CVC Stock Price Analysis 2021
Our 4th update on corporate venture capital programs’ potential impact on public stock price performance
When considering launching a corporate venture capital (“CVC”) unit, executives at public companies may wonder how analysts and the stock market at large will react to the news of an investment program.
To help executives at our corporate partners and friends in the CVC community address those concerns, we began studying the stock price of public companies with CVCs. Our 2019 analysis of U.S. based public corporations on the “Global Corporate Venturing 2018 top 100 most active CVC list” showed that within our study, the median corporation’s stock price appreciated 21% more than the price of its listing index from the time of CVC unit establishment through the end of 2018. This year, in the fourth installment of this series, we refreshed the data as of May 28, 2021 and found that the stock price of the median U.S. corporation studied appreciated 45.8% more than the price of its listing index from the time of CVC unit establishment through May 2021.
This 45.8% difference at the median is the highest in the four studies we have conducted, while the mean difference is the lowest. This is likely attributable to two outliers discussed below.
The “Global Corporate Venturing 2020 top 100 most active CVC list” consists of 80 public companies and 20 private entities. It includes 40 U.S. corporations and 60 international businesses.
In this 2021 update, we analyzed the 28 public, U.S.-based corporations on the list. Of the 28 publicly-traded companies, 15 are based in California, 4 in New York, 2 in New Jersey, 2 in Washington state, and the remainder are distributed throughout the country.
15 of these U.S. companies are listed on the NYSE, while 13 are traded on the NASDAQ.
The average age of the corporate venture groups in our analysis was 12.0 years, with a median age of 10.0 years, which we believe is enough time for a corporate venture capital program to demonstrate results. This duration also includes business cycle fluctuations and management turn-over. Because maintaining a CVC program during an executive transition can be a challenge, we believe the length of the programs studied also shows commitment by these organizations.
As of May 29, 2021, the average compound annual growth rate of these 28 companies’ stock prices (measured from the time each corporation launched its CVC) was 13.9% compared to a time-weighted average exchange growth (measuring the NYSE and NASDAQ) of 10.8% during the same period. This 3.1% gross difference represents outperformance of the index of 28.7%.
Since the mean can amplify the effect of outliers, we also looked at median performance. The median gross CAGR differential was 4.4%, (13.9% stock price growth at the median vs. 9.5% for the exchange), which represents a 45.8% outperformance. In the chart above, each line represents one corporate venture capital arm, organized by age. The chart below shows the 28 parent corporations of the CVC units analyzed, organized by stock price growth since the launch of each CVC.
The data above clearly shows two companies with “outlier” stock price performance since their venture programs launched. At the far left of the distribution, Coinbase stock has had a 98% annualized decrease in value since going public in April 2021. At the right of the distribution, Snap’s stock price increased in value at a 137% annualized rate in the three years since its program launched. Much of the increase in the value of Snap’s stock happened in late 2020 as the company’s financials showed growing demand for its advertising products. These corporations each launched CVC programs in 2018, so we intend to follow their performance to build a consistent long term picture.
Our methodology included determining the start date of each CVC via its website and its first investment recorded on PitchBook. If the corporation started its CVC before going public, we analyzed performance only from the time of the IPO to the present. For stock performance, we used the May 28, 2021 closing price on Yahoo! Finance. The NYSE or NASDAQ performance in this analysis is measured for each CVC separately and is calculated since the program’s inception. The median compares the average of Intel and Alexandria Real Estate’s stock performance (as they are median performing stocks in the study) with the NYSE since each company’s first investments in 1991 and 2013 respectively. The mean difference is calculated as the mean performance of the individual CVC parent stocks less the weighted mean performance of the NYSE and NASDAQ since each program’s inception.
As noted every year, the correlation observed in this data set does not prove that starting a corporate venture unit will cause a company’s stock price to outperform the market. The observed effect could be the result of other factors. With the global pandemic and stock market volatility in 2020, the impact of Covid-19 on the industry of each company in our study likely affected short-term stock price performance and these results. The companies we studied were also the most active in a challenging economic environment, further indicating that underlying strength in these businesses’ fundamentals might also contribute to stock price outperformance.
We plan to continue to expand and revisit this data to test how a corporate venture capital effort relates to other observable characteristics of publicly traded businesses, like revenue growth and profit margins. We hope to identify additional patterns that demonstrate the potential shareholder value of this increasingly vital innovation function.
Liked what you read? Click 👏 to help others find this article.
The NYSE Composite Index is a float-adjusted market-capitalization weighted index which includes all common stocks listed on the NYSE, including ADRs, REITs and tracking stocks and listings of foreign companies. The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. All indices used in this article are provided for informational purposes only and are provided for the purpose of making general market data available as a point of reference only. The performance and characteristics of an index used in this report is not an exact representation of any particular investment, as you cannot invest directly in any such index.
Selina Troesch Munster (email@example.com) is a Senior Associate at Touchdown Ventures, a Registered Investment Adviser that provides “Venture Capital as a Service” to help leading corporations launch and manage their investment programs.
This article includes information from third party sources believed to be reliable; however, we make no representations as to its accuracy or completeness. References to strategies are for illustrative purposes only and should not be relied upon as a recommendation to engage in any particular strategy or to invest in any particular security. Opinions expressed herein are based on current market conditions and may change without notice and we reserve the right to change any part of these materials without notice and assume no obligation to provide an update. Recipients are advised not to infer or assume that any securities, strategies, companies, sectors or markets described will be profitable or that losses will not occur. Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager. Past performance is no guarantee of future results.