GCV Analytics defines services broadly. In our database, the term encompasses not only business services such as human resources, logistics and supply chain, real estate, legal, professional and corporate communication services, but also consumer-facing services such as accommodation and travel, classifieds and review platforms, education and education technology (edtech).
While the year-on-year increase in deal numbers was incremental, rising to 188 from 179 rounds in 2015, investment was more than double the $2.67bn allocated in 2015, and almost five times as much as the $1.44bn committed in 2014. Of the number of deals completed, more than half – 97 in total – took place in the US, with India and China contributing 17 rounds each.
As outlined later in this article, the 10 largest investments by corporate venturers from the services sector cover a wide range of businesses, from logistics to travel and transport, which are being transformed by the digital revolution.
Industry professionals in the services sector told GCV Analytics that automation in particular was becoming a key investment driver, as more and more services businesses start to rely on artificial intelligence (AI) to automate business processes and boost productivity.
Joe Saijo, managing partner of Recruit Strategic Partners, the venturing arm of Japan-based human resources firm Recruit Holdings, said: “For business applications such as human resources management, customer relationship management and others, embracing artificial intelligence and data will bring about more transparency in processes, which will enable businesses to improve productivity and efficiency.” (See interview)
Michael Redding, managing director of strategic technology innovation at Ireland-based consulting firm Accenture, said he expected AI to become a “core competency” for global services businesses, serving as “the face of a company’s digital brand and a key differentiator”. He added: “AI is making every interface both simple and smart – and setting a high bar for how future experiences will work.”
Looking ahead, Redding said he saw “a broader ecosystem that will enable large-scale AI deployments”. He cited as evidence the emergence of startups such as MightyAI, which provides teams developing AI capabilities with human-annotated data used as examples to train computer algorithms in a specialised subject, so that the machine learns to perform specific repetitive tasks. Last month, MightyAI said it had signed up Accenture to recommend and integrate its training data services for global clients.
MightyAI calls its offering “Training Data as a Service” or TDaaS, a play on software-as-a-service (SaaS), a business in which cloud computing companies host and deliver applications to subscribers over the internet, to save users the work of having to maintain the software themselves.
Redding pointed to a major growth area in enterprise software services – vertical SaaS. These are cloud services designed for specific industries, such as healthcare or finance, as distinct from horizontal SaaS, which focuses on business needs shared across industries, such as customer relationship management or human resources. He explained: “We are seeing the second wave of growth and impact in the vertical SaaS domain as core [horizontal SaaS] platforms like Salesforce achieve critical mass and a second generation of [vertical SaaS] startups, like [financial services-focused cloud services provider] NCino in commercial banking, extend their reach and unlock new revenue categories.”
The top corporate investors from the services sector, which participated in the largest number of rounds, were Recruit Holdings, JF Shea and Accenture. Most of the investment from these businesses was allocated to emerging enterprises in the IT, services, consumer and media sectors.
Wider corporate venturing investment in services-focused emerging enterprises reached record figures in both deal count and total estimated capital raised, according to GCV Analytics data. Corporate venturers participated in 210 rounds, worth a total of $10.31bn, an increase of almost 60% from $6.47bn in 2015, when 182 deals closed.
Some of the biggest investors in services-focused emerging businesses were corporates from outside the sector, such as internet companies Alphabet and Tencent, e-commerce group Alibaba, mobile game developer CyberAgent, technology research and media company International Data Group, enterprise software company Salesforce and telecoms and internet group SoftBank.
Deals
Services corporates invested in a range of emerging businesses, from logistics and smart cars to travel booking platforms and shared workspace providers.
Le Supercar, a smart car developer spun out of China-based internet and technology developer LeEco, raised $1.08bn in funding from backers including computer and smartphone manufacturer Lenovo, alongside real estate conglomerate Macrolink Group and Yingda Capital. Launched in 2014, Le Supercar has a team of more than 1,000 people developing an autonomous car provisionally named LeSee.
China-based logistics services provider Best Logistics raised $760m in a round backed by conglomerate Fosun Group and logistics services company Cainiao. Citic Private Equity, a subsidiary of Chinese state-owned investment holding company Citic Group, led the round, which featured another state-owned business, China Development Bank, as well as investment bank Goldman Sachs and asset management firm CDH Investments. Founded in 2007, Best Logistics operates a range of services including delivery and warehousing through various subsidiaries and franchises.
