Although the political earthquakes and celebrity deaths understandably got more media traction, 2016 will perhaps be marked as the point where the future so long described in sci-fi finally took a big step towards fruition. Driverless cars, widespread artificial intelligence, virtual and augmented reality received considerable funding as their developers closed big corporate-backed rounds, but that was only part of what characterised the year.
Changes at the top
One of the key features from a corporate venturing viewpoint was a number of significant changes at the top of several of the most prominent investors. Arvind Sodhani, president of Intel Capital since 2005, stepped down at the start of the year giving Wendell Brooks the chance to take full control of the unit, and he was followed by VPs Lisa Lambert and Marcos Battisti who both left in June. Brooks responded by promoting four new MDs and expanding their roles to include M&A and business development.
At GV meanwhile, co-founder and CEO Bill Maris left the unit in August to spend more time with his family and pursue other projects, and was replaced by general partner David Krane as head. The move came weeks after another general partner, Rich Miner, shifted to a venture partner role to focus on an edtech project.
In Japan, SoftBank president Nikesh Arora, who was largely responsible for the corporate’s VC strategy, left in June, while Lisa Suennen and Dinesh Moorjani took managing director positions at GE Ventures and Comcast Ventures respectively. Jim Lussier departed from Dell, where he ran the $300m Strategic Innovation Venture Fund, and Mike Chuisano, COO of Johnson & Johnson Innovation–JJDC, announced recently that he would leave in the new year after 36 years at its parent company.
Megafunds
Several venture capital firms have closed billion-dollar funds over the past couple of years but 2016 saw corporates join in, as several raised large-sized funds. The biggest, though it is yet to close, is SoftBank’s Vision Fund. When SoftBank revealed its intentions for the $100bn fund in October some were sceptical, and few anticipated the announcement a few weeks ago that it would likely be oversubscribed. However, with SoftBank putting in $25bn, Apple $1bn and several sovereign wealth funds lining up huge contributions, Vision Fund looks set to be a reality this year.
Elsewhere, China-based internet company Baidu put aside $3bn in October for a dedicated fund called Baidu Capital that will invest between $50m and $100m a time in growth-stage tech companies in a bid to close the gap with rivals Alibaba and Tencent, both of which have been more active in corporate venturing in the past few years. Wenjie ‘Jenny’ Wu was appointed as its first managing partner last month.
Samsung announced a $1.1bn fund called Next47 in June to invest in futuristic technologies such as decentralised electrification, artificial intelligence, autonomous machines, networked mobility and blockchain-based data transfer. The corporate lured Lak Ananth from Hewlett Packard Pathfinder in November to run the fund, and it is expected to be a substantial force next year. BMW also joined in, beginning work on raising a $530m fund for its BMW iVentures subsidiary.
IPOs slow to a crawl
Late-stage investors looking for an exit had to pin their hopes on an M&A deal for much of the year, as initial public offerings ground to a halt. It took until the $94m IPO by gene editing technology developer Editas Medicine in February for anyone to go public in the US, and ultimately only 123 companies filed for an IPO in the US in 2016, down about 47% from 2015.
Much of the early running in CVC-backed offerings came from the healthcare sector, with Hutchison China MediTech and Intellia Therapeutics both raising nine-figure sums. By the time software providers joined the fray, the IPO market seemed primed again. Twilio raised $150m in June and has since seen its share price more than double, while another Salesforce Ventures portfolio company, Apptio ($96m), and Nutanix ($238m) have also seen sharp rises in share price post-flotation.
However, the biggest IPOs were achieved by Asia-based companies. Naver spinout Line raised $1.14bn, floating simultaneously on the Tokyo Stock Exchange and New York Stock Exchange, achieving an $8.6bn market cap in the process. Chinese ride hailing company UCar meanwhile went public in its home country with a $4.5bn market cap, while photo retouching platform Meitu raised $629m in an offering that gave exits to Sina Weibo, Foxconn and IDG Capital.
New entrants
The biggest entry would go to Baidu’s $3bn fund but it’s yet to make any investments and its parent company has some experience, which means the biggest splash probably goes to Microsoft, which began once again making direct investments through its Microsoft Ventures unit in May, since racking up 19 deals. It also formed a specialised fund for artificial intelligence earlier this month, and pledged to increase its investment rate in 2017.
Ford Motor Company got back in the game with investments in Pivotal Software, Velodyne Lidar, Zoomcar and Civil Maps, while other notable entrants, in terms of name recognition at least, included Tinder (Swipe Ventures), Caterpillar owner Holt Cat (Holt Ventures), Sodexo (the $53m Sodexo Ventures), and HTC, which followed a $100m accelerator called Vive X in April with a $1.45bn joint investment initiative with China’s Shenzhen Municipal Government in November.
