Sustainability and the World of CVC

Today, sustainability has become one of the major focus areas of companies with the objective of having more efficient operations, reducing the carbon footprint and preserving basic resources such as water, among others. Companies have outlined internal strategies that support this mission and have leveraged technology, innovation and new business models. To do this, they are collaborating with startups to validate and scale new business models that are sustainable.

In addition, companies can use internal open innovation strategies, acquisitions, or corporate venture capital (CVC) funds to access these innovations. In the particular case of CVC, their objective is to make investments that can strengthen the capabilities and strategies of the organizations and to have a financial return (e.g. Google Ventures, Toyota Ventures, AC Ventures, etc.). CVCs mainly from developed economies are actively investing in sustainability or their adjacent ones (e.g. Shell Ventures, Microsoft Climate Innovation fund, Caterpillar, etc.).

Proving the importance of the focus on sustainability is the fact that the main investment rounds in startups backed by CVCs are linked to these topics such as battery recycling, decarbonization, biodegradable materials, generation of bioplastics, water efficiency, vehicle electrification, etc.

CVCs also work hand in hand with independent VC funds seeking investments in sustainability. Proof of this is the sustainability fund where AC Ventures has participated in structuring and managing alongside other companies such as Greycroft.

Sustainability is not only the future of society, today it is already a reality in the world of investments and a fundamental part of the strategy of organizations.

CVC Market Summary

In Q2'23, global CVC-backed funding rounds grew for the first time since Q3’21. The growth was a 4% increase compared to the previous quarter with approximately USD$14.6bn invested. Capital invested was not the only thing that grew, the number of deals was also bigger by 1%. Nonetheless, the average deal size this year continues to be lower than last year’s, comparing USD$21.8mm to USD$27mm.

Despite this global growth in the last quarter, the US CVC-backed funding reached its lowest level since 2019 in both, the number of deals and capital invested, dropping 11% QoQ to USD$7.3bn, nevertheless, the country still accounts for half of the CVC-backed total funding amount. The major increases came from other regions, such as Asia which still holds the global leadership in the number of CVC-backed deals, accounting for 40% of them; and Europe, specially Germany, which reached an all-time high in the number of deals with 36.

One of the most affected sectors this quarter was retail-tech, whose funding fell 31% QoQ to less than USD$1bn in CVC-backed funding.

For the current Q3'23, the CVC ecosystem is showing signs of unsteady recovery with a total funding of around USD$13.5bn. More than half of those deals, 51.7%, were Seed and Series A rounds. Some of the main transactions during this period are the following:

• 7/07/2023: Farizon Auto raised USD$600mm in a Series A funding round, led by Boyu Capital and Guangzhou Yuexiu Industrial Investment Fund. Farizon Auto is a commercial vehicle brand focusing on the new energy field. The funding round also included participation from Hidden Hill Capital, Industry Foundation of Xiangtan and Linjiang Industries.
• 25/07/2023: Astronergy raised USD$278 million in a Series C funding round with the participation of  BOCOM International, China Capital Management, China Life Private Equity Investment, CICC and Guangzhou Yuexiu Industrial Investment Fund. Astronergy specializes in the research, development, and production of solar modules.
• 23/08/2023: Cellares raised USD$255 million in a Series C funding round led by Koch Disruptive Technologies. Cellares is a life sciences technology company that develops the Cell Shuttle to automate cell therapy manufacturing. The funding round also included participation from 8VC, Bristol Myers Squibb, Decheng Capital, DFJ Growth, and Eclipse Ventures.
• 29/08/2023: Redwood Materials raised USD$1 billion in a Series D funding round led by Capricorn Investment Group. Redwood Materials is a battery recycling startup that makes electric vehicles and sustainable materials for circular supply chains. The funding round also included participation from Caterpillar, Deepwater Asset Management, Goldman Sachs Asset Management, Microsoft Climate Innovation Fund and T. Rowe Price.
• 6/09/2023: Ascend Elements raised USD$460 million in a Series D funding round led by Decarbonization Partners. Ascend Elements manufactures sustainable battery materials using elements from discarded lithium-ion batteries. The funding round also included participation from Agave Partners Capital, Alumni Ventures, At One Ventures, and BHP Ventures.
• 14/09/2023: Generate Biomedicines raised USD$273 million in a Series C funding round with the participation of Abu Dhabi Investment Authority, Amgen, ARCH Venture Partners, Fidelity Management and Research Company, Flagship Pioneering and MAPS Capital Management. Generate Biomedicines is a biotechnological company focusing on creating breakthrough medicines.
• 28/09/2023: Enflame raised USD$278 million in a Series D funding round led by China Fintech Fund. Enflame is an artificial intelligence start-up developing cloud-based deep learning chips for AI training platforms. The funding round also included participation from GF Qianhe Investment, Guofang Innovation, Guoxin Investment and Tencent.

Source: CB Insights, Crunchbase.

The authors of this report are Fernando Ojeda, Héctor Shibata, Gregorio Lordoño, Gonzalo Soriano and Karina Hernández.

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