US-based workspace provider WeWork raised a total of $690m in a series F round at a $16bn valuation. The company first raised $430m from China-based conglomerate Legend Holdings and its private equity subsidiary Hony Capital, and later added $260m from hospitality services chain Shanghai Jin Jiang International Hotels and other new and existing investors. Founded in 2010, WeWork offers companies and individuals communal workspaces as well as dedicated offices and desks.
China-based education services provider Tal Education Group participated in a RMB3bn ($450m) funding round for China-based baby and parenting information and e-commerce platform Babytree, which was led by Fosun. Founded in 2007, Babytree began life as a social web portal for new mothers, but has evolved into a service that allows parents to blog and post photos and videos.
United Arab Emirates-based ride-hailing platform Careem closed the first tranche of a $500m round at $350m, featuring Saudi-Arabia-based travel agency Al Tayyar Group. The round, which values Careem at $1bn according to a regulatory filing, was co-led by e-commerce firm Rakuten and telecommunications group Saudi Telecom. Saudi Telecom invested $100m. Careem runs a ride hailing service that spans 47 cities across 11 countries in the Middle East, north Africa and southern Asia.
China-based online retailer Benlai Life closed $117m in series C and series C+ funding from investors including kitchen appliance manufacturer Joyoung. The latter was joined by China Urban Realty Association, ChinaEquity Group, CDH Investments and design services company Integral Group. Benlai Life, which is operated by holding company Kindler’s Information Technology, sells fresh produce to Chinese customers through a logistics chain that covers 22 cities.
China-based online travel booking platform Yaochufa raised RMB550m in a series D round which included travel agency Beijing UTour International Travel Service. Other investors were China Capital Management, a subsidiary of state-owned investment firm Citic Holdings – a unit of Citic Group – and Tongchuang Jinding Investment Management. Founded in 2011, Yaochufa operates an online travel booking service that specialises in local package holidays and tours.
United Arab Emirates-based e-commerce portal Wadi.com raised $67m in a series A round led by Al Tayyar, Tech in Asia reported. Wadi operates an e-commerce portal covering UAE and Saudi Arabia. Launched in 2015, Wadi will use the capital to scale operations and customer service. Al Tayyar will also assist the startup with shipping, logistics and fulfilment.
Accenture took part in a $55m series B round raised by US-based financial transfer technology provider Ripple. The round was supported by a raft of other strategic investors including futures company CME, data storage provider Seagate Technology, financial services firms Standard Chartered, Siam Commercial Bank, Santander and SBI Holdings. All corporates invested through their respective VC subsidiaries – CME Ventures, Seagate Venture Capital, Accenture Ventures, Santander InnoVentures and SCB Digital Ventures. Ripple produces enterprise blockchain technology that helps banks make transactions directly across borders at lower cost. It claims its network includes 15 of the world’s top 50 banks.
Giphy, a US-based operator of an online database for animated GIF pictures, secured $55m in a series C round featuring talent agency Creative Arts Agency, at a valuation of $300m. The round was led by Lightspeed Venture Partners and also featured General Catalyst Partners, RRE, Betaworks and Lerer Hippeau Ventures. Founded in 2013, Giphy runs a searchable database that allows users to upload and share pictures, as well as a tool that lets media companies create and upload pictures based on their own content.
Logistics, accommodation, real estate and human resources businesses were among the services-focused emerging enterprises to attract CVC investors.
Cainiao, a China-based logistics affiliate of e-commerce group Alibaba, received funding from a range of investors in a round reported to be sized at more than RMB10bn, valuing the company at $7.7bn, according to financial news provider Caixin. The funding came from Singaporean state-owned funds Temasek Holdings and GIC, Malaysia’s sovereign investment fund Khazanah Nasional and China-based investment firm Primavera Capital. Cainiao oversees an e-commerce logistics system that spans more than 120 warehouses and 180,000 express delivery stations across more than 600 Chinese cities.
