Business Travelers

First the coronavirus pushed tourists out of New York City, London and Tokyo. Now it's likely to push them off Sand Hill Road. As startup and tech valuations soared in the now-ending bull market, corporate investors plowed into venture capital, many coming from markets far afield of tech. They've been investing longer and larger than they did during the dot-com bubble. But despite the slower buildup, they'll likely now flee from the market as fast as they did after the bubble burst.

Since the end of the great recession, publicly traded companies with a US-based venture arm have gradually increased their participation in the VC market. According to S&P Market Intelligence's Capital IQ, in 2014 such investors participated in nearly 500 venture rounds for the first time since 2000. And in the five years since, more venture and growth rounds have included a corporate venture arm. In each of the past two years, the total raised by startups in funding rounds involving a corporate venture arm has landed above $20bn, compared with just $2-5bn in each year from 2002-2013.

Companies that were once venture-backed startups themselves have long invested in the younger generation of tech vendors – Intel and Cisco, for example, and more recently Google. But as the narrative that tech would disrupt every industry has taken hold, corporations with feeble ties to tech have poured into the startup market. The dot-com bubble sparked a similar movement, as businesses tangentially connected to websites and networking (legacy media, telecom and industrial engineering, for example) launched venture funds.

This time around, the perceived disruption is broader and the valuation expansion has lasted longer, bringing in a more expansive breadth of companies angling to capitalize on the equity and insights of startups. The belief that placing bets on startups could help them navigate the impact of emerging technology on their core business sparked vendors in industries such as travel (e.g., JetBlue Technology Ventures and Boeing HorizonX), automotive (e.g., Toyota AI Ventures and Daimler's Startup Autobahn incubator), and consumer goods and retail (e.g., Simon Venture Group, ASICS Venture Group and H&M CO:LAB).

During the dot-com bubble, corporate venture arms stepped back from the market with astonishing speed. (Although, so did limited partners and many others as unreasonable projections about the growth of the web deflated.) In that downturn it was the value of corporate VC portfolios that took the hit. This time, however, the current crash is bludgeoning their core business. As many grapple with unprecedented declines in revenue, they're safeguarding their balance sheets and are likely to take a sudden vacation from startup investing.