The rapid pace of technology innovation – which typically favors smaller,
early-stage companies with singular focus – is likely a contributing factor to the
increase in corporate investing. Larger, often public, companies must continue
to evolve and grow their businesses in order to remain competitive. The pace
of disruption has increased exponentially, to the point where an established
corporation can seemingly have their core business dramatically changed
almost overnight. Well-established companies with strong venture teams and
corporate strategy can radically expand their positions in both existing and new
markets. For example, Amazon's recent acquisition of Whole Foods and near
simultaneous investment in vertical farming company, Plenty, has positioned the
company to disrupt the entire grocery industry with an industrial-scale, 'farm-
to-retail-to-table' experience. This move comes only a handful of years after
Amazon entered an entirely new line of business, web hosting, with Amazon Web
Services (AWS). AWS now accounts for more of Amazon's market capitalization
than the company's legacy commerce business. Another example is Google's
expansion by restructuring the company as Alphabet, launching intelligent
transportation company, Waymo, and exploring moonshot opportunities with
Google X. By comparison, one-time powerhouse and Google competitor, Yahoo,
failed to innovate and was acquired by Verizon for $4.48 billion – a mere fraction
of the company's previous market valuation.
Another factor contributing to Corporate VC activity, particularly for market
leading companies, is the mammoth amounts of cash at their disposal. The five
biggest tech firms in the US (Apple, Alphabet, Microsoft, Amazon and Facebook)
have recently become the five most valuable listed companies in the world with a
total market value of over $2.9 trillion. Together they have $330 billion in net cash
(cash less debt) – a ratio of twice their gross cash flow.
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"Tech Firms Hoard Huge Cash Piles." The Economist, The Economist Newspaper, 3 June 2017,
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firms-hoard-huge-cash-piles.
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