Services play a dominant role in most mature and emerging modern economies, having taken over manufacturing and agriculture in importance. The World Bank’s 2011 World Development Indicators showed that the services sector accounted for almost 71% of global GDP in 2010.
According to a World Travel and Tourism Council report – Travel and tourism: economic impact 2018 – the total contribution of the tourism and travel industry to global GDP was $8.272 trillion (10.4% of world GDP) in 2017. The same publication forecast its rise to $12.45 trillion (11.7% of world GDP) by 2028. Providing services related essentially to leisure, this subsector is cyclical in nature and its growth has been fuelled by rising purchasing power and disposable income on a global level, though such factors vary across geographies.
There has been a slowdown of innovation in travel tech and accommodation. According to research on the travel tech startup landscape by Phocuswright, the number of new “startups being founded is slowing in the last few years, coinciding with a significant increase in the amount of investment flowing into maturing businesses”, the latter being broadly defined and encompassing the now-unicorns of the sharing economy like Uber and AirBNB and their ilk.
Despite much talk about focus on delivering unique customer experience, the report notes that travel startups “that provide some kind of booking-related service have secured the vast majority of funding and account for over 40% of the new companies on the scene”. Offering convenience to customers is still a winner.
Another subsector of services prone to cyclical fluctuations is real estate. The 2018 Summer Global Real Estate Outlook, by investment bank Morgan Stanley, concluded that despite certain market turbulence but thanks to strong global economic growth in recent years, peppered with diverging interest rate policies and currency volatility, the investment environment for commercial real estate is still positive.
The report, however, warned that it may “require increased levels of caution and prudence given the abundance of available capital and cycle maturity”. Emerging new technologies in real estate have been shaped by both market conditions as well as by shifts in consumer behaviour. The convoluted processes of buying, selling and owning properties are fertile ground for innovation on every side of a transaction, particularly in a space as cyclical as real estate.
The advent of e-commerce, along with digitisation of consumption and other disruptive technologies have created opportunities for logistics service providers, which have found themselves forced to adapt and shift their business models. As the 2018 Global Logistics Report by Eye for Transport notes, retailers and consumers expect the supply chain to be more digitised, smarter and faster.
One of the problems of this subsector of services is that growth has been driven by e-commerce and its expanding customer base, which may bring a slowdown should demand drop. On the technological side, digital transformation remains the main challenge, with 60% of logistics service providers developing or purchasing online freight and tech platforms and more than half of them (52%) considering blockchain a game-changer, according to the report.
Education services are also expected to grow and open up opportunities for edtech developers and service providers. A report on edtech by Startup Genome predicts there will be 1 billion additional students worldwide by the middle of this century. This prediction is underpinned by population growth trends in emerging economies, mounting participation in education, more time spent at school as well as a growing need for reskilling and further professional development due to digital and automation disruption in labour markets. Global education expenditure is forecast to grow 8% annually to $8 trillion by 2020, according to the report.
Technology has helped democratise education and made learning resources more accessible and available. Not only is academic and scholarly content increasingly digitised but many university courses are now available through massive open online courses accessible on a mobile device. Technology will need to meet the challenge of increasing demand for education in the coming years.
The global market for consulting services, estimated at $250bn, is among the most mature subsectors of services. It has been growing since the end of the last recession, according to an analysis by Consultancy.uk. The article notes, however, that growth rates “differ between the more mature markets and emerging economies”.
It is a cyclical market, closely linked to global economic conditions – flourishing in boom times and suffering market corrections. As far as innovation in it is concerned, overall trends in IT and computing technologies – whether it is big data, automation, machine learning or artificial intelligence – not only bring operation efficiencies but also fuel profound shifts in the workplace. This is expected to continue as those technologies advance.
Legal services is also open to technological disruption that may streamline work. As Baretz and Brunelle’s 2018 legal tech go-to-market report states, in recent years “sustained pricing pressure from corporate clients and rapid technological leaps have combined to create the present environment in which law firms and corporate legal departments are not just open to technology-based solutions to problems formerly overcome by brute lawyer-hours, but actively inviting them in”. However, the report finds that legal startups face many challenges and in most cases do not have a firm grasp of a go-to-market strategy, to which it attributes the high failure rates (75%) of venture-backed legaltech startups.
Another subsector with many opportunities is human resources. According to a report by Grand View Research, cited by consultancy firm CFirst, the world’s human resources (HR) industry is expected to reach $30bn in size by 2025. The more generationally diverse workforce of today is now blended, bringing together freelancers and full-time employees in need of constant skill updates driven by digitisation, and values more schedule and workplace flexibility. In this context, technologies such as artificial intelligence, machine learning and automation, augmented and virtual reality, big data and cloud computing play an indispensable role in helping HR managers and recruiters meet the increasing demands and challenges of their workforce. The report expects an increase in the demand for HR management solutions.
