South Korea-headquartered electronics producer Samsung’s Catalyst Fund operates in the mid-point between strategic investing and financial returns in regard to the corporate’s venture capital activities, managing director David (Dede) Goldschmidt told Global Corporate Venturing.
Catalyst Fund is one of several corporate venturing vehicles operating under the Samsung umbrella, along with Samsung Ventures and Samsung Next, but Catalyst Fund actively seeks out deep tech and data-equipped technologies which could help its parent form new businesses.
“To that end, we invest across multiple application sectors that intersect with Samsung’s current business and, in some cases, potential future business,” Goldschmidt said. “Those domains include data centres and the cloud, artificial intelligence (AI), networking and 5G, automotive, sensors and the metaverse as well as other emerging technologies such as quantum computing.
“As a deep tech fund, we look for investments that cover the entire infrastructure stack, from the lowest layer to the highest.”
The unit runs an evergreen fund model investing in the United States, Europe and Israel. It oversees a portfolio of more than 30 companies, its exits including smart doorbell developer Ring, which was acquired by Amazon for a price above $1.2bn, and SoundHound, a voice intelligence technology producer set to list on the Nasdaq Capital Market at a $2.1bn valuation.
“There are different approaches to corporate venture capital, not all are alike,” Goldschmidt said. “Some corporate funds are purely driven by strategic motivations, leveraging investments to support concrete collaborations with startups. Others, might be purely financially driven, just looking for superior financial returns.
“At Catalyst Fund, we are probably in the middle. Our primary motivation is to bring strategic value to Samsung. To that end, we look for high-quality investment targets that could generate significant financial returns as a good proxy for strong startups with which we could have a lasting partnership.”
While the covid-19 pandemic has necessitated more video-based meetings with prospective portfolio companies, another notable change is in the emergence of innovative products in areas like healthcare, enterprise software and payments that require new technologies.
“One such example of a shift is the rapid growth in digital services, leading to dramatic changes in infrastructure,” according to Goldschmidt.
“Changes in our behaviour as consumers and the explosion in data have forced shifts in data centre and cloud architecture. There is a lot of attention given to AI, and we have also invested in AI-related technologies such as AI and high-performance compute (HPC) acceleration chips.”
An example of such a company is Rescale, a developer of HPC technology for use in research and development activities, which closed a $105m series C round featuring Catalyst Fund in November 2021.
“Rescale operates as a kind of intermediary layer between public clouds and customers, augmenting the public clouds with capabilities needed to run heavy HPC workloads, such as new chip design or new aircraft simulation, which are extremely complicated and compute-intensive,” Goldschmidt explained.
“Running these simulations is resource-expensive and doing that on premises means very significant capital expenditure investments for peak moments. Rescale’s technology enables a smooth transition from on-premises to cloud, lowering the cost, leveraging massive cloud resources and accelerating the development of new technologies and products.”
Although the startup space has experienced considerable growth during the pandemic, public market valuations have fallen in recent months. Goldschmidt has been around for earlier crashes but suggested things are somewhat different now because tech companies generally have solid business foundations, even if the revenue multiples in their valuations can be inflated.
“When making investments, we try to be disciplined,” Goldschmidt stated. “In some cases, we see very crowded activity in a space and high valuations. Like a financial VC, we ask ourselves: is the market large enough and growing fast enough to accommodate existing and new players? What are the ingredients to success in this market and who is likely to be the winner? Can we help them win?
“Today, many startup companies are getting sizeable valuations. There was a similar phenomenon in the dotcom bubble. A major difference though is that today these unicorns often have a proven business model and growing revenues. However, we need to remain careful on valuations.”