Koubei, a China-based online-to-offline services platform launched by Alibaba, raised $1.2bn from investors including private equity firm Silver Lake Management, Bloomberg reported. Launched in June 2015 with $1bn of funding split between Alibaba and its financial services affiliate Ant Financial, Koubei started out as a platform that enables users to order food and beverage deliveries from neighbourhood merchants, and has since expanded its offerings to include ride-ordering, restaurant booking and event ticketing.
China-based real estate services provider Lianjia raised RMB6bn in a series B round featuring internet companies Baidu and Tencent. The latest round values Lianjia, also known as Homelink, at $6.2bn. Founded in 2001 as a bricks-and-mortar estate agent, Lianjia now operates a real estate and asset management business from about 5,000 branches across China. The company’s online portal lists around 56 million properties.
US-based short-term accommodation marketplace Airbnb raised $850m in a round co-led by Alphabet through its corporate venturing unit CapitalG, formerly known as Google Capital, the Wall Street Journal reported. Founded in 2008, Airbnb operates a platform allowing users to rent out their houses and apartments for short-term stays. Airbnb offers about two million listings of properties in more than 34,000 cities around the world.
E-commerce and media firm Naspers agreed to invest $250m in India-based online travel booking platform Ibibo Group. Incubated by South Africa-based Naspers in 2007, Ibibo made a series of acquisitions to build a diversified travel booking service encompassing bus, hotel and flight booking, ride sharing and vehicle tracking. In October 2016, eight months after Naspers announced its investment, fellow India-based online travel services platform MakeMyTrip agreed to acquire Ibibo in a deal that valued the combined company at $1.8bn. See Exits for more on this transaction.
US-based property buying and selling platform OpenDoor received $210m in series D capital from investors including diversified conglomerate Access Industries, TechCrunch reported. Norwest Venture Partners, the venture capital firm managing funds on behalf of financial services firm Wells Fargo, led the round with participation from investment firms NEA, Khosla Ventures, GGV Capital, FifthWall, Lakestar, Caffeinated Capital, Felicis Ventures and SVB Capital, the venture capital arm of holding company SVB Financial Group. Launched in Phoenix in 2014, OpenDoor offers homeowners and buyers a one-stop online shop for real estate sales and purchases.
UK-based online flight and travel booking platform Skyscanner raised £128m ($192m) from investors including internet company Yahoo Japan, a joint venture between Yahoo and SoftBank. The round included fund manager Artemis, investment manager Baillie Gifford, private equity firm Vitruvian Partners and Khazanah Nasional Berhad. Founded in 2003, Skyscanner operates an online platform that enables travellers to search for and book flights, accommodation and car hire around the world.
Exits
Services-focused corporate venturers completed a record 28 exits in 2016, twice the number reported in 2015, with half the exits in the US and a quarter in India.
The table, overleaf, showing the 10 biggest exits from portfolio companies, arranged by transaction size, are deals in which services-focused corporate venturers are investors either exiting or acquiring the business.
Leading the pack is UK-based peer-to-peer luxury accommodation rental service Onefinestay, bought by hotel chain AccorHotels for €148m ($168m), providing an exit to shareholders including hotel chain Hyatt Hotels. Onefinestay, founded in 2010, operates an upscale holiday home rental platform that offers services such as a personal welcome on arrival and a 24/7 customer service hotline.
Recommind, a US-based data analytics platform, was acquired by business services software producer OpenText for approximately $163m, giving an exit to Sapphire Ventures, the venture capital firm spun out of software company SAP. Recommind’s technology enables information to be retrieved from large datasets, and the company’s SaaS offerings include products to analyse contracts, access enterprise-wide information as well as review and analyse documents.
Computing company IBM acquired US-based live video streaming service Ustream, providing an exit to backers including Recruit and telecoms firms SoftBank and KT Corporation. The deal could be worth about $130m, according to Fortune. Founded in 2007, Ustream operates a cloud-based platform that enables businesses and professional broadcasters to stream live and on-demand videos.
Classified listings portal Quikr completed its purchase of India-based real estate listings business CommonFloor, allowing internet and technology conglomerate Alphabet to exit. The deal valued CommonFloor at between $100m and $120m, according to the Economic Times, which is less than the $160m the company was reportedly worth when it last raised capital. CommonFloor operates an online platform listing about 500,000 properties across 200 Indian cities.