For the period between January and December 2018, GCV reported 246 venturing rounds involving corporate investors from the services sector. A considerable number of them (103) took place in the US, while 20 were hosted in China, 24 in India and 20 in Japan.
Many of those commitments (99) went to emerging enterprises from the same sector, mostly education and edtech, human resources tech, logistics services and real estate, with the remainder going into companies developing other technologies in synergies with the sector – 36 deals in the IT sector (artificial intelligence, big data and analytics, enterprise software, VR and AR technology), 29 in financial services and fintech (primarily payment technologies, alternative lending, financial software, personal finance applications and insurance) and 23 in consumer enterprises (mostly e-commerce and food delivery businesses).
The network diagram, illustrating co-investments of services corporates, shows the wide spectrum of investment interests of the sector’s incumbents. The commitments range from real estate portal (Lianjia) and women-only coworking spaces (The Wing) through online event facilitators (Huodonxing) and parking spot reservation apps (Akippa) to online platforms to notarise documents (Notarize), cloud storage providers (Cloudian), AI-based natural language understanding and personalisation technology (Ojo Labs) and even smart grid systems for smart buildings (Blueprint Power). All these co-investments match the specific technological needs of incumbent corporations in the sector, as outlined above.
On a calendar year-on-year basis, total capital raised in corporate-backed rounds went up significantly from $3.72bn in 2017 to $6.84bn in 2018, an 84% surge. The number of deals also grew, by 43% from 172 deals in 2017 to 246 by the end of 2018.
The 10 largest investments by corporate venturers from the services sector were necessarily concentrated in the same industry.
The leading corporate investors from the services sector in terms of largest number of deals were classifieds listing operator Info Edge, human resources firm Recruit Holdings and education services provider Tal Education Group. The list of services corporates committing capital in the largest rounds was topped by home builder Lennar, Info Edge and property developer Sunac China Holdings.
The most active corporate venture investors in emerging business service companies were diversified internet conglomerate Alphabet, telecoms firm SoftBank and e-commerce company Alibaba.
Services businesses in the portfolios of corporate venturers varied, ranging from accommodation and travel (Tujia and Oyo Rooms), real estate tech (Cape Analytics and OpenDoor) through education and edtech (Wonder Workshop and MasterClass) and human resources (Andela) to logistics and supply chain services (GoGoVan, Shansong Express and Deliv). This is illustrated by the network diagram of corporate co-investments in such companies.
Overall, corporate investments in emerging services-focused enterprises rose from 276 rounds in 2017 to 365 by the end of 2018, a 32% increase. The estimated total value of investments also went up, from $15.14bn in 2017 to $24.23bn last year.
Deals
Services sector corporates invested in large multimillion-dollar rounds, raised by enterprises in the same sector as well as financial services and transport.
New Leshi Smart Home, the smart TV affiliate of conglomerate LeEco, received $437m in funding from corporate investors, among them real estate developer Evergrande, Sunac China Holdings, retail group Suning Holdings as well as consumer electronics manufacturers Lenovo and TCL. The round was co-led by e-commerce group JD.com and internet company Tencent. Formerly known as Leshi Zhixin Electronic Technology, New Leshi Smart Home is a subsidiary of China-based consumer electronics producer LeEco. It manufactures internet-connected smart televisions. The company has signed a commercial agreement with Tencent that enables it to supply media content owned by Tencent in return for a slice of the resulting membership and advertising revenue.
US-based online real estate marketplace Opendoor raised $325m in a series E round co-led by Lennar, conglomerate Access Industries and venture capital firm General Atlantic. Property manager Invitation Homes also participated in the round. Access Industries took part through investment arm Access Technology Ventures. Founded in 2014, Opendoor has created an online real estate sales platform that offers help with valuation, and once fees have been agreed its staff conduct an assessment of the property to ascertain whether any work is required.
Cainiao Networks, the logistics division of Alibaba, paid $290m for a stake in China-based retail delivery service Dianwoda. Cainiao will cooperate with Dianwoda on warehousing services as well as the provision of local and intercity deliveries. Founded in 2009, Dianwoda operates an outsourced delivery service that connects shops with drivers. It focuses on delivering food and other consumer goods from supermarkets. The company claims to have signed up of more than 3 million drivers in more than 300 Chinese cities, and to have attracted more than a million stores as clients, processing almost 100 million deliveries a day.
China-based delivery services provider GoGoVan raised $250m from investors including Cainiao and local services platform 58 Daojia. Venture capital firm InnoVision Capital led the round, which also featured the government-backed Russia-China Investment Fund. GoGoVan runs an app-based marketplace for delivery services, connecting drivers with clients who need packages delivered. It merged with 58 Suyun, a competitor spun off from 58 Daojia. The company is present in Singapore, South Korea and Taiwan as well as China.