Investments
2016 truly seemed like a year when reality took a big step toward the future of science fiction, as virtual and augmented reality suddenly began attracting significant venture capital while carmakers began putting significant funding into the autonomous driving technology of Total Recall and Demolition Man (no word on actual Johnny Cab drivers yet though). Elsewhere, corporate venturing money was directed to areas that represented a continuation or offshoot of existing sectors.
Virtual and augmented reality
Facebook’s $2bn acquisition of Oculus VR in 2014 marked the resurrection of VR technology as a viable route for VC money but 2016 was the year when serious cash started flowing into the sector.
Smartphone maker HTC was the most active corporate as it looked to build an ecosystem around its Vive headset. It announced a $100m corporate venturing fund and accelerator called Vive X in April, and two months later it had formed a coalition of 28 firms, including mobile game publisher Colopl and conglomerate Legend Holdings’ Legend Capital unit, dubbed Virtual Reality Venture Capital Alliance. HTC rounded off the year by launching a $1.45bn investment initiative with Shenzhen Municipal Government in China.
Other corporates got in on the action too. Cinema operator Imax launched the $50m Imax VR Content Fund in October with support from Acer, CAA, Enlight Media and WPP, while gaming company Gree announced the $12m GVR Fund in April. Open-Source Virtual Reality, the initiative headed by gaming product maker Razer, announced a $5m fund in June.
In terms of rounds, nothing came close to the $790m series C round closed by AR technology developer Magic Leap in February, which featured Alibaba, Google, Qualcomm, Legendary Entertainment and Warner Bros.
However, GCV data indicates nine AR or VR companies closed rounds sized at $40m or more, the pick being the $120m raised by gesture control company Thalmic Labs in a June round co-led by Intel Capital and Amazon Alexa Fund, and a $100m Hinduja Group-led round closed by VR and AR computing platform MindMaze in February.
Autonomous car technology
Driverless car technology was barely a blip on the radar before the end of 2015 when autonomous car GPS developer Swift Navigation secured $11m in a Qualcomm Ventures-backed round, but after that the floodgates seemed to open, and much of the investment was driven by corporates, even as the likes of Tesla, Alphabet and Apple worked to trial their own systems.
General Motors moved first, paying $1bn to acquire Cruise Automation in a March deal that gave an exit to Qualcomm Ventures, the deal coming shortly after GM had acquired ride hailing service Sidecar and invested $500m in its competitor, Lyft. The combination of ride ordering and driverless car technology pointed the way to a future where, theoretically, carmakers would partner ride sharing services and software companies to essentially run transport in its entirety.
Ford behaved similarly, investing $182m in data analytics technology provider Pivotal Software as part of a $653m round, backing 3D mapping technology startup Civil Maps’ $6.6m seed round and teaming with Baidu to provide $150m for Veldoyne Lidar, a US-based producer of the light, detection and ranging (lidar) technology essential for autonomous vehicles. Those investments were made as Ford also led car sharing service Zoomcar’s series B round and acquired shuttle service Chariot for $65m.
Intel meanwhile pledged to invest $250m in the technology over the next two years while Toyota and BMW backed autonomous car technology startup Nauto, the latter forming a $530m fund and citing driverless car tech as a priority. Elsewhere, smart car developer Le Supercar secured almost $1.1bn in funding and lidar sensor developer Quanergy raised $90m in a Sensata Technologies, Delphi Automotive and Samsung-backed series B round that valued it at more than $1bn.
Artificial intelligence and machine learning
It seems every year there’s a buzzword or phrase that startups routinely insert into their press releases and websites to secure funding. If 2014 was the year of big data and 2015 artificial intelligence, 2016 was the year machine learning came to the forefront, and both it and AI proved a major destination for venture capital.
The list of deals is too long to go into detail but some of the funding highlights included Zymergen, a company that uses machine learning to engineer microbes, closing a $130m SoftBank-led series B round in October; Intel buying deep learning software company Nervana Systems for $408m in August; AI software producer Voyager Labs securing $100m in an Oracle-backed round in October; and machine learning-based data analysis company Gridsum raising $87m in a September IPO.
Microsoft Ventures announced a specialised AI fund earlier this month, while Siemens, Baidu, BMW, Lenovo, Sberbank, Santander and HP all cited AI and/or machine learning as a sector of interest when they announced new funds over the course of the year.
Insurtech
Although not as widely funded or as innovative as some other sectors, insurance technology did pick up substantially in 2016 and is perhaps worth mentioning because the increase can be seen as a result of the influx of insurance firms establishing corporate venturing units over the past two years.