India-based outsourcing services provider Mindtree agreed to acquire US-based consulting partner Magnet 360, a Salesforce partner since 2004, for up to $50m. Mindtree made an upfront payment of $37m, and will pay out the remainder in the form of performance fees over the next two years. Salesforce’s corporate venturing unit Salesforce Ventures is an investor in Magnet 360 along with VC firm StarTec Investments and private equity company Gage Group, according to a Mindtree statement announcing the deal.
Ford Smart Mobility, a subsidiary of car maker Ford, agreed to acquire US-based shuttle service startup Chariot, providing an exit to legal services firm Wilson Sonsini Goodrich and Rosati. Ford did not disclose the purchase price, but Business Insider reported it was $65m with earnouts to be added. Founded in 2014, Chariot operates a fleet of about 100 buses serving various commuter routes in the San Francisco Bay area.
China-based educational robot builder Roborobo Education was acquired by commercial printing company Beijing Shengtong Printing for RMB430m. The sale provided an exit to private education services provider New Oriental Education & Technology Group, which invested $10m in the company in April 2015, and angel investment fund Zhen Fund, which committed $1.6m in 2014. Roborobo Education provides study materials that teach children how to build robots.
France-based news app developer News Republic was acquired by internet company Cheetah Mobile for $57m, providing an exit to investors such as semiconductor manufacturer Intel, investment firm Xange Private Equity – which is backed by postal services provider La Poste – and venture capital firm Creathor Venture. News Republic operates a mobile app that aggregates articles from more than 1,650 sources, enabling users to create a personalised newsfeed.
Brainbees Solutions, an India-based operator of childcare products e-commerce platform FirstCry, agreed to acquire the franchise business of baby products retailer BabyOye from Mahindra Retail, a unit of conglomerate Mahindra Group, for Rs3.6bn ($54m). Mahindra Group was one of several investors taking part in Brainbees’ $34m funding round last October, according to the Economic Times.
Computer technology provider Oracle agreed to acquire Israel-based cross-device data technology developer Crosswise, granting an exit to Pereg Ventures, the venture capital firm backed by market research firm Nielsen. Oracle was set to pay $50m for Crosswise, Geektime reported. Crosswise processes a petabyte of data on user activity across billions of desktop devices, browsers and mobile apps each month, using the information to create a “device map” that can match multiple devices to individual users.
Emerging enterprises operating in the support services sector last year provided their corporate investors with exits via several large acquisitions and IPOs, valued at between $37m and $1.8bn. The table shows the eight largest exits, based on publicly reported figures, along with two notable exits whose valuations were not disclosed.
India-based online travel services platform MakeMyTrip agreed to buy its competitor Ibibo Group, also based in India, in an all-share deal. Ibibo’s backers, e-commerce firm Naspers and Tencent, will be shareholders in a combined company listed on Nasdaq and worth $1.8bn, according to financial services firm Morgan Stanley. Launched in 2007, Ibibo was incubated by Naspers, which owns 91% of the company, while Tencent owns 9%. Ibibo grew through a series of acquisitions, and its properties now include bus ticketing service RedBus, hotel and air travel aggregator Goibibo, bus-tracking app YourBus and car-sharing platform Ibibo Ryde.
China-headquartered online travel agency Ctrip agreed to acquire UK-based online travel search platform Skyscanner for £1.4bn ($1.74bn), allowing internet company Yahoo Japan to exit less than a year after it had taken part in a $192m round that reportedly valued the company at $1.6bn.
Singapore-based mobile advertising company Smaato, backed by media company Singapore Press Holdings, was acquired by marketing company Spearhead Integrated Marketing Communication for $148m. Founded in 2005, Smaato operates a real-time advertising bidding exchange for mobile websites and apps, and also offers a supply-side platform to manage advertising inventory.
US-based business services software provider Apptio listed on Nasdaq with a valuation of $96m, allowing networking equipment provider Cisco to exit. Apptio, which issued 6 million shares at $16, runs a cloud-based platform and software suite that combines analytics, planning workflows and modelling capabilities to help businesses make data-supported strategic and operational decisions.
Communications equipment manufacturer Nokia exited China-based business services software provider Gridsum Holding when the company went public with an $87.1m listing, also on Nasdaq. Gridsum issued 6.7 million American depositary shares – stock in a foreign company traded in the US – at $13 each. Founded in 2005, Gridsum supplies machine learning-equipped data analysis software to businesses and government agencies.
