Therapeutics companies that attract investment from corporate venture arms are more likely than other venture-backed companies to enter licensing deals, be acquired or complete an initial public offering, according to analysis from Burrill & Company, a diversified global financial services firm focused on the life sciences industry.
The analysis comes as the pharmaceutical industry, looking for new ways to access promising, early-stage technologies, have increasingly turned to making venture investments as a way to gain insight and access.
"Our analysis shows that companies that were able to attract the participation of a corporate venture fund had a significantly greater likelihood of providing an exit for its investors," said G. Steven Burrill, CEO of Burrill & Company. "The ability to attract corporate venture capital is a validation for companies that secure those investments."
The analysis, published in the June 2012 edition of The Burrill Report, examined all therapeutics venture investments made between January 1, 2000, and December 31, 2011, in the S&P Capital IQ database. A total of 2,907 companies received disclosed venture capital funding through 5,100 rounds of financing during that period. Of those companies, 9.9% (286 companies) received funding in part from a corporate venture fund.
Of the companies that received corporate venture funding during the period analyzed, 24.5% (70 companies) were acquired compared to 14.4% (380 companies) for those that did not receive funding from a corporate venture investor. But while having corporate venture funding was a greater predictor of an eventual acquisition, it wasn't because the parent of the corporate venture fund was likely to buy the company. In fact, only 8.6%, or six of the corporate venture funded companies that were eventually acquired, were acquired by the parent of that corporate venture arm.
Companies that received corporate venture funding were also far more likely to enter into licensing or collaboration agreements. A total of 48.4%, or 139 companies, that received corporate venture funding during the period entered into at least one licensing/collaboration agreement, compared to 29.9% of non-corporate venture funded companies (782 companies) that entered into licensing/collaboration agreements during the period.
"Though it's unclear from the research, that may reflect that having corporate venture funding helps guide companies to work on projects that are of higher interest to potential acquirers," said Burrill.
Corporate venture funding was also a greater predictor of an eventual IPO for a company. A total of 12.2% of corporate venture backed companies (35 companies) successfully completed IPOs, compared to 7.8%, or 205 companies, in the analysis that did not receive corporate venture backing.
There was not a significant difference between the two groups in terms of the time from first venture funding to an M&A or IPO for the companies in the analysis that achieved exits. The companies backed with corporate venture capital achieved exits, on average, at four years, compared to four years and three months for non-corporate venture backed companies.