Insurance groups to have entered the space since the beginning of 2015 include Axa, Massachusetts Mutual Life Insurance, Ping An, American Family, Liberty Mutual, Annexus and XL Catlin while old hands like Allianz and Blue Cross and Blue Shield Association have continued to invest.
Health insurance platform Oscar Health Insurance raised $400m in a GV-backed round in February that valued it at $2.7bn while pay-per-mile auto insurance provider MetroMile revealed in September it had raised $191m from investors including Mitsui and insurer China Pacific Insurance Group over a two-year period. Other online insurance platforms and software developers to receive corporate investment included Lemonade, Trov, One, PolicyGenius, Hixme and Alan.
In terms of more direct investment in online insurance, Tencent is teaming with seven other investors to form an online life insurance venture called HeTai Life Insurance with $217m of funding, while Ant Financial was part of a consortium that put $150m into newly formed mutual insurance association Xinmei Life Mutual Insurance in June.
Corporate venturing profiles
Intel Capital, which modified its investment structure in 2016 and pledged to cut its portfolio by around 25% in the next five or six years while increasing its investment sizes.
Intel Capital, the corporate venturing subsidiary of semiconductor technology producer Intel, adapted to its new organisational structure in 2016, promoting team members to managing director roles and pledging to cut its portfolio by at least 25% by 2022.
Wendell Brooks took over full control of Intel Capital at the start of the year as long-time president Arvind Sodhani retired but speculation soon arose that he was planning a $1bn sell-off of the unit’s investment assets following a large-scale portfolio review.
Brooks subsequently poured cold water on claims of a massive stake sale but elected to change the investment structure at the unit, directing it toward more strategically relevant deals for its parent and giving more power to managing directors who are now responsible not only for VC investments but M&A deals and business development.
Vice-presidents Lisa Lambert and Marcos Battisti left Intel Capital in May amid speculation that changes in the unit’s compensation scheme in 2014 had unsettled some team members, but Ameet Bhansali, Anthony Lin, Trina Van Pelt and Bob Nunn were all promoted to MD positions while Marcin Hejka, Ken Elefant and Ramamurthy Sivakumar were each granted new or expanded roles.
Although Brooks had dismissed talk of a sell-off earlier in the year, he announced at the Intel Capital Global Summit in October that the fund’s portfolio would be gradually downsized from over 400 companies to between 250 and 300 in the next five to six years as part of a “small is beautiful” strategy.
Intel Capital still expects to invest substantially, and Brooks specified a $300m to $500m range for annual investment rates. The strategy will involve increased focus on later-stage deals, and Brooks told attendees at the Global Summit its average investment size had already doubled to between $6m and $10m a deal.
Accordingly, the unit recorded a string of exits in 2016, with some 25 portfolio companies being acquired or going public. In a year that was sparse for IPOs most of the deals involved the former, though item tracking technology provider Impinj raised $67m in July, floating at the top of its range, while India-based online travel booking platform Yatra listed on Nasdaq this week through a reverse merger.
The pick of the M&A deals was perhaps Allergan’s $639m acquisition of Vitae Pharmaceuticals, which took place two years after the small-molecule compound developer had floated in a $55m IPO, though Intel’s stake was relatively small. Advertising exchange HookLogic was bought by Criterio for $250m in October while India-based short-term accommodation platform OneFineStay was acquired by AccorHotels for $168m in April.
In terms of investments, the highlights this year included the $160m series E round closed by France-based internet-of-things platform Sigfox last month. Intel Capital co-led a $120m round for gesture control technology company Thalmic Labs in September and took part in a $41m series D round for cloud storage technology provider Cloudian the following month.
Looking forward to 2017, Intel will seek to invest out of the $250m autonomous car fund it announced in October as well as its $125m Diversity Fund, which was expanded in October to include LGBTQ and disabled founders as well as those that are military veterans. It will also be interesting to see if the rate of exits remains steady, particularly with prospective IPO candidates like DocuSign, Mirantis and Cloudera in the mix.
Tencent: The China-based internet major romped ahead of rivals Alibaba and Baidu this year when it came to corporate venturing, investing in two billion-dollar deals and three more $500m+ rounds. Tencent had another active year in 2016, making a flurry of investments that were joined for the first time by a clutch of exits.
Founded in 1998, Tencent leveraged the success of its extremely popular instant messaging platform, QQ, and its successor WeChat, and a range of strategic investments to build an internet services group with a market cap of over $220bn that revolves around WeChat.
