Merchant Innovation

Food for Thought in VC Land

Venture capital: It’s not just for breakfast anymore. Or maybe it is, if you are one of the biggest cereal (and other foodstuff) makers in the world.

The New York Times reported Monday that General Mills has created a venture capital unit that aims to help take the old guard into the vanguard, with an eye on investing in health-conscious items and also broadening its online presence.

In one notable placement, according to The Times, the firm led a $3 million placement in Rhythm Superfoods, which is a food-centered startup that makes kale chips, among other items. The key — as has been behind recent movement from firms such as 7 Eleven and Campbell Soup Co. — is to source new products and new business relationships that can help create new revenue opportunities.

At the same time that these firms are moving into new arenas, and the number of firms making venture capital investments has grown by 79 percent over the past five years, the valuations of startups have been – until fairly recently – boosting higher. The worry among private investors (and public investors too) is that valuations have gotten ahead of reality – and that selling may be in the offing as some funds get itchy to lock in gains. As has been widely reported, it has been rumored that Intel’s own venture capital arm might sell roughly $1 billion of its holdings, and the read across here would be that such large stake unloading would exacerbate pressure to sell among other funds.

The problem remains that as selling continues, it creates a vicious cycle: Fewer firms come to public markets as an exit strategy, which then means that the private markets are the only way to realize and cement paper gains, and thus the selling continues. That could have a long lasting ripple effect as total VC investments have more than doubled over the past five years to roughly $59 billion, as noted by the National Venture Capital Association. Corporate funds now are roughly 13 percent of that total, the most in 16 years.

In an interview with The Times, J. Sanford Miller, who is a general partner with Institutional Venture Partners in California, said that “I think some of the corporate V.C. will get a little less enamored as the venture market goes from euphoria into a little more normal period.”  In terms of rationality, the size of the median late stage fund, as measured by Global Corporate Venturing, has tripled over the past four years but has dropped off steeply this year, by roughly 23 percent.  

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