Info Edge and SoftBank co-invested in a $238m series F round for India-based online insurance marketplace Policy-Bazaar and its sister company, financial product comparison platform PaisaBazaar. Info Edge provided $45m through an undisclosed special purpose vehicle, increasing its stake in ETechAces, the owner of both platforms, from 9% to 13%. Launched in 2008, PolicyBazaar is an online platform where insurance policies from a range of providers can be compared and bought. It is responsible for almost 300,000 transactions a month and received nearly 100 million visitors in 2017. PaisaBazaar was set up in 2014 and performs a similar function for lending and investment products. It offers more than 300 such products from 75 partners.
China-based blockchain technology company Hyperchain Technologies raised RMB1.5bn ($234m) in a round led by real estate developer Xinhu Zhongbao. The round included China SDIC Gaoxin Industrial Investment and a range of unnamed backers. Founded in 2016, Hyperchain is developing an enterprise-level blockchain platform that includes features such as data trading, supply chain financing and securities asset management. The company is targeting sectors including healthcare, energy, trade, logistics and government.
China-based urban delivery services provider Juma Peisong received RMB1.5bn in a series C round backed by logistics company Global Logistic Properties. Investment firm Sino-Ocean Group also participated. Founded in 2011, Juma Peisong operates an urban delivery service offered through 137 offices in 61 Chinese cities. The funding will support the company’s expansion plans, including a recruitment drive, and product and services development.
Travel and accommodation reservation platform Booking Holdings, formerly Priceline, invested $200m in Singapore-based ride and mobile services provider Grab as part of a strategic partnership. Booking will offer Grab’s services through its apps, while Grab customers will be able to book accommodation on Booking.com and Agoda. The funding was reportedly part of a larger round, which had reached $2bn, after Grab had already received $1bn from car manufacturer Toyota in addition to commitments from Ping An Capital, a subsidiary of insurance firm Ping An, and Mirae Asset–Naver Asia Growth Fund, a joint venture involving internet company Naver and investment bank Mirae Asset Daewoo. Founded in 2012 as GrabTaxi, Grab operates an on-demand ride service as well as food, package and shopping delivery in Singapore, Indonesia, the Philippines, Malaysia, Thailand, Vietnam, Myanmar and Cambodia.
Careem, a United Arab Emirates-based ride-hailing platform, raised $200m from existing investors including travel agency Al Tayyar and e-commerce firm Rakuten. STV, the venture capital fund anchored by telecoms firm Saudi Telecom, and investment holding company Kingdom Holding were among the participants. The round reportedly valued the company at about $2bn. Careem’s on-demand ride service serves 120 cities in the Middle East, North Africa Turkey and Pakistan, and has accumulated 30 million registered users.
China-based online education services provider DadaABC raised $100m in a series C round backed by Tal Education and investment firm Tiger Management. Founded in 2013, DadaABC offers one-on-one English language courses to users aged four to 16. The classes are provided by native English speakers and tailored to existing curricula. The company has attracted tens of thousands of users in China, Japan, France and Germany.
There were other interesting deals in emerging services-focused businesses that received backing from the corporate investors of other sectors. Most of those companies were based in China, with Tencent and SoftBank the most frequently involved.
The SoftBank Vision Fund invested $3bn in one of its biggest portfolio companies, US-based workspace provider WeWork, which will receive the first $1.5bn in the form of warrants giving the Vision Fund the opportunity to buy WeWork stock at $110 a share. Founded in 2010, WeWork oversees a network of flexible workspaces in more than 30 countries on five continents. The spaces are leased from landlords and rented to businesses or individuals by the desk or office. The company is also moving into managment of housing, leisure and educational spaces.
JD Logistics, the logistics spinoff of JD.com, closed a round at about $2.5bn from investors including Tencent and insurer China Life. The round included Hillhouse Capital, Sequoia Capital, China Merchants Group, China Development Bank Capital, China Structural Reform Fund and ICBC International as well as undisclosed additional participants. JD Logistics was formed by its parent company in April 2017 out of a logistics operation it had been running for a decade. It has seven fulfilment centres and more than 400 warehouses.
China-based trucking services marketplace Manbang Group raised $1.9bn in a round featuring Tencent and subsidiaries of Alphabet and SoftBank. The round reportedly valued the company at $6.5bn. Alphabet’s investment came through its CapitalG unit while SoftBank took part through the Vision Fund. Formerly known as Full Truck Alliance Group, Manbang runs an online platform where those looking to ship goods can link to drivers with surplus space in their vehicles. It was formed by the November 2017 merger of rivals Huochebang and Yunmanman. The company’s platform uses artificial intelligence to help forge connections based on routes and space.
