Billion-dollar babies
The stats will tell you that seed and early-stage funding is drying up (though how much that has to do with the preponderance of crowdfunding and now ICO’s as an alternative remains to be seen), but there was no sign the bubble is going to burst at the top of the market, as the most valuable private VC-backed companies continued to close massive rounds. In previous years nine-figures was the standard, but 2017 saw the emergence of billion-dollar rounds at a frequency previously unheard of.
The preponderance of those was driven by SoftBank’s Vision Fund, reportedly now sized at almost $98bn, and Chinese investors that made use of the large capital reserves being directed toward the tech space, and almost every huge round could be traced to one of those two factors.
China-based on-demand ride platform Didi Chuxing raised $5.5bn from investors that reportedly included SoftBank in April, and the corporate is in the process of spearheading a primary and secondary round for US counterpart Uber that could top $10bn. Uber’s biggest US rival, Lyft, closed a $1.5bn round led by CapitalG (formerly Google Capital) earlier this month, after Singapore-based Grab took $2bn from Toyota, SoftBank and Didi Chuxing in July, and India-based Ola completed a $1.1bn round backed by SoftBank and Tencent in October.
Some of 2017’s other big winners included WeWork (see below); Meituan-Dianping, the local services platform that raised $4bn in a Tencent-led round in October; e-commerce marketplace Flipkart, which added $2.5bn from Vision Fund to $1.4bn raised from Tencent, eBay, Microsoft and Naspers a few months earlier; food delivery platform Ele.me, which received more than $1bn from Alibaba in June; and news app developer Toutiao, which raised $1bn in an April round that allowed corporate backer Sina to exit.
Corporates seek out AI
Artificial intelligence had a sizeable presence in the mainstream media this year and was almost ubiquitous in funding press releases, but perhaps the greatest indication of the fever around the sector was the number of corporate venturers that set up dedicated AI funds.
There were certainly precursors – IBM launched a fund centred on its Watson cognitive computing platform in 2014 and Amazon did the same for its Alexa technology the following year – but Microsoft was the first corporate in the current wave to enter the fray, announcing a dedicated fund in December 2016 that would be overseen by its Microsoft Ventures unit.
Google established an AI unit called Gradient under the leadership of vice-president of engineering Anna Patterson, while Toyota put $100m into a unit dubbed Toyota AI Ventures led by Jim Adler, vice-president of data and business development for Toyota Research Institute, in July.
Salesforce, perhaps the most prolific of corporate investors in terms of fund creation, launched a $50m vehicle called Salesforce AI Innovation Fund in September before deep learning technology producer SenseTime joined asset management firm CDH Investments to begin raising a $450m+ fund in October. Amazon meanwhile invested another $100m in Alexa Fund last month.
Cars get smarter
Ride hailing retained its ability to raise huge amounts of funding in 2017, and autonomous and connected car technology developers including Mapbox, Cambricon and Nauto all closed nine-figure rounds, but the action in the transport sector increasingly began to take place in the form of funds and acquisitions.
Baidu made the biggest step on the fund side, forming a $1.5bn unit called Apollo Fund in September with 70 industry partners intended to supply funding to about 100 autonomous driving technology developers in the next three years, while Foxconn joined IDG Capital the following month to create a transport-focused fund also sized at $1.5bn.
Samsung put up $300m in September for a strategic unit called Samsung Automotive Innovation Fund, and Nio Capital, a strategic unit overseen by smart EV developer Nio, is reportedly targeting $500m for its next fund. Automotive components producer Valeo took more of a passive role, supplying 25% (about $55m) of the capital for a connected car technology vehicle formed by private equity firm Cathay Capital earlier this month.
There were some big corporate exits in M&A deals too. Continental agreed to acquire connected car security system developer Argus Cyber Security for about $400m, autonomous driving company Nutonomy was bought by Delphi Automotive for $450m, and connected car technology developer Automatic Labs was acquired by Sirius XM for about $100m.
Bicycle! Bicycle!
The other big news in the transport sector was the rapid growth of bicycle sharing, which was largely carried out by two China-based operators: Ofo and Mobike.
Ofo has reportedly raised $2.15bn across three rounds in 2017, beginning with a $450m series D round in March 2017 backed by Didi Chuxing, before Alibaba’s financial services affiliate, Ant Financial, added an undisclosed amount in April. The series D valued it at more than $1bn, a figure that had reportedly tripled by the time Ofo raised $1bn in an Alibaba-backed round earlier this month, having secured $700m in a July series E co-led by Alibaba and Hony Capital in between.
Mobike received $215m in a series D round co-led by Tencent in January that included fellow corporates Ctrip and Huazhu Hotels, before investors including Bloomberg added $85m. Tencent subsequently led a $600m round for the company in June, and it could well be preparing another huge round that will support international development. Hellobike meanwhile raised $350m from investors including WM Motor, and Youon Bike went public and sealed a $123m round for one if its subsidiaries.
The industry is perhaps more volatile than most, as the high-profile failures of some other China-based operators has already shown, but if the automotive version of the sector is anything to go by, this trend will accelerate in 2018, especially as international players scramble to get in on the act with their own local versions.
Proptech gets moving
Following the expansion of the global property market, real estate and property technology has been one of the boom areas of recent times. Technology-equipped real estate brokerage Compass secured a $450m investment by SoftBank Vision Fund earlier this month that valued it at $2.2bn post-money, after China-based counterpart Lianjia received $436m from real estate developer China Vanke in April, but they were far from the only sizeable deals in the sector.
Airbnb raised $1bn in March from investors including CapitalG for its short-term accommodation platform, while budget hotel brand Oyo secured $250m. India-based accommodation rental platform NestAway and China-based counterpart Chengjia each closed $50m rounds to help customers find short or long-term accommodation, and rental payment platform Fangsiling raised $45m in its series E round in August.
The co-working sector continued to gather pace, as WeWork raised $800m from SoftBank and Hony Capital across two rounds, before SoftBank agreed to pump another $4.4bn into the company in August. URWork got $178m in an August round in which property developer Beijing Land Capital joined fellow corporates Aikang and Star Group, while another China-based operator, 5Lmeet, secured $58m in May.
Property developers have meanwhile been one of the fastest groups to join corporate venturing. Nan Fung and Wanda have spent the most, but the likes of Sansiri and Westfield also made appearances. Proptech-focused funds such as those formed by Fifth Wall Ventures and Navitas Capital were notable for the number of real estate developers and operators among their LPs.
Down on the farm
It may not yet be the biggest sector, but an interesting area that began to emerge during 2017 was urban farming, as startups began to raise funding to support indoor farms that combine hydroponics, seed and AI technology to grow plants vertically. The relatively central location of the farms mean fresh produce can be shipped quickly and efficiently to restaurants or grocers.
Plenty raised the most money, securing $200m in a July series B round led by SoftBank Vision Fund, but Bowery got $20m in a series A round backed by Alphabet’s GV unit and Germany-based InFarm also received funding in a corporate-backed round. Agricultural data software developers such as Farmlogs, Prospera, AgroStar, Phytech, Agrilution and Agrible meanwhile raised capital to develop the software that supports more efficient farming.
Agricultural technology and new farming models remain for now a relatively small part of the startup scene, but a rapidly growing global population, combined with increasing migration to cities, the funding attracted by infrastructure-based sectors such as co-working spaces, and the innovations hinted at by Amazon’s acquisition of Whole Foods suggests it will expand quickly.