment game over the past two years. Last year, these investors participated in deals worth a collective $149.6 billion, more than double 2020’s record $77.6 billion, PitchBook data showed. While funding thus far this year, $57 billion, doesn’t look likely to top last year, it is already 73% of the way to matching 2020’s total.
While it may seem like an odd time to launch a fund amid the overall venture capital funding slowdown and economic uncertainty — of course, it is worth noting these funds aren’t built overnight — more corporate venture dollars may be welcome in the current market as these investors remain a fairly reliable source of funding while many firms are sitting out.
According to data from PitchBook, CVCs participated in 613 U.S. venture deals worth a collective $23.6 billion in the second quarter. While those numbers represent a decline from Q1, this type of investor actually seems to be cutting more checks than their traditional counterparts.
The percentage of deals that include a CVC investor reached its highest number yet in Q2, at 25.7%. This compares to hovering between 24% and 24.8% for the prior four years.
Meanwhile, the crossover investors that flooded the market in recent years, including Coatue and Tiger Global, have slightly minimized their presence by deal count and drastically decreased their presence in large deals. Crossover investors were involved in deals that represented 30% of the capital invested in Q2, down from 45.9% in Q4.
For now, many CVCs seem to be trucking right along, regardless of the macro conditions and external forces swirling around their parent company. Coinbase Ventures, one of the most active CVCs, invested in nine disclosed deals in July and 28 in Q2, according to data from Crunchbase. Google Ventures backed eight startups in July and 30 in Q2. Compared to some non-corporate firms sitting on their hands, that definitely isn’t nothing.
So, maybe more corporate investors right now is a good thing for startups?
However, it is too soon to tell if the current market froth will cause a slowdown in fund launches in future quarters or if the economic situation sours enough for corporations to rethink budgeting for this type of investing down the line.
For now, though, the number of CVCs keeps growing, and as a whole, they are maintaining their stake.