By Gary Dushnitsky
Last month, Teva Pharmaceuticals, has announced the launch of a corporate venture capital fund. The new fund will be headed by Dr. Aaron Schwarz, a Teva veteran, and will seek investment in biotech companies. In doing so, Teva joins a list of leading pharmaceuticals that increasingly shift their attention externally as a way to stimulate their product pipeline. The innovative and talent profile of biotech start-ups, coupled with the changing economics of R&D in the industry, implies that Teva’s venturing arm will find a playing ground populated with other corporate investors such as Pfizer Ventures, GSK’s SR One, Eli Lilly’s Lilly Ventures, Novo Nordisk’s Novo Ventures, and so on.
In a recent Business Strategy Review article, London Business School professor Gary Dushnitsky notes that corporations across a wide array of industries are adopting a venturing approach. Corporate venture capital (CVC) is increasingly regarded by organisations as a vital weapon in their entrepreneurial and innovation armory. About 20 per cent of the Fortune 500 have created a CVC unit, according to a 2009 study, including such firms as BASF, Cargill, Dow, Deutsche Telekom, Intel, Johnson & Johnson, Reed Elsevier, Siemens, UPS, and others.
Professor Dushnitsky debunks some common myths regarding corporate venturing. He observes that CVC units are becoming an integral part of firms’ innovation strategy: while the average lifespan of CVC unit was 2.5 years during the 1990s, it has almost doubled to 3.8 years during the 2000s, with more than 40% investing continuously for four years or longer. Moreover, mirroring the ever globalizing venture capital market, professor Dushnitsky finds that the fraction of CVC investments in US-based ventures declined from 88% (1991–2000)to 75% (2001–2009).
*** Gary Dushnitsky is an Associate Professor of Strategy and Entrepreneurship at London Business School. Additional analysis on the topic corporate venture capital performance, structure, and compensation is available at www.dushnitsky.com.