33% of Fortune 500 Corporations Actively Invest in Startups
At least 75% of the largest U.S. corporations have made a venture capital investment
Corporations are increasingly working with external innovators — startups — to achieve strategic objectives like growing revenue, improving profitability, building a pipeline of new offerings, defending existing lines of business, and more. When these startups succeed, the resulting collaborations with established corporations have the potential to deliver transformative results.
Unfortunately, startups fail at a relatively high rate. According to research from Elizabeth Pollman, Professor of Law and Co-Director of the Institute for Law and Economics at the University of Pennsylvania, 75% of venture capital-backed startups do not succeed.
This is one of the reasons why corporations should take a portfolio approach when it comes to working with startups, whether the transactional approach is M&A, commercial engagements, or corporate venture capital (“CVC”) investing.
For CVCs, building a portfolio requires maintaining an active presence in the market to generate and review deal flow, regularly investing in startups, and reaching diversification through a minimum of ten unique investment positions over the course of a single “fund,” often over a period of three to six years. A portfolio of this size can potentially insulate corporate investors from the high failure rate of startups and maximize the chances of achieving strategic and financial objectives.
To determine whether the largest corporations in the U.S. are taking a portfolio approach to investing in startups, I reviewed the corporations on the 2023 Fortune 500 list and evaluated whether each company maintains an active corporate venture capital program. This analysis relies on investment activity data provided solely by Pitchbook, and also includes each corporation’s location and industry sector, along with revenue figures provided by Fortune. It’s possible that a corporation may have made venture capital investments but not reported them to Pitchbook, and those transactions would not be captured in this analysis.
2023 Fortune 500 Overview
The 2023 Fortune 500 list, now in its 69th year, ranks the largest U.S. corporations by 2022 revenue. The top ten companies posted $3.7 trillion in revenue, representing some of the biggest names in the U.S. economy.
Among the 2023 list, 95% are publicly traded; the rest are privately held.
The median 2022 fiscal year revenue for Fortune 500 companies was $16.3 billion, with a range of $2.6 billion to $573 billion from top-ranked Walmart. The median market cap for the publicly traded companies on the list is $34 billion.
Investment activity
According to Pitchbook data, 75% of companies on the 2023 Fortune 500 list have made at least one VC Investment in their history.
While many corporates have previously invested in startups, this does not mean they maintain an active CVC program today.
For this analysis, we defined an active CVC program as having made at least two investments over the past two years. This minimum level of activity, even in a turbulent economy, signals to the market that the corporation is “open for business” and actively investing in startups.
Based on the data I reviewed from Pitchbook, 33% of companies on the 2023 Fortune 500 list met this standard for an active investment program over the past 2 years.
This data suggests that the majority of corporations that have made at least one VC investment have dormant, abandoned, or ad hoc programs. This indicates a disparity between active investors and CVC dabblers.
166 Active Fortune 500 CVCs
I took a closer look at the 166 corporations we determined were operating active, professionalized CVC programs.
The median number of investments over the past two years for corporations maintaining active CVCs was five (5), with an average of fifteen (15) investments, and a standard deviation of 26. The data is skewed by a small set of high volume investment programs.
There is a notable gap between new CVCs making a few investments per year and much larger incumbents investing at a greater volume. The number of investments over the past two years ranged from two (2)— the minimum threshold — to a maximum of 200+ investments made by Alphabet across its multiple investment funds. Other notable, high volume programs include Salesforce and Intel, each making over 100 investments during the past two years.
Geography
The majority of Fortune 500 corporations with active CVCs is split evenly between companies based in the northeast, midwest, and west. While 25% of active CVCs are based in the western U.S., with the majority in California, only 16% of the 2023 Fortune 500 list is composed of corporates in the west. This implies corporations based in the western U.S. disproportionately use CVC as an innovation tool compared to corporates in other parts of the country. Given the influence of Silicon Valley on the venture capital industry, this isn’t surprising.
Industry sector
It’s also not surprising that corporations in software, information technology, financial services, and media make up 41% of active Fortune 500 CVCs. Companies in this sector compose only 28% of the Fortune 500 list, however, demonstrating that this sector is over-represented among active CVCs. The pedigree of technology companies, which in many cases includes venture-capital backing, may help explain why they are more active CVCs compared to corporations in other sectors.
With a third of the nation’s largest corporations actively making venture capital investments, CVC is increasingly mainstream. Corporates accounted for 63% of U.S. venture capital deal value through Q3 2023, the highest percentage ever, according to the NVCA and Pitchbook.
For the 25% of Fortune 500 corporations that have never reported a venture capital investment to organizations like Pitchbook that track these deals, it’s likely time to consider one of these programs as an avenue for generating strategic and financial impact. For the 42% of the Fortune 500 that have made an investment in the past but do not currently maintain an active program according to reported data, it may be prudent to evaluate a more professionalized portfolio approach.
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Rachel Gutnick is a Senior Associate at Touchdown Ventures, a firm that provides “Venture Capital as a Service” to help corporations launch and manage their investment programs.
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