SoftBank’s Vision expands
It’s fair to say no VC investor – corporate or otherwise – has had as big a year as SoftBank Vision Fund’s 2018. The fund expanded from $97.7bn to $98.6bn over the course of the year, and though it is yet to reach that 12-figure targeted close, barely a week went by without it making a large-sized investment of one kind or another.
The most notable of those deals included a $1.1bn investment in dynamic glass supplier View, up to $2.25bn of funding for autonomous driving technology developer Cruise and $2bn for e-commerce platform Coupang as well as a $3bn commitment to workspace provider WeWork. Vision Fund has also made large-sized investments in the likes of Oyo, OpenDoor, Zymergen, Wag, Zume and Cohesity.
The vehicle is showing no signs of slowing down either, making nine-figure investments in flexible car provider Fair and telematics technology provider Cambridge Mobile Telematics this week. It also generated its first big return, generating an estimated $1.5bn profit on the $2.5bn it invested in Flipkart last year, when Walmart acquired a majority stake in the e-commerce marketplace in August.
None of that is to suggest that it’s all been rosy for Vision Fund. It is still in a growth phase, expanding its team and exploring an entry into the Chinese market, but a pledge of $45bn from Saudi Arabia’s Public Investment Fund for a second Vision Fund was called into question by the murder of journalist Jamal Khashoggi in a Saudi consulate in October, and news this week that its limited partners are opposed to a $16bn acquisition of WeWork suggests it may have a harder time of it in 2019.
That’s bad news for SoftBank, as the fund’s rapid rate of investment means it may well have to raise a second fund just to ensure it can make follow-on investments in portfolio companies, and it is reportedly already seeking a total of $13bn from two different credit facilities. Such is the weight of its current participation in VC funding, a downturn in its activity could potentially end up impacting the tech space as a whole.
IPOs return to prominence
The IPO market had been recovering slowly since late 2016 but 2018 saw it really accelerate, with the number of corporate-backed tech IPOs reaching 79 by the end of November, 10 more than the last high point in 2014, generating more than $25bn of proceeds in the process.
The banner offerings included fashion e-commerce platform Farfetch floating in an $885m offering in September, Dropbox becoming the latest enterprise unicorn to go public, in an $869m IPO in April, Moderna fetching $604m earlier this month in what was reportedly the largest ever IPO by a biotech company, and music streaming platform Spotify opting for a direct listing in April, an approach now being considered by several other unicorns.
The US IPO market may have looked good but Hong Kong was really booming, in the wake of new regulations implemented in April allowing companies to sell dual-class shares, and non-revenue generating businesses such as drug developers to float. The largest offering in Hong Kong this year involved telecommunications tower manager China Tower raising $7.5bn, but electronics manufacturer Xiaomi raised $4.7bn in June and local services platform Meituan Dianping secured $4.2bn in September, floating at the top of its range at a $52bn valuation. However, the share price of both are markedly down since their IPOs, and the viability of the HKSE is being questioned by other Chinese companies looking to list.
In addition to straight tech IPOs, SoftBank and Tencent both spun off subsidiaries in lucrative offerings. SoftBank Group’s mobile subsidiary, SoftBank Corp, went public this week in a $24bn IPO that was the second largest in history (behind Alibaba), while Tencent unit Tencent Music raised $1.1bn when it floated earlier this month.
Right now however, it looks as if next year could be the biggest year ever for tech IPOs, with the likes of Uber, Lyft, Slack, Pinterest and Airbnb among the decacorns that have either confidentially filed for an offering, hired banks to oversee a flotation or stated that they have targeted 2019 to go public. The big question is whether the poor performance of the markets in 2018 means they have left it too long.
Crypto grows its presence
Digital currencies and crypto technology continued to expand in 2018, and one notable development is that companies in the sector have now begun to become active corporate venturers themselves.
Cryptocurrency trading platform Coinbase set up Coinbase Ventures in April while another exchange, Binance, committed $1bn to a strategic investment fund in June that was followed by an incubator in August. Both have been among the most active new entrants in the space, but Ripple also began investing, and it feels like almost every time a cryptocurrency or blockchain startup raises funding we see a new operator in the investor list.
Corporates began to explore the sector more thoroughly too. Messaging platform Line launched a $10m digital token fund in August called Unblock Ventures, while internet company Kakao took part in a $15m cryptocurrency-only round for hybrid blockchain platform Orbs last week, indicating a structure that may become increasingly common.
Initial coin offerings may not have grown to the extent some predicted this time last year, and stablecoin may not be as viable as was expected, but the continued interest in blockchain technology means 2019 may well see some significant rounds to follow the $300m raised by Coinbase in October and the $110m secured by cryptocurrency finance platform operator Circle at a $3bn valuation in May.
Agriculture’s new approach
Farming and agriculture became an increasingly important part of the corporate venturing space over the course of the year, as the need for fresh local produce precipitated new models and corporate investors gradually began to dip their toes into funding cannabis startups.
Urban farming first began to properly emerge in 2017, but activity increased this year, as more and more businesses began exploring an approach that involves combining vertical indoor crops with advanced sensor and AI technology.
GV led a $90m round for Bowery last week, following earlier investments in meat substitute developers, while BrightFarms almost doubled its overall funding to $111m in a $55m series D round in July, and InFarm received $25m in a February series A round. Elsewhere in agriculture, plant breeder Cibax filed for a $100m IPO, and crop technology developers Pivot Bio, Benson Hill Biosystems and AgBiome all raised substantial sums. The distribution process also attracted disruption, as farm-to-plate platforms began to spring up, particularly in Asia.
Of course the vertical farming approach owes some debt to the practices pioneered by cannabis growers, and as recreational cannabis becomes legal in more and more states, and the sector attracts more funding, the question is how long it will take corporate investors – who have been understandably skittish – to get involved.
The answer is likely to mirror activity in the crypto sector, with the most active corporate participants made up of the largest players in that industry. The likes of Scythian Biosciences and MJardin may not be immediately familiar to some, but they both took part in deals this year, and may well ramp up their investment activity in 2019. The tobacco industry has also began to take notice, so be prepared to see companies like Imperial Brands and Aleria popping up more often in deals.
Tune in tomorrow for Part Two.
