Corporate venturing units across the information technology sector are eyeing various big sectors that can be transformative, from the cloud to big data to the internet of things. See our most influential table here.
At the Global Corporate Venturing Symposium in May, Arvind Sodhani, head of Intel Capital, the corporate venturing unit of the US‐based semiconductor company, said: the cloud would be the sector most likely to be “gigantic” within Intel Capital’s portfolio (read my fireside chat with Sodhani).
Sodhani said: “Until recently, a large corporation had an IT organisation. They bought their servers, they bought their storage, they bought their networks, they bought their application suites, they hired a whole bunch of people like IT specialists and programmers and so on, systems analysts, and they wrote their own applications. Then subsequently they started buying applications and adapting them.
“What is happening is that that IT infrastructure is moving into the cloud and that transition from the corporate IT to the cloud is a trillion‐dollar opportunity in my view. After all is said and done, most large corporations with very few exceptions will have their IT in the cloud. You will get your IT from the cloud – it will be optimised, it will be organised, it will be infrastructure, it will be software.
“All of that is a huge opportunity and transition is taking place. That is what I would say is a gigantic opportunity that we are absolutely plugged into and investing in heavily. That would be my one pick.”
Claudia Fan Munce, head of IBM Venture Capital, said in a speech at the symposium that the new Watson fund designed to expand its new business unit was tasked with rallying the venture capital (VC) ecosystem to stimulate start ups to develop on the platform.
She said: “[IBM management] asked the IBM Venture Group, me and my partners, to go out and talk to the best of the best VCs that invest in the enterprise IT space and ask them: ‘We have this platform, what do you think we should do in order to bring your best portfolio company to consider this as a potential platform, either to build a new application for a new marketplace or enhance your existing functions, to expand the marketplace?’
“The feedback that came back was, obviously, they want to bring these vertical applications and the horizontal of that scale, the enabling of the current partner to give them a sandbox, so they can start experimenting with the capabilities. The venture industry has always looked at the corporate as a potential channel to market, rather than as an anchor client, a pilot, or a partner, so we also had a lot of feedback, in terms of leveraging the brand, leveraging the marketing engine.”
Many corporate venturing units are looking to emerging markets as an area of opportunity given the rate at which internet access is expected to grow. Nagraj Kashyap, head of Qualcomm Ventures, said in a speech at our symposium: “In most of the emerging markets, like India and Brazil, internet access penetration – broadband or wireline – is very low. For them, the mobile phone is actually the first and the only piece of hardware they will use to access the services we use on our PCs at home. However, this access is actually very expensive, so many consumers buy smartphones but don’t use data because data is very expensive.
“A consulting study concluded that $2.2 trillion is the additional GDP that can be generated with better connectivity in emerging markets. That is a big problem and everybody can relate to that. We all know how easy it is for us, but when you go to Brazil or India – and China is actually much better now – access to data is so critical. Often in these countries, people will buy for a day. There are actually hourly plans you can buy. They will have it for a day when they need it, and then they will switch it off.” (read the full version)
Rahul Sood, head of Microsoft Ventures, said at the symposium: “We are a great partner to corporates, our accelerators have been operating for two years and the quality of companies continues to get better. Most of our alumni companies are raising further rounds, there have been a few acquisitions, and we continue to invest in the global startup ecosystem. We are not taking any equity in these companies, we simply want to help discover great entrepreneurs, help them solve big problems, and ultimately connect them to our customers. This is a great innovation model, helping our customers partner with startups is a great opportunity not only for the entrepreneurs, but also our corporate partners. We are also opening our first accelerator in the heart of our campus this August.”
The IT companies we track are investing far and wide through their corporate venturing units. This survey outlines corporate venturing activities in the IT sector, including funds, people and deals over the past year.
Funds
There was a flurry of fundraising activity with various of the sector’s giants making big strategic bets on specific niches.
Intel Capital, the corporate venturing unit of the US-based semiconductor company, raised a $100m fund to finance perceptual computing projects.
IBM, a US‐based technology company, set up a $100m corporate venturing fund managed by IBM Venture Capital as part of its $1bn investment in a new Watson business unit.
US-based technology company Cisco also established a $150m fund to back early-stage companies in the internet of things sector. As part of this effort, Cisco has backed US‐based early‐stage programme Alchemist Accelerator, UK‐based business Evrythng, as well as US‐based business Ayla Networks.
Cisco has also invested $6m in Badia Impact fund to support early‐stage businesses in Jordan. Badia Impact Fund is jointly funded by Cisco, as an anchor investor, with the European Investment Bank, the King Abdullah II Fund for Development, and the fund sponsor, Accelerator Technology Holdings.
Dell Ventures, Dell’s strategic investment arm, has ramped up its commitment to corporate venturing by establishing a $300m Strategic Innovation Venture Fund. The new fund incorporates Dell’s existing $60m Dell Fluid Data Storage Fund – established in 2012 – while the scope of investments, as well as the existing focus on storage, has been broadened to include cloud computing, big data, data centres, security and mobility.
People
There has been plenty of movement among IT corporate venturing executives.
Mukund Mohan, director of Microsoft Ventures in India, is set to take over the unit’s US and Chinese operations. Mohan first joined US‐based computing company Micro–soft as a CEO‐in‐residence for the Microsoft Accelerator in 2012 before becoming a director at Microsoft Ventures a year later, and now heads US, China and India operations at Microsoft Ventures.
Lucy McQuilken left Intel Capital for TechStars Boston, a start up accelerator.
Wesley Chan, general partner at Google Ventures, who has led early‐stage investing at Google Ventures, is stepping down to be an entrepreneur-in-residence and launch his own start up. Hires by Google Ventures include Dave Munichiello and Shanna Tellerman as investment partners. Munichiello joins from Kiva systems, an e‐commerce enabling robotics company sold to Amazon for $775m. Shanna Tellerman was the founder of Sim Ops Studios (Wild Pockets), a spin‐off from Carnegie Mellon University that focused on democratising 3D game development, and which was acquired by Autodesk in 2010.
Shona Brown, who served on Google’s management team from 2003 to January 2013, has joined the advisory board of ClearStory Data, a big data exploration company. Google Ventures, participated in December 2012 in a $9m series A round for ClearStory Data, and also contributed to its seed funding joined by other investors.
Luis Arbulu, a former Google investment and business development executive, has joined Samsung Electronics as a director in Samsung’s new Open Innovation Centre.
The centre was launched by Samsung earlier this year as a separate effort from its existing Samsung Ventures platform. The centre features a start up accelerator, a mergers and acquisitions effort and a partnering programme for third‐party start ups.
Deals
In the year to the end of May, Global Corporate Venturing tracked a high level of internet-of-things investments worth a billions of dollