After the euphoria of the corporate venture capital (CVC) market in 2022, the sector experienced a retraction from 2023 onwards, reflecting a movement of caution and strategic reassessment on the part of companies. Part of this lack of interest may have been caused by the low returns offered by these funds. Survey released by Spectra Investimentos shows that more than 70% of these programs presented negative returns, reinforcing that the CVC has been used more as a strategic instrument by these companies than to increase capital.
The peak of CVC occurred in 2021-2022, with almost half of these programs having been created in the period. 18 funds were created in 2021 and 22 funds in 2022. In 2023, this number fell to 5. And, in 2024, only two new vehicles were created.
The analysis of the distribution of fund returns in Brazil considered 32 investment vehicles, based on data from the Securities and Exchange Commission (CVM). The average internal rate of return (IRR) of these funds is -10%, with the median being -12% and the top quartile with a return of 2%.
According to the analysis of Spectra72% of programs have a negative IRR and, among the few funds with a positive return, only 10% achieved results in the range between 25% and 50%.
An important point is that 30% of the sample is made up of funds with less than three years of existence, which may be suffering the initial effects of the so-called J curve, common in the venture capital industry. Even so, the study itself points out that this factor, in itself, does not fully explain the weak performance observed across the funds as a whole.
The survey highlights that CVC programs do not need to have a financial objective, and are often guided by a strategy of innovation and strengthening the main activity of the investing company. However, 34% of investments were directed to companies in sectors that have no direct relationship with the CVC’s main activity.
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“We identified 23 startups that were invested by a CVC and later acquired by the same CVC, demonstrating a movement towards incorporating technologies and skills. 14 write-offs were mapped and 31 startup exits sold to other corporations. Thus, 34% of the exits went to the CVC sponsors, accounting for 4% of total investments”, the study points out.
Investments without VC participation lose less, but also gain less
The report also analyzed the behavior of 173 individual investments made by CVCs, based on the financial statements available at the CVM. Investments were grouped into three categories: co-investments with traditional venture capital funds, co-investments with newer VCs, and investments made independently by CVCs.
Among these groups, independent investments have the lowest proportion of negative returns, with only 25% of cases recording an IRR below zero. On the other hand, only 10% of startups in this group achieved an IRR above 25%, the lowest proportion among all categories.
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For the Spectrathis behavior indicates that the risk and return profile of investments made without the participation of other funds tends to be different, with less asymmetry and, probably, greater focus on the strategic return for the corporation.
Co-investments with traditional VCs and newer VCs present very similar distributions. In both groups, 6% of investments generated a return above 50% and between 11% and 12% were in the range of 25% to 50%. In the field of negative results, the two types of co-investment are also close, with around a third of cases presenting a negative IRR.
The main difference appears in write-offs: while co-investments with newer VCs registered 5% total losses, co-investments with traditional funds still did not present write-offs in the sample analyzed.
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When the analysis looks at the multiple on invested capital (MOIC), the contrast between the groups remains. Among co-investments with newer VCs, 3% of deals had multiples above 10x and another 3% were between 5 and 10x. In co-investments with traditional VCs, 11% of investments appear with multiples between 5 and 10 times.
In independent investments, only 4% of cases exceed multiples of 2.5 times, which reinforces the reading that this type of operation follows a profile less oriented towards maximizing financial return and more focused on generating strategic value for the investing company.
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