Tencent is one of three major internet companies in China, the other two being e-commerce specialist Alibaba and Baidu, which originally found success through its internet search engine. Both have been active in corporate venturing but 2016 was the year Tencent definitively blew past them, racking up a stack of deals at both early and late stage.
Although it is gradually reaching overseas, the brunt of Tencent’s deal flow is still in China. Its two biggest deals this year involved homegrown companies Didi Chuxing, which closed a $7.3bn debt and equity round in June as it acquired Uber China to become the undisputed leader in China’s ride hailing sector, and local services platform Meituan-Dianping, which closed a $3.3bn round in February.
Tencent made a number of large investments in its home country’s internet space this year, taking part in rounds for real estate services provider Lianjia ($927m), online ticketing portal Weiying ($693m), automotive information provider Bitauto ($550m), group buying company Pinduoduo ($110m), bike rental app Mobike and automotive auction platform Tiantianpaiche ($100m each), and truck rental service Huochebang, which today raised $115m.
Media was a particularly significant destination for the firm’s capital. In addition to co-leading a $360m private equity investment for film studio Bona Film Group this week, Tencent joined a $76m series C round for TV production company Linmon Pictures and an $85m round for record company YG Entertainment earlier in the year, and led a $100m round for game livestreaming platform Youdu in February before co-leading the same company’s $227m series C round in August.
Outside of China, India proved fertile ground for the company. It led the $175m series D round closed by instant messaging platform Hike in August, and exited travel services platform Ibibo Group in a deal that involved its 9% stake being converted into a 3.6% stake in competitor MakeMyTrip, which acquired Ibibo in October.
Ibibo was one of half a dozen exits recorded by Tencent this year, a significant uptick from previous years and perhaps a sign its investments are starting to reap direct financial rewards. Other notable exits included genomics software provider Tute Genomics, which was bought by PierianDx in October, and contextualised search technology startup Vurb, which was acquired by Snap for $110m the same month after raising only $10m.
In addition to direct investments, Tencent also inserted financing into the $500m fund raised by venture capital firm DCM in July, after backing its $110m Android fund in July 2015.
Tencent will be looking to continue its investment spree next year, and is already one of the founding partners of HeTai, a $217m online life insurance venture set to launch in 2017. The year after could then herald a major exit as portfolio company Garena, a Singapore-based mobile and internet services provider, is lining up an initial public offering in which it plans to raise $1bn.
Alphabet, which renamed Google Ventures as GV but saw its subsidiary lose key figures Bill Maris and Rich Miner, while Google Capital rebranded as CapitalG and ramped up the size of its investments.
Alphabet, the internet and technology holding group that includes Google, had an interesting year with regard to its corporate venturing activities, which continued to diversify as early-stage investment unit GV lost its founding partner.
Bill Maris, the co-founder and CEO of GV, known as Google Ventures until late 2015, left in August having launched Google Ventures in 2009 and seen it grow into one of the most notable names in the venture capital space, investing around $500m a year.
Maris was not the only high-profile departure from the upper end of GV in 2016 – general partner Rich Miner had dropped down to a venture partner position the month before in order to focus on an education technology project for Alphabet. David Krane took over from Maris as head of GV and the unit barely broke stride, continuing to be an active investor throughout the year.
Maris was known as a very hands-on leader and was thought to be chiefly responsible for GV’s investments in the healthcare sector, but the unit made some notable deals in the space after he left, investing in a $95m series A round for Carrick Therapeutics and notable rounds for Arcus Biosciences and Genomics Medicine Ireland.
Carrick was in fact the largest deal in which GV was involved in 2016, though other notable rounds included 3D printing technology developer Carbon ($81m), audio-focused security company Pindrop ($80.8m), immuno-oncology company Forty Seven ($75m) and GIF depository Giphy ($72m).
The pick of GV’s exits over the year was big box retailer Walmart’s $3bn acquisition of e-commerce company Jet.com in August, 18 months after the unit had invested in the company at a $600m valuation. Genomics technology developer Editas Medicine went public at a $570m valuation while Urban Engines was acquired by sister company Google.
GV was rebranded near the end of 2015 and Alphabet’s growth equity unit, Google Capital, followed suit last month, renaming itself CapitalG and confirming it had invested in Snap, the instant messaging company formerly known as Snapchat, though the amount provided was not disclosed.
CapitalG quietly ramped up its investments in 2016, leading an $850m round for accommodation platform Airbnb at a $30bn valuation, as well as the $150m series D round closed by online payment technology provider Stripe at a $9bn valuation.
The unit also participated in a $400m round closed by online insurance provider Oscar Health that valued the company at $2.7bn. Including Snap, all four businesses have valuations substantially higher than any of CapitalG’s past portfolio companies, signifying it has begun investing later in a bid to differentiate itself from GV.