India-based short-term accommodation provider Oyo Rooms raised $1bn in funding from investors including the SoftBank Vision Fund, which joined venture capital firms Sequoia Capital and Lightspeed Venture Partners for an initial $800m tranche. Oyo has secured other commitments for the remaining $200m. Founded in 2013, Oyo partners hotels and rebrands rooms to offer a standardised service including toiletries and fresh linen that users can book through its website and app. The company also offers its partner hotels staff training, and takes a commission on bookings. It has expanded across India, where its network has grown to 125,000 rooms, and into Malaysia, Nepal, the UK and China.
Alibaba made a RMB4.5bn investment in Huitongda Network, a spinoff from China-based retail chain Jiangsu Five Star Appliances. Alibaba supplied the funding through a strategic partnership deal that will involve the companies collaborating on technology, logistics, warehousing and supply chains. Founded in 2010, Huitongda provides e-commerce and marketing services to a network of about 80,000 rural bricks-and-mortar retailers in 15,000 Chinese towns.
Ziroom, a China-based operator of an accommodation rental services platform, secured RMB4bn in a series A round featuring Tencent. The round was led by private equity firm Warburg Pincus and included venture capital firm Sequoia Capital and seven undisclosed additional investors. It valued the company at $3.1bn. Founded in 2011 by real estate agency Homelink and spun off in 2016, Ziroom leases apartments from owners and lets them to tenants through an online platform having carried out renovation work on the properties.
SoftBank led a $535m series D round for US-based delivery services provider DoorDash. Venture capital firm Sequoia Capital, charitable foundation Wellcome Trust and Singaporean sovereign wealth fund GIC also participated in a round that reportedly valued the company at $1.4bn post-money. DoorDash runs a last-mile delivery service for restaurants that operates in more than 600 US and Canadian cities.
SoftBank was among the investors co-leading a $500m series B round for WeWork China, co-working space provider WeWork’s Chinese offshoot. Growth equity firm Trustbridge Partners, private equity firm Hony Capital and Singaporean government-owned Temasek co-led the round, which valued the company at $5bn. WeWork China has built a network of 40 work spaces in three Chinese cities.
China-based online tutoring service VIPKid raised $500m in series D-plus funding from a consortium co-led by Tencent, Coatue Management, Sequoia Capital and Yunfeng Capital. The transaction reportedly valued VIPKid at RMB20bn. Founded in 2013, VIPKid operates a platform that offers real-time one-to-one English tutoring. It employs more than 40,000 teachers from North America and has attracted more than 300,000 students in 35 countries. The funding will enable the company to add more educational content.
US-based online real estate transaction platform Compass received $400m in series F capital from a consortium co-led by the SoftBank Vision Fund and sovereign wealth fund Qatar Investment Authority. The round included Fidelity Investments and valued Compass at $4.4bn post-money. Founded in 2012, Compass operates an end-to-end luxury online real estate brokerage across 21 markets in the US. The platform had attracted more than 7,000 estate agents by last year.
Exits
Corporate venturers from the services sector completed 27 exits between January and December last year – 18 acquisitions, eight initial public offerings and a stake sale.
China-based consumer electronics producer Xiaomi raised $4.72bn in an IPO on the Hong Kong Stock Exchange. The company priced roughly 2.18 billion shares at the low end of the HK$17 ($2.17) to HK$22 range previously set, valuing Xiaomi at about $54bn.
The offering was originally intended to be a dual offering that would have raised up to $10bn, but Xiaomi was forced to drop the Shanghai portion, reportedly after failing to answer several questions from Chinese regulators.
Seven cornerstone investors invested $548m in the offering, including logistics firm SF Express, mobile chip manufacturer Qualcomm, telecoms company China Mobile, state-owned China Merchants Group and investment firm CICFH Entertainment. Founded in 2010, Xiaomi designs and manufactures smartphones as well as other electronic devices such as smart home products, tablets and televisions.
Local services platform Meituan-Dianping agreed to purchase China-based bike rental service Mobike for $2.7bn. The transaction was reportedly being brokered by Pony Ma, chief executive of Tencent, which also owns a stake in Meituan-Dianping. Earlier investors in Mobike included travel services provider Ctrip, hospitality chain Huazhu Hotels, contract manufacturer Foxconn, Hillhouse and Temasek, among many other. Founded in 2015, Mobike operates an app-based, dockless bike sharing service that has attracted hundreds of millions of registered users.
