Venture Backed Companies in Fortune 500
The goal of Venture Capital is to stimulate growing businesses by providing capital with the expectation of appreciation. Venture capitalists will invest in whichever businesses they see fit. While the precise definition of "fit" companies varies by venture capitalist, there are industry-wide trends. Take, for instance, the dot com boom. In that time period, Venture Capital reached an all time high of $27M in 1999 [1]. Like in any other market, there are trends in VC investment. Moreover, these trends tend to reflect greater movements within the economy (as we saw with the boom in '99-'01, the decline in the recession).
| Venture Backed Companies in Fortune 500 | |
|---|---|
| Project Information | |
| Has title | Venture Backed Companies in Fortune 500 |
| Has start date | |
| Has deadline date | |
| Has project status | Tabled |
| Has sponsor | McNair Center |
| Has project output | Content, Guide |
| Copyright © 2019 edegan.com. All Rights Reserved. | |
Like in venture capital, Fortune 500 trends develop by sector, location, and overarching market conditions. Obviously, with the development of technology and advent of internet, tech companies arose in the list. Earlier on, the same was true for the automotive industry
Our goal is to isolate trends in Venture Capital since 1980, and compare those trends to changes in the Fortune 500 over time. Ideally, our report will segment the changes in VC and the F500 into different categories (sector, US location, time period). Additionally, we are keenly interested in finding which (and what kind) of venture-backed businesses have entered the F500 since '80. Doing this analysis will shed some additional light on the primary focus of this project: isolating and comparing trends in Venture Capital and the Fortune 500.
Methodology
To find exactly which companies were worth examining, we drew names of all venture-backed companies from SDC Platinum's MoneyTree deal list, and then used a perl script to match said list with each Fortune 500 between 1980 and 2014 (the most recently released year). We drew our Fortune 500 from 1980-2005 from Fortune magazine. We then drew 2005-2014 data from TopForeignStocks' database [2].
Once the names were matched, we pulled specific data on these companies of interest from SDC platinum. These data included information on the first/last date of VC investment, total capitalization of the VC investment, specific location, and industry class/subclass. To ensure that our industry-specific data were accurate, we downloaded NAICS codes from the WRDS database and spotted no points of conflict between SDC and WRDS' conclusions.
Once all of these data were in place, we dumped everything into Excel and attempted to draw meaningful conclusions. While we didn't find any especially surprising relationships within the data, we were surprised to note several trends in F500 and VC.
Greater trends in the Fortune 500 and Venture Capital
After performing the appropriate matches, isolating unique company names, and normalizing the text files, we were able to isolate three specific industries (and five industry sub-classes) into which these VC/F500 companies fell. These industries were Information Technology, Medical/Health/Life Science (Which I'll abbreviate as MHLS), and Non-High Technology.
On a macroscopic level, we found it difficult to isolate trends that prevailed across all sectors. However, what we didn't find was just as interesting as what we did. First and foremost, our data does not show any evidence that total VC investment has anything to do with tenure in the Fortune 500. This may be a result of cutthroat competition, or some internal, managerial factors. This could be an interesting avenue to explore.
Beyond the disconnect between capital and tenure, we found that compared to their Fortune 500 peers, venture backed companies perform fairly well. In fact, Information Technology VC backed firms in the fortune 500 have longer F500 lifespans than do the average F500 company. MHLS and Non-high technology firms hover around/at the average lifespan of 14 years.[3]
Our most valuable findings can be analyzed on an industry-by-industry basis. They are detailed below.
Information Technology
Keeping with trends in the greater VC community [4], tech-based companies lead the charge in our sample of the Fortune 500.
- On average, these Information Technology companies entered in 1989. Semiconductor and computer-related companies entered first, at an average of 1986 and 1989 respectively. Communications and media entered on average in 1999 (in the midst of the dotcom boom)
- While the average departure is about 2003, this distribution of exits is effectively trimodal. Computer-related firms were the first to go, at 2000 on average.
- Semiconductor companies generally exited the F500 in/around 2005
- Communications and Media companies have largely stayed in the F500, but some left in the early 2010's.
Medical, Health, and Life Sciences
MHLS companies have generally performed well, but experience less rapid growth than Information Technology firms. Within the MHLS, there is a tale of two subclasses: MHLS subclass (traditional healthcare providers/hospitals) and Biotech firms.
- MHLS Industry firms waited an average of 22 years before reaching the Fortune 500. Compared to the IT figure of 14 years, or the Non-High tech figure of 29.
- Since 2007, Biotech firms have experienced more rapid and sustained growth than their traditional counterparts within the MHLS sector. Currently, 80% of all VC backed biotech firms that have reached the fortune 500 remain, compared to around 50% of MHLS subclass.
- Traditional health providers post consistently stable growth rates, and rarely surprise. Just over half of traditional MHLS firms stay in the F500 for more than 15 years.
- Biotech firms wait for a while to enter the Fortune 500. On average, these companies wait 25 years before reaching the F500. Compared to MHLS subclass companies, a Biotech business waits five extra years before reaching the F500.
Non-High Technology
Non-High Technology firms have been the slowest, but steadiest growing group. While there are few venture backed NHT firms in the Fortune 500, these are well-established brands in Consumer Discretionary fields, primarily.
- 42% of F500 NHT firms that have received VC investment remain in the Fortune 500. Moreover, these 42% average around 20 years in the Fortune 500. This is well above the average
- While these companies aren't traditionally the most rapidly growing, their solvency is proven well before reaching the F500. Most NHT firms wait 29 years before reaching the Fortune 500.
- Once they arrive, NHT firms stick around for a pretty short period of time. Their average of 9 years within the F500 is the lowest of all VC backed companies
Moving on: Summer/ Fall 2016
There are a few avenues down which we can continue researching this topic
- On an industry by industry level, we can look at exactly how venture backed tech/MHLS/Non-high tech companies perform compared to their non-VC peers.
- Chronologically segmenting the Fortune 500 and Venture Capital by macroeconomic/sociopolitical occurrences (eg. in wartime x industry performs well, but when we're in a recession y industry is favored)
- Look into which Geographic Regions are particularly conductive to VC growth
- We could apply this sort of project framework and match VC companies to other popular indices, be they securities exchanges or debt markets.
