We all know that venture capitalists help entrepreneurs create and grow great companies. Those great companies create jobs and improve our standard of living. Yet what many don’t realize is that the traditional venture industry is consolidating.

Washington area private firms, such as New Enterprise Associates, Grotech, New Atlantic Ventures and Novak Biddle, that raise money from third-party investors are becoming fewer and farther between, with just over 500 such firms in the U.S. last year. Yet, our country’s most promising start-ups continue to get funded in part because of the rise of corporate venture capital.

Not only do these investment arms of large corporations fill a funding gap, but they also provide their nascent companies with contacts, customers and product insights. In return, the corporate groups get an early look at the most promising products, services and innovations being developed today. Over the past few quarters, we have seen tremendous growth in corporate venture group engagement. They not only co-invest with traditional venture firms, but sometimes invest prior to traditional venture investors. And their engagement in the ecosystem is growing.

While statistically 2012 wasn’t a very dramatic investment year for U.S. venture capital (with a slight decline overall from 2011, but higher levels than 2010), corporate venture capital continued to quietly gain strength. In 2012, corporate venture investment reached a four-year high in participation (percent of deals with at least one corporate VC) of 15.2 percent, rising more than a percentage point from 14.1 percent in 2011. And dollar share also rose to 8.2 percent of total venture dollars in 2012, up from 7.5 percent last year.

Historically, it has been during difficult economic times that corporate venture programs have waned. So it is significant that the corporate investment numbers have been strong as we have moved through the recession. This stability, coupled with more and more corporate venture capital groups joining the National Venture Capital Association each year (it is our fastest growing new member segment), suggests that the sector is poised to become an even more important part of the venture landscape in the next five years. This is not surprising given the number of venture investors leaving traditional venture firms to join corporate groups. Pharmaceutical companies such as Smith Kline Beecham; technology companies such as Google, Microsoft and Intel; and industrial companies such as Chevron and Kodak are established in this innovation ecosystem.

Locally connected corporate venture groups include AOL Ventures, Gannett, Altria Ventures, The Washington Post Co. and Dupont.

Looking at 2012 results, corporate VCs are playing their largest roles in industrial/energy deals (21 percent of all industrial/energy deals have at least one corporate venture capital group in them), biotechnology (20 percent), computers (19 percent) and networking/equipment (18 percent). And within the corporate investment pool itself, most dollars are being directed to software companies (27 percent of all corporate venture capital dollars invested); biotechnology (21 percent) industrial/energy and IT services (11 percent each).

Among the four investing stage categories (seed, early, expansion and late), corporate groups far and away were most active in expansion-stage deals measured by both total dollars invested (almost 10 percent of all expansion-stage dollars), deals completed (18 percent of all expansion deals) and 42 percent of all corporate investment. The full report is available at www.nvca.org.

John S. Taylor is head of research for the National Venture Capital Association.