Let’s take a look at some of the largest VC returns of all times.
Y Combinator provided $20,000 in exchange for a 6% stake in rental marketplace Airbnb. IPO valuation was $75bn. According to Crunchbase estimates, it retained 3.3% of Airbnb shares, worth $2.25bn at IPO. Turning $20,000 to $2.25bn is a 112,500x return.
Y Combinator also put $120,000 into Doordash, at a $39bn valuation. According Crunchbase estimates, Y Combinator would retain 1.7% of Doordash, worth $663m at IPO, which is a 5,500x return.
Naspers, a South African media company, paid $32m in 2001 for a 46.5% stake in Tencent, known for its WeChat platform and its videogames. Their stake grew to $175bn by 2018.
Accel and Breyer Capital led Facebook’s $12.7m Series A, taking a 15% stake. Facebook’s IPO valuation was $104bn, resulting in a 1,200x return.
Sutter Hill Ventures $5m stake in Snowflake turned into $13.3bn according to the FT. Snowflake IPOed at a $70bn valuation.
Can corporate venture capital (CVC) achieve similar successes?
Well apart from Naspers above, there are few CVCs that have achieved such huge returns.
So what should corporates focus on?
Well instead of the X returns, corporates should focus their venturing on accelerating digital capabilities.
Investing in startups can give corporates early access to new technologies and capabilities, without having to incur large costs of building from scratch. CVC can be a good tool for staying current on emerging trends, identifying growth areas and blind spots, and side-stepping traditional R&D to move faster.
Here are some recent examples of ‘capability building’ acquisitions or CVCs…
- In October 2021 BP announced the acquisition of Blueprint Power (Blueprint), a US-based technology company that turns commercial buildings into virtual power plants, helping decarbonize dense urban areas.
- JP Morgan Chase, the biggest bank in the US, acquired the UK digital wealth manager and ‘robo advice’ firm Nutmeg in June 2021.
- The cloud’s elite all bought into Databricks, a company that provides software for analysing and extracting value from data. The growth equity arm of Google parent Alphabet (CapitalG), Salesforce Ventures, Amazon Web Services and Microsoft all participated in the AI data company’s Series G round of funding in 2021 which valued the company at $38 billion.