TotalEnergies, the French oil and gas conglomerate, is closing down its corporate venture capital (CVC) division. The firm will sell its stakes in portfolio startups to French VC firm Aster. News of the shutdown comes as CVCs reduce participation in European VC deals. In Q1 2023, CVCs participated in European VC deals worth $6.7B (€6.3B), down from $9.3B (€8.7B) from the preceding quarter. European CVCs reduced their participation by more than half since the peak deployment of $15.7B (€14.7B) in Q1 2022. Considering the economic uncertainty, CVCs will continue to decrease their participation in European VC deals as the year progresses. While traditional VCs are curbing their deployment due to a lack of exit prospects, the reasons for CVCs differ. A CVC's capital deployment is linked closely to its parent organization. Because of recent market volatility and uncertainty over future market conditions, several parent companies have been forced to improve their balance sheets, resulting in a lower allocation to VC investments. CVCs typically invest in companies to obtain a strategic edge rather than profits alone. As a result, in the face of market uncertainty, corporations are focused on enhancing their own profitability rather than entering into VC partnerships. Corporations that have been struggling with liquidity will be resorting to layoffs and other cost-cutting measures to enhance the long-term prospects of their organizations. At such a time, corporates will find it difficult to justify startup investments to their board, says Pitchbook analyst Nalin Patel.
According to Patel, the withdrawal of CVCs would impact startup fundraising rounds since "A large component of the overall figure for most large deals that VC-backed companies secure are going to involve some form of non-traditional investor." CVCs account for a large proportion of non-traditional investors in VC. Due to CVC pullback, NTI funding dipped to $8.5B (€8B) in Q1 2023. Patel reckons that the lack of record valuations in Europe in the past six months is due to the retrenchment of NTIs and CVCs. TotalEnergies established its CVC division in 2008. It committed $400M in 2019 to invest in carbon neutrality-focused startups over a five-year time period. To date, the firm has backed nearly 20 startups across the U.S. and Europe, the most notable of which are renewable energy startup Zola Electric and microgrid startup Canopy Power. TotalEnergies posted an EBITDA of $71.6B in 2022, buoyed by the jump in oil and gas prices. Given the strong earnings last year, it is unlikely that TotalEnergies is shutting down its CVC division due to financial concerns, making the actual reason behind the move unclear. While TotalEnergies is shutting down the CVC division, the French firm is retaining its accelerator program, which will continue to back startups focused on energy storage, power retail, and renewable electricity generation. |
