The end of a decade is typically a time to take stock, and so perhaps it’s fitting that at the tail end of 2019 the corporate venture capital scene is entering an uncertain time that feels like the end of an era, leaving the road open to a new phase.
In 2018’s round up the lead story was of course the growth of SoftBank’s Vision Fund, which had dominated the VC space like no other investor before. Vision Fund began this year in buoyant spirits, continuing its spending spree with large-scale investments in satellite technology provider OneWeb and online insurance portal Lemonade.
That buoyancy continued through July when Vision Fund announced that it had secured memoranda of understanding for $108bn in investment for its second fund, with corporates Apple and Foxconn among the prospective investors.
Clouds had been emerging however, with reports that sovereign wealth funds Mubadala Investment and Public Investment Fund, which had contributed a total of $60bn to the first fund, weren’t on the same page as Vision Fund regarding strategy, particularly concerning the vehicle’s desire to acquire a majority stake in co-working space provider WeWork – reports that would prove prescient.
As its IPO approached some onlookers suggested WeWork, which had rebranded itself as We Company, could float at a valuation topping $100bn. Instead, when it published its draft prospectus in August, reporters began drawing attention to ominous details such as the company buying its new name from founder and CEO Adam Neumann for $6m, its leasing of several properties owned by Neumann, and a $900m loss in the preceding six-month period.
In events that mirrored the fall of Juicero, the snowballing of publicity seemed to pop a bubble of belief surrounding the company. Reports soon emerged stating that it was set to float at a $15bn to $20bn valuation – a fraction of the $47bn valuation in its last funding round – and before you knew it the IPO had been postponed and then cancelled, and SoftBank was providing a $9.5bn rescue package. It got its majority stake after all, albeit at a valuation reportedly as low as $7.5bn.
WeWork will likely end up as the most disastrous corporate venturing deal ever, and perhaps spared the blushes of tobacco company Altria which, it was reported in October, will likely face a $4.5bn writedown on its $12.8bn investment in e-cigarette producer Juul following a series of regulatory crackdowns on its product.
Reports earlier this month suggested the second Vision Fund would be downsized from the $98.6bn closed for its predecessor, and it seems to be cleaning house, selling its $300m stake in petsitting service Wag back to the company at a loss. Signs point to it being significantly downsized, and considering SoftBank has essentially hitched its future to the model, that could prove ominous even taking into account the ongoing value of its early CVC bet on Alibaba, now one of the world’s most valuable companies.
Other corporates were meanwhile taking the opposite approach, moving to a more indirect model of corporate venturing, inviting external investors in to share the risk in new funds. Verizon spun off female-focused investment unit BBG Ventures while fellow telecommunications firm Deutsche Telekom and SoftBank itself raised nine-figure funds with help from external backers. Innogy affiliate Innogy Innovation Hub told GCV it is aiming to do the same with its next fund, and there were several funds launched as joint ventures between corporate and institutional investors.
The greatest loss to the space in 2019 was GE Ventures, which was in the process of selling off a portfolio of stakes in more than 100 companies including unicorns Desktop Metal, View and Carbon as of April. CEO Sue Siegel formally left the unit later in the year and while the future of its portfolio is still up in the air, GE Ventures itself is in limbo, a victim of its parent company’s struggles.
Not that it was all bad news. Insurance group Ping An, care provider Kaiser Permanente and petroleum supplier Petronas have all closed nine-figure funds this month, joining the likes of Qualcomm and Total in reupping their existing strategies. The likes of Daikin Industries, Lakala, TDK and Splunk were among a range of corporates forming their first funds during the year.
2019 also proved to be the year the dam really broke for corporate-backed IPOs, finally providing exits to those who had invested in companies that had achieved unicorn of even decacorn status. As predicted at the end of 2018, Uber, Pinterest and Lyft all went public, raising nearly $12bn between them, while Slack opted for a direct listing. Other notable flotations included Peloton, CrowdStrike and Zoom, which each raised more than $500m in upscaled offerings and are continuing to trade up from their IPO price.
Not that IPOs were the only mode of exit for corporate investors, several of whom benefitted from some billion-dollar M&A deals towards the end of the year. Delivery Hero agreed to buy food delivery platform Woowa Brothers for $4bn, while deep learning technology producer Habana Labs and cybersecurity technology developer Shape Security went for $2bn and $1bn respectively in the past few weeks.
The biggest success in terms of individual sectors was probably fintech, where Stripe ramped up its valuation from $20bn to $22.5bn in January, and then to $35bn in September, while Ripple increased its valuation from $355m in 2016 to $10bn this week. Paytm, Nubank, Robinhood and Compass also raised money at huge valuations, reflecting disruption in areas ranging from digital banking and mobile payment to real estate.
Brazil-based Nubank was one of several Latin American companies to raise large-sized rounds this year, though it was one of the few not to count SoftBank’s $5bn Innovation Fund as an investor. The fund led nine-figure rounds for VTex, MadeiraMaderia, Creditas, Gympass, Konfio, Ualá and Quintoandar, and is reserving $500m for fund-of-fund investments in the region.
Geography may well turn out to be the big opportunity in corporate venturing in 2020, as Latin America and the Asia-Pacific region continue to grow and mobile use increases across the developing world. Blockchain is picking up pace, as is quantum computing, while corporates seem to be slowly edging towards the burgeoning cannabis sector.
The greatest factor however may be more intrinsic than that, as the increasing presence of diversity-focused investment funds helps to back founders that fall outside the traditional demographics. Those vehicles often seem to be framed as morally virtuous, but the simple fact is that funds’ strategies often reflect their investors’ preferences and that a greater range of decision makers means potential to spot new opportunities and markets that have so far been underserved. Let’s see where that takes us over the next decade.
