Given the reorganisations at Alphabet since it was formed in 2015 to act as an umbrella company for Google and its diversified business interests, 2017 was a relatively relaxed year for its corporate venturing units, though they continued to be active.
The 2015 realignment involved the firm’s early-stage investment arm, Google Ventures, and its growth-stage unit, Google Capital, being formally separated from Google, and they subsequently rebranded as GV and CapitalG accordingly.
GV was particularly active in 2017. Whereas in 2016, the unit’s largest deal was a $95m round for oncology therapy developer Carrick Biosciences, this year it participated in six $100m+ rounds, including the $120m series C round closed by AI insurance platform Lemonade this week.
The largest of those deals was the $130m raised by another insurance innovator, Clover Health, in May 2017 at a $1.2bn valuation, but GV also led nine-figure rounds for immunotherapy developer Arcus Biosciences ($107m) and point-of-sale technology developer Toast ($101m), and backed a $101m round for agricultural data provider Farmer’s Business Network ($110m).
The largest cumulative investment by GV, which now has $2.4bn under management, over the course of 2017 was likely in 3D printing technology provider Desktop Metal. GV led the company’s $45m series C round in February before returning for its $115m series D in July.
The unit’s exits included upscale coffee chain Blue Bottle, for which Nestle paid $700m for a majority stake, and dark data platform Lattice, which was bought by Apple for $200m. Big data software provider Cloudera, Gram-negative infection therapy developer Spero Therapeutics and monoclonal antibody developer Arsanis respectively raised $225m, $194m and $136m from their initial public offerings.
CapitalG’s largest deal was closed two weeks ago when it led a $1.5bn round for ride hailing service Lyft that valued it at $11.5bn post-money, though it also took part in the $1bn series F round closed by accommodation booking platform Airbnb in March. Perhaps the biggest event for the unit was the $3.9bn IPO for Snapchat owner and portfolio company Snap the same month, the largest since Alibaba went public in 2014, though Snap’s stock has since fallen below the IPO price.
The year was however blighted for CapitalG by health intelligence software provider Outcome Health. It was among the participants in the $600m round Outcome closed in May at a pre-money valuation of $5bn, but by the time November rolled round the company was the subject of a fraud investigation and was being sued by investors including GV claiming it had falsified data and financial reports.
As the year progressed, GV and CapitalG were joined by a younger sibling. We speculated at the time of the 2015 reorganisation that Google, which still oversees Alphabet’s online advertising business as well as entities like Android, Chrome and YouTube, could seek to launch its own corporate venturing arm, and in effect that’s what happened when it founded a artificial intelligence-focused unit called Gradient Ventures.
Gradient’s formation can be seen as part of a trend over the past year that also involved the likes of Microsoft, Salesforce and SenseTime launching their own AI investment funds, but it has already made five investments under the leadership of managing partner Anna Patterson. They’ve all been in relatively early-stage rounds, but Gradient can commit up to $8m a time, so expect to see it turning up more often in series B and C rounds from next year.
GV founder Bill Maris had a happy ending of sorts too in 2017, having left the unit in August last year. After months of speculation he closed the first fund for his new firm, Section 32, at $150m in May, and six months later it had scored its first exit as immunotherapy therapy developer Arsanis, also a GV portfolio company, went public in a $46m IPO.
Interestingly, Section 32 and GV are co-investors in several other companies including Kobalt, the music royalties collection service that raised $89m in series D funding this year, business meeting platform Dialpad and cancer diagnostics technology developer Freenome, and it will be interesting to see if the two seek to put together any kind of formal agreement in 2018.