Google, which separated from the units as part of the 2015 reorganisation, meanwhile began making its own investments, backing the $793m round closed by augmented reality developer Magic Leap and the $80m raised by chipmaker Barefoot Networks over the course of the year.
Google has reportedly also been supplying convertible note financing for selected startups formed by ex-employees, and things may get more complex in 2017, with Alphabet reportedly in the process of setting up an internal incubator called Area 120 in a bid to retain talented team members.
Alphabet is notoriously secretive but reports that have emerged – notably a Bloomberg article two weeks ago – paint a picture of a huge and diverse organisation where division leaders are given the space to operate independently, meaning units and projects sometimes clash or overlap with each other in the process.
The firm’s corporate venturing activities appear to be no different (GV and CapitalG both invested in the Pindrop round for instance), but you have to wonder whether they will continue to diversify, or if at some point Alphabet will decide it makes more sense to consolidate activities into a more focused structure. If so, it does not appear to be happening any time soon.
SoftBank: Despite the departure of company president Nikesh Akora in June, SoftBank continued to invest big in Asian consumer internet and is set to close its $100bn Vision Fund soon.
Japan-based telecommunications and internet group SoftBank continued to pursue a strategy shifting away from early-stage investments to fewer, larger deals in 2016 and is preparing to make a big splash with its Vision Fund next year.
SoftBank was a relatively early entrant into the corporate venturing space in the internet age, forming a subsidiary called SoftBank Capital in 1995 and hitting paydirt with early investments in the likes of Yahoo and Alibaba that carved it a place among the top echelon of corporate venture capital.
In 2015 company president Nikesh Arora revealed the firm had elected to wind down SoftBank Capital and move away from early-stage deals in order to make fewer but larger investments, following a raft of late-stage deals involving Asia-based internet startups.
Akora left SoftBank in June due to founder and CEO Masayoshi Son’s decision to delay retirement for up to 10 years, despite hiring and grooming Akora as his successor. His departure came amid speculation that shareholders were unhappy with the performance of some of SoftBank’s investments, particularly in India where the e-commerce market ran into difficulties during 2016.
However, Akora left as SoftBank recorded three significant exits – partial or whole – selling $8.9bn of Alibaba stock, offloading its 73% stake in Finland-based mobile game developer Supercell to internet group Tencent for upwards of $7bn and divesting a 23.5% share of another game producer, GungHo Entertainment, for $685m.
The other big exit SoftBank posted in 2016 was from China-based app store Wandoujia, which was acquired by Alibaba for $200m in July. SoftBank had invested in both Wandoujia’s funding rounds, the first of which being an $8m series A in 2011.
On the other side, SoftBank continued to make large investments, with three areas a particular focus. The first was the Asian consumer internet space, the pick of those deals being its contribution to the $4.5bn equity portion of the $7.3bn round closed by China-based ride hailing platform Didi Chuxing in June, though it also co-led a $119m series C round for mobile commerce platform Chuchujie in May.
SoftBank invested $62m in hotel room booking platform Oyo Rooms in August, leading a $90m round that valued the company at $400m, and took part in a $175 series D round for another India-based company, instant messaging platform Hike, the same month, and latterly led a $750m round for Singapore-based ride ordering platform Grab.
Another substantial area was more technical internet technology, with SoftBank most recently investing $1bn to lead a $1.2bn round for OneWeb, a US-based company planning to establish a network of satellites that will hypothetically be able to supply fast, affordable internet around the world. It had already taken part in a $64m round for UK-based cybersecurity company Darktrace.
The third destination for the company’s larger investments was biotechnology. It took part in a $55m series C round for genomics platform 10x Genomics in March before leading biological product developer Zymergen’s $130m series B in October.
SoftBank is continuing to make early-stage moves, they have just been sharply reduced from two or three years back. Its long-term intent can be seen in its plans for SoftBank Vision Fund, an investment vehicle in which it plans to invest $25bn as part of a $100bn capital base.
Apple is in talks to invest $1bn in Vision Fund, which will take over SoftBank’s late-stage investments, and Son revealed earlier this month he expects the fund, amazingly, to be oversubscribed. Saudi Arabia’s Public Investment Fund is reportedly set to put up $45bn while the Abu Dhabi-owned Mubadala Development Company could also invest.
The sheer size of the fund inevitably raises questions as to whether SoftBank will carry on investing in its current areas of interest or whether it will diversify into new areas. If nothing else the size of the fund will dwarf that of any yet established by any VC investor, so 2017 could be very interesting indeed for an onlooker.