US-based digital signature technology provider DocuSign floated in a $629m IPO in which Alphabet and mass media group Comcast both sold shares. The shares were priced at $29, above the $24 to $26 range the company had set, giving it a market capitalisation of more than $4.4bn. The company issued just more than 16 million shares on the Nasdaq Global Select Market, for almost $466m of proceeds, while shareholders sold almost $164m of shares in the offering. Its many previous corporate backers include Recruit, Second Century Ventures – a venture capital fund formed by the US National Association of Realtors – chipmaker Intel’s corporate venturing arm Intel Capital, computer producer Dell and telecoms firm Deutsche Telekom, Alphabet’s subsidiary GV and Comcast Ventures, the venturing arm of Comcast. Other corporate backers were NTT Finance, owner of telecoms firm NTT, Samsung Ventures, BBVA Ventures, and conglomerate Mitsui. DocuSign has developed an e-signature platform it claims has hundreds of millions of users, including some 370,000 businesses.
Enterprise software provider OpenText agreed to acquire US-based application and data management software developer Liaison Technologies for about $310m, allowing corporates to exit, among them logistics firm UPS’s Strategic Enterprise Fund and the Global Health Innovation Fund, a vehicle of US-based pharmaceutical firm Merck & Co. Founded in 2001, Liaison produces software that helps a base of more than 4,000 enterprise customers integrate their business applications and manage data. The company’s Alloy platform includes a cloud-based monitoring and visualisation tool for business and transaction activity, and a data mapping and translation system that Merck uses in clinical trials.
Logistics software producer Stamps.com agreed to acquire MetaPack, a UK-based e-commerce delivery services provider backed by public relations services group WPP, for £175m ($230m). Founded in 1999, MetaPack operates an online platform on which e-commerce businesses can organise logistics, and is responsible for delivering more than 550 million packages each year. The company relies on a network of some 450 mail carriers and 5,000 logistics services across the world. Clients can also access features such as worldwide order tracking, a streamlined returns process and carrier optimisation and monitoring systems.
Babytree, a China-based social parenting media and e-commerce platform backed by corporates TAL Education, Alibaba and diversified conglomerate Fosun, raised $217m in its Hong Kong IPO. The company priced its shares at HK$6.80, at the bottom of a range that had HK$8.80 at the upper end. Babytree had hoped to secure up to $1bn at a valuation of $3bn to $5bn, but its valuation dipped to $1.5bn. Babytree has created an online community in which parents share their experiences, seek advice and find information such as vaccination checklists and dietary guides for mothers. It also operates an e-commerce platform and video-sharing app WeTime.
Domo, a US-based business management platform developer backed by WPP and customer relationship management software provider Salesforce, went public in a $193m IPO on the Nasdaq Global Market. The offering consisted of 9.2 million shares at $21 each, towards the upper end of the $19 to $22 range set earlier. Founded in 2010, Domo has developed a cloud-based platform that incorporates detailed data from every part of a business while securely connecting to each of its systems, enabling executives to run it, or employees to perform work, on mobile devices.
VictorOps, a US-based IT incident management platform backed by property developer JF Shea, agreed to an acquisition by big data software developer Splunk for about $120m in cash and stock. JF Shea had invested through corporate venturing unit Shea Ventures. Founded in 2012, VictorOps has created an incident management platform that helps IT staff solve problems. The platform will be integrated into Splunk’s offering.
Aptinyx, a US-based neurologic disorder drug developer backed by property and healthcare group Nan Fung Group raised about $102m when it floated on the Nasdaq Global Select Market. The company issued 6.4 million shares at $16 each, at the top of the IPO’s $14 to $16 range, giving it a $520m market capitalisation. Founded in 2015, Aptinyx is developing synthetic small molecules for treating disorders of the brain and nervous system. It will put $15m of the proceeds into phase 2 studies its candidate targeting diabetic peripheral neuropathy and fibromyalgia.
VCG Hong Kong, a subsidiary of image licensing service Visual China Group, acquired one of its portfolio companies, Canada-based photography-focused social community 500px, which had also received backing from Creative Artists Agency. VCG paid $17m for 500px, which had raised about $22m. Founded in 2009, 500px has built an online community of 13 million users on which photographers can share and license their images. VCG has distributed content on behalf of 500px since 2015, and the companies jointly launched Chinese platform 500px.me the same year.
Global Corporate Venturing also reported a exits from emerging services-related enterprises that involved corporate investors from other sectors.
Recruit agreed to acquire online recruitment and employment assessment platform Glassdoor for $1.2bn, giving an exit to CapitalG, Alphabet’s growth equity arm. Glassdoor has built an online platform that enables employees to give feedback anonymously on the companies for which they work while also accessing new job possibilities. The company had 59 million monthly active users by January 2018, and reviews of more than 770,000 businesses that incorporate features such as photos, salary information and interview questions. Glassdoor will operate independently as part of Recruit’s human resources technology division.
US-based architecture software developer Autodesk agreed to acquire US-based construction software developer PlanGrid for $875m. PlanGrid had cloud services provider Box and Alphabet among its previous backers. Established in 2011, PlanGrid has developed and runs a collaboration platform that makes it possible for general contractors, subcontractors, architects and owners to work together on projects in real time. The company claims its platform is used in more than a million projects in 90 countries. Autodesk intends to integrate PlanGrid into its building information modelling software Revit, and construction management platform Bim 360.
Tongcheng-eLong, a China-based online travel agency backed by corporates Tencent, Ctrip and Dalian Wanda, raised $180m in an IPO on the Hong Kong Stock Exchange. The company issued about 143 million shares at HK$9.80 each, near the bottom of the IPO’s HK$9.75 to HK$12.65 range. Previous reports suggested it was targeting $1bn, but that goal was reduced to $233m. Tongcheng-eLong was created through the merger of LY.com, an online travel services provider also known as Tongcheng Network, and online travel agency eLong. The company’s online platform allows consumers to book hotel accommodation and travel.
Wellness business software producer Mindbody agreed to acquire Booker Software, a US-based developer of salon and spa management software, allowing payment technology provider First Data to exit. Mindbody will pay “approximately” $150m in a deal that will incorporate cash and the assumption of unvested option awards. Founded in 2010 and formerly known as GramercyOne, Booker has built an end-to-end software offering for spas and beauty salons that includes online booking and payment, customer relationship management, automated marketing and staff management tools.
Qeeka Home, a China-based home design services platform backed by internet group Baidu, raised HK$1.07bn when it floated in Hong Kong. The company priced its shares at HK$4.85, below the IPO’s HK$6.80 to HK$9 range, giving it a market capitalisation of $748m. Founded in 2007, Qeeka Home is the owner of Qijia, which claims to be China’s largest online home design and construction services marketplace, connecting users to a network of more than 7,500 service providers in 290 cities.
Liulishuo, a China-based English-teaching platform backed by media group Hearst, raising $71.9m in an IPO on the New York Stock Exchange. The company issued 5.75 million American depositary shares at $12.50 each. Incorporated in 2012 as Laix, Liulishuo has developed an interactive English language learning course that uses artificial intelligence to assess students’ spoken and written skills. It claimed to have served 83.8 million people by mid-2018.
Account-based marketing software producer Terminus paid an undisclosed amount to acquire US-based marketing analytics provider BrightFunnel, giving exits to Salesforce and media company Bloomberg. BrightFunnel has created a business-to-business software platform that provides marketing analytics and intelligence for enterprises, allowing marketers to measure the impact that online and offline activity has on revenue.
Digital media company Gree exited Indonesia-based property listings portal UrbanIndo in an acquisition of undisclosed size by real estate portal 99.co. Founded in 2011, UrbanIndo operates an accommodation listings platform that advertises properties for sale or lease. It has about 1.2 million active property listings and includes new homes listed by developer. The company’s service will be integrated with 99’s property listings business in Singapore, allowing the latter to expand its position in Southeast Asia. 99 had 150,000 listings on its platform before the deal.
Consulting firm Accenture and SoftBank exited US-based workforce management technology provider WorkMarket in an acquisition of undisclosed size by human resources software producer ADP. Founded in 2010, WorkMarket has built a software platform that helps businesses find and vet independent contractors and freelancers, and integrate them with the full-time workforce.
Funds
Throughout 2018, corporate venturers and corporate-backed VC firms investing in the business services sector secured over $5.28bn via 25 funding initiatives, including 14 VC funds, eight new venturing units, two accelerators and one other initiative. On a calendar year basis, funding initiatives dropped slightly in number from 32 in 2016 to 27 in 2017 and then 25 by the end of 2018. Total estimated capital, however, followed a different path – up 43% from the $3.69bn in 2017.
Singapore-based logistics provider Global Logistics Providers launched a $1.6bn investment fund to target the logistics services ecosystem in China. The fund will be managed by Hidden Hill Capital, the private equity arm of the corporate’s local subsidiary, GLP China, and limited partners include unnamed insurance providers and long-term institutional investors, such as investment firm China Post Capital. Hidden Hill Modern Logistics Private Equity Fund claims to be the only fund in China dedicated entirely to the logistics sector and will target innovative companies in the space. The company currently has $50bn of assets under management, much of which is concentrated in real estate, and it expects to establish additional funds in the future.
China-based oil, gas and chemicals supplier Sinopec formed investment firm Sinopec Capital with RMB10bn. In addition to emerging areas such as new energy, advanced materials and artificial intelligence, Sinopec Capital will invest in and smart manufacturing and supply chain technologies. Although Sinopec did not state directly that the vehicle would invest in startups, its activities will cover equity investments and management as well as project investments and asset management.
China-based venture capital firm Fortune Venture Capital secured RMB4.63bn for its latest renminbi-denominated fund, from limited partners including property developer Century Golden Resources Group. Financial services firm Industrial and Commercial Bank also investors, as did Shenzhen Yunneng Fund, Kpeng Capital and the city of Shenzhen’s guidance fund. Founded in 2000, Fortune VC focuses on consumer services, technology, media and telecoms, consumer goods, agricultural technology and cleantech.
US-based early-stage venture capital firm Real Estate Technology Ventures closed its first fund at $108m with commitments from real estate investment trusts Aimco, Boardwalk, Essex Property Trust, MidAmerica and UDR. Real estate investment holding companies Starwood Capital Group, Cortland and GID also backed the fund. Between them, the limited partners own or manage almost a million rental units. Real Estate Technology Ventures will focus on real estate technology developers that can help the fund’s investors manage their portfolios. Startups will be able to tap into the expertise and networks of the limited partners to accelerate their growth.
Real estate developer and property manager Jones Lang LaSalle unveiled corporate venturing arm JLL Spark, equipped with $100m Founded in 2017, JLL Spark is focusing on the property technology sector and will invest in startups developing products and services around real estate development, management, leasing, investing and improving tenant experience. Portfolio companies can access JLL’s expertise and will benefit from the corporate’s business lines and clients for feedback and distribution. The fund is led by co-chief executives Mihir Shah and Yishai Lerner. JLL Spark will generally invest from hundreds of thousands of dollars to a few million at seed and series A stage but may also consider later-stage opportunities or other initiatives.
US-based packaged food producer Kraft Heinz launched strategic investment vehicle Evolv Ventures with up to $100m. The fund will be headed by Bill Pescatello as managing partner. Pescatello was hired from venture capital firm Lightbank, where he had been a partner since 2011. Evolv Ventures will target developers of e-commerce, logistics and supply chain services technology as well as direct-to-consumer projects. Its formation followed Kraft Heinz’s launch of accelerator Springboard.
Thailand-based beverage producer Singha Corporation formed $25m corporate venturing vehicle Singha Ventures to back startups and venture capital funds. Singha Ventures, which was registered in Hong Kong in mid-2017, will operate as an independent subsidiary and will not require board approval for investments. The fund will target consumer product brands in addition to retail and logistics services as well as enterprise healthcare and renewable energy technology developers and service providers. It will limit its involvement in portfolio companies to stakes under 25%.
US-based customer service software provider Talkdesk launched corporate venturing initiative Talkdesk Innovation Fund with $10m. Founded in 2011, Talkdesk supplies software for business call centres, improving audio quality on calls while simplifying the process by introducing tools that can, for instance, enable operatives to view details on each customer without switching tabs. Talkdesk created the fund to advance the customer service industry by giving startups in the sector the resources needed to bring their technology to market more quickly.
WeWork launched the WeWork Creator Fund to invest in startups focusing on areas such as the future of work, according to sources. The amount of capital committed to the fund was not disclosed. It will be head by WeWork’s head of M&A, Emily Keeton. Read more on this in the People section.
Real estate firms Jones Lang LaSalle and Lendlease launched Singapore-based property technology accelerator Propell Asia, along with co-working space District6 and creative design incubator MeshMinds. Propell Asia will select five startups from the region to enter a 10-week accelerator program. They will each be eligible for a S$20,000 ($14,600) grant. Participating startups are expected to have products applicable to property management, real estate transactions, construction management or data collection, science and analysis.
People
Joe Saijo, formerly president and managing director of Recruit Strategic Partners, a corporate venturing subsidiary of Recruit, launched a VC fund with Patrick Eggen, who left mobile chipmaker Qualcomm’s corporate venturing unit, Qualcomm Ventures, where he was managing director for North America. The fund, Counterpart Ventures, will provide between $2m and $8m for companies and is stage-agnostic. Saijo had joined Recruit Strategic Partners in 2012 and headed the unit.
Jens Schulte, formerly head of corporate venturing at PostFinance, the financial services arm of Switzerland’s national postal service Swiss Post, was promoted to head of M&A for its parent. Schulte will join forces with Thierry Golliard, who heads open innovation and venturing. Schulte’s connection to the company began in December 2011 when he was hired as a senior project manager for M&A. PostFinance appointed Schulte head of corporate venture capital in 2016, and he was promoted to head of future banking, overseeing innovation, growth and corporate venture capital, in 2017.
WeWork tasked Emily Keeton with leading the new WeWork Creator Fund, reportedly investing in startups focusing on areas such as the future of work. As managing director, Keeton will run a five-person team. Keeton joined WeWork in 2017 as global head of M&A, and the company has since made a string of acquisitions. Before joining WeWork, Keeton spent nine months as head of M&A for digital media holding company IAC. Keeton was also co-founder and CEO of Flavour, a restaurants review app that raised $1.1m from investors including media company Scripps Networks Interactive before being acquired in 2015.