US-based payment services provider Vindicia was acquired by customer experience technology developer Amdocs, providing an exit to media conglomerate Bertelsmann. Founded in 2003, Vindicia operates a SaaS platform that enables companies to process payments and subscriptions for digital content, on-demand services and entertainment products.
China Online Education Group, the China-based operator of English language learning service 51Talk, raised $45.6m in an IPO on the New York Stock Exchange. The offering enabled investors such as online gaming platform Duowan Entertainment to exit. 51Talk focuses on the Chinese market, and provides interactive English lessons.
Electronics manufacturer Samsung exited US-based education technology developer LearnSprout following its acquisition by computing company Apple for an undisclosed sum. Founded in 2012, LearnSprout’s software enables schools to use data analytics to monitor students’ academic performance.
Media company Asahi Shimbun agreed to buy Japan-based media content outsourcing services provider Somewrite for an undisclosed amount, giving digital media company Gree an exit. Founded in 2013, Somewrite operates a native advertising network that takes advertorial content from media websites and distributes them to online news partners, which then post the materials as native ads.
Funds
Corporate venturers and corporate-backed VC firms that invest in the services sector secured more than $3.79bn in capital in 2016 via 20 funding initiatives.
Norwest Venture Partners (NVP), a US-based venture capital firm that manages funds on behalf of financial services firm Wells Fargo, closed its 13th fund at $1.2bn, matching the size of the previous two funds NVP raised in 2010 and 2014. Founded in 1961, NVP invests primarily in the US, but has also closed deals in India and Israel. NVP’s sector focus spans technology – cloud and IT infrastructure, internet and consumer and SaaS – business services, financial services, consumer and healthcare.
Sapphire Ventures closed a $1bn fund with capital from its sole limited partner, Germany-headquartered enterprise software provider SAP. Founded as SAP Ventures in 1996, the firm spun out of SAP in 2011 and changed its name to Sapphire Ventures in late 2014. Sapphire targets enterprise and consumer technology developers, and also invests in technology funds in Europe, the US and Israel through a separate evergreen vehicle.
Legend Capital, the corporate venturing arm of Legend Holdings, launched its seventh dollar-denominated fund, raising $270m. The fund will invest in technology, media and telecoms, consumer technology, online services, healthcare, sports and cultural industries.
Idinvest Partners, a France-based private equity firm backed by insurer Allianz, human resources provider Up Group and media conglomerate Lagardère Group, reached the first close of its latest fund at €250m. Idinvest Growth Fund II will make growth-stage investments in Europe-based digital, healthcare, energy and smart city technology developers. The fund is expected to hold a final close at between $318m and $424m in the first quarter of 2017.
Robert Bosch Venture Capital (RBVC), the strategic investment arm of Germany-based industrial product and appliance manufacturer Robert Bosch, launched its third fund with €150m. RBVC invests in companies and industry-specific funds across Europe, the US, Israel and China. Ingo Ramesohl, managing director of RBVC, said: “The new fund will continue focusing on disruptive startups in the areas of automation and electrification, energy efficiency, enabling technologies and healthcare systems.”
People
Emmanuelle Pierret and Mathias Raynaud were appointed investment directors at Idinvest Partners. Pierret joined Idinvest after working at private equity and venture capital firm Naxicap Partners for 14 years, while Raynaud was hired from the capital markets department at the Qatar Investment Authority, the Arab state’s sovereign wealth fund.
Akihiko Okamoto, who was managing director of corporate venturing unit Recruit Strategic Partners (RSP) for over four years, was promoted to corporate executive officer of Japan-based human resources firm Recruit Holdings, RSP’s parent company. Okamoto joined Recruit in 2007, taking a position as manager of its new business development and brand management divisions. He was promoted to head of US-based RSP in 2011.
Rich Flynn, former president of educational institutions provider Apollo Education Group’s corporate venturing unit, joined advisory firm Tyton Partners as managing director focused on investment banking. In addition to being president of Apollo Education Ventures since its inception in 2014, Flynn was also head of US corporate development at Apollo Education from 2010 until he left the company in April last year.
