Why might this be the best time to create a corporate venture capital fund?
The health crisis has been an opportunity for many entrepreneurs who have taken advantage of the situation to publicize innovative solutions or adjust existing ones to new needs.
Why is today the best time to create a CVC fund?
Life changed forever after the pandemic and nothing will ever be the same again. The concept of the new normal is not a concept that is used only for health protection measures to prevent infections, but also for the lifestyle of all people.
It is interesting the way in which people have adopted technologies in their daily activities, a panorama that was glimpsed for a long time but that the context accelerated. People have been forced to use technology inevitably overnight, overlooking social, cultural, technological and geographic gaps. Once the pandemic is controlled, it will not be feasible to return to a before, the use of technology has been key to the way of life that would have taken shape in the next 10 years.
Currently, a technological gap has closed in industries such as education, medicine, software, telecommunications, mobile applications, financial, among many others, because they have responded to new needs and startups have taken charge of this.
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"This great offer of companies represents an increase in investment options for strategies such as Venture Capital and Corporate Venture Capital" , explains Jorge González Gasque, partner of G2 Momentum Capital, a Mexican Venture Capital fund, "since although there is the willingness of companies to provide technological solutions to current needs, only VC or Corporate resources can compensate for deficiencies between their financial capacity and exploring the use of these new technologies. "
How did technological solutions increase? / Birth of new startups
The health crisis has been an opportunity for many entrepreneurs who have taken advantage of the situation to publicize innovative solutions or adjust existing ones to new needs. Startups focused on financial services, education, retail, logistics and health services were the ones that reported the highest growth during the pandemic. According to a study by Business Insider Mexico , “2020 it became more common to hear about the launch or growth of startups around the world. The pandemic, by accelerating technological change in many industries, provided an unprecedented boost for innovation. "
According to the study Ecosystem of Latin American Startups , 5 key points can be highlighted about the startups born during the pandemic in the region:
“1) The pandemic resulted in a proliferation of digital ventures with great growth potential in the region. 61% of startups were created in the last 12 months. 80% of which are already monetizing.
2) The study indicates that the cities that are most represented are the large economic capitals of the region; Buenos Aires, Bogotá, Medellín, Mexico City, Lima, Santiago de Chile and São Paulo.
3) Education, Fintech, Retail & Logistics, Enterprise as a Service, Health Care continue to be the leading industries.
4) 37% of companies sell to other companies (B2B), 28% to consumers (B2C). And another 28% reaches the final consumer through a B2B2C model.
5) 30% of the startups participating in the study have at least one woman among their co-founders, a 50% increase compared to 2020. "
Opportunity for CVCs to invest in these companies that are at the forefront of technology
One of the regions that aroused the interest of private equity funds was Latin America, which today is classified as one of the most important entrepreneurship ecosystems with the greatest future at an international level. According to Forbes , between 2015 and 2019, venture capital investments in Latin America grew 673% and stood at a record level of $ 4.6 trillion for the last year.
For their part, tech startups have created innovative business models, products and services in recent years, challenging and inspiring large companies. These solutions that were already in demand in the market of their respective industries have experienced a drastic increase in the speed of their adoption as a result of the pandemic. One of the strategies that they have followed to detonate is that of Corporate Venturing .
Corporations with a strategy of this type undertake in search of opportunities through startups in order to take advantage of opportunities, stand out in their markets at lower costs and risks. When a CVC is well executed it can become a powerful instrument to trigger research and development, mergers and acquisitions of startups and this is the best time to do so. Large technology companies increased their investments in startups from $ 7.6 billion in 2019 to $ 16.7 billion in the first eight months of 2020, according to reports from CB Insights .
CVCs can be a good tool for staying current with emerging trends and technologies, identifying growth areas, minimizing risks in mergers and acquisitions, and achieving greater progress than traditional R&D activities.
“Companies can consider CVC investments to take advantage of the future benefits of new products, technologies and geographic areas. It is time to bet on Corporate Venturing ”, concludes Jorge González.