Bruce Haymes, managing director at Nielsen Ventures, the corporate venturing unit run by media information provider Nielsen, left to pursue an “opportunity elsewhere”. Nielsen hired Haymes as senior vice-president of global business development and M&A in 2008 and he led more than $2bn in acquisitions and investments. Haymes subsequently led Nielsen’s early-stage investment and accelerator programs linking the corporate’s long-term strategies with externally developed businesses and founded and launched Nielsen Innovate in Israel. Haymes’s role on that side of Nielsen’s business development was reportedly taken on, at least initially, by John Burbank, who oversees Nielsen’s global corporate development and strategic innovation as well as Nielsen Ventures.
Brian Pietras, former head of technology ventures at UK-based outsourcing company Hays, joined US-based enterprise human resources and finance management software provider Workday as vice-president of corporate strategy. At Hays, which he left in October 2017, Pietras’s deals included a limited partner commitment in Seedcamp’s third fund and the series A round for background checks service Onfido. His past experience includes time at units run by consumer goods producer Unilever and energy utility Centrica. Workday relaunched Workday Ventures as its $250m corporate venturing fund.
Lisa Suennen, previously a managing director at GE Ventures, corporate venturing unit of industrial conglomerate General Electric, joined US-based legal and consulting firm Manatt Phelps & Phillips to lead its corporate venturing fund. In addition to overseeing its strategic investments, Suennen will manage Manatt’s digital and technology businesses, which span digital media, financial technology and education. Suennen’s experience in the healthcare technology sector is also expected to strengthen the consulting capabilities of the firm’s health-focused policy and strategic advisory subsidiary, Manatt Health. GE Ventures hired Suennen in 2016 and she led its healthcare investments until her departure in 2018. She was one of three team members to rank joint second in GCV’s 2018 Rising Stars list. Suennen said: “Joining Manatt allows me the unique opportunity to continue to work to my strengths in healthcare and venture capital, while expanding more broadly across technology in other industries”
University and government backing
Commitments to university spinouts in the business services sector are reported in our sister publication, Global University Venturing. By the end of last year, 33 rounds were raised by university spinouts, slightly fewer than the 35 in the previous year. The level of estimated total capital deployed in 2018 was $679m, considerably higher than the $218m in 2017.
NestAway, an India-based accommodation rental platform, received $51m in a round featuring UC-RNT, the investment fund established by University of California and entrepreneur Ratan Tata. UC-RNT committed $16m to the round, which included investment bank Goldman Sachs, through subsidiaries in India and Hong Kong, Tiger Global Management and IDG Ventures India. Founded in 2015, NestAway has created an online marketplace where homeowners can let their property. The company acts on behalf of landlords, organises viewings and oversees rent collection. NestAway typically charges a 10% to 12% commission on monthly rent payments but neither landlord nor tenant pay a brokerage fee. It currently manages 15,000 properties in 10 cities.
Kidaptive, a US-based developer of personalised learning systems for children spun out from Stanford University, closed a $19.1m series C round co-led by educational publisher Woongjin ThinkBig and VC firm Formation 8. Founded in 2011, Kidaptive has created a cloud-based adaptive learning platform that brings together data from different learning-based sources so that a student’s progress can be assessed more effectively. The system also enables learning targets to be set to increase student engagement. It will use the new funding to add a range of machine learning-based tools.
Celect, US-based retail analytics technology spinout from Massachusetts Institute of Technology, closed a $15m series C round led by NGP Partners, the venture capital firm founded by communications technology manufacturer Nokia. Family office Fung Capital also took part in the round together with investment firm Activant Capital and VC firm August Capital. Founded in 2012, Celect has launched cloud-based predictive analytics platform Inventory Optimization Suite that allows retailers and brands to forecast buying trends so they can adjust stock merchandising, allocation and fulfilment schedules.
Kahoot, a Norway-based educational game developer based on research at Norwegian University of Technology and Science, tripled its valuation to $300m in seven months with a Nkr127m ($15.3m) funding round. The round was led by investment vehicle Datum Invest and included undisclosed additional investors based in the Nordic region, co-founder and chief executive Åsmund Furuseth told TechCrunch. Founded in 2013, Kahoot runs an online platform with more than 70 million monthly active users, allows them to create games focused on any educational subject. The underlying concept was first proposed by Alf Inge Wang, a professor at the university, whose student Morten Versvik then led the research that resulted in the formation of Kahoot.
Innovations in the services sector naturally catch the attention of governments and related investors, as new technologies and business models in some of the subsectors, such as education, tourism and legal services, are linked with the public sphere. However, there was a considerable drop in such investments last year – 27 rounds worth an estimated total of $2.48bn compared with 76 rounds estimated at $4.64bn in 2017.
GCV Analytics defines the services sector as encompassing accommodation and travel, human resources, education, business and legal consultancy services, communication and market research services, logistics and supply chain services, real estate, classifieds and review platforms and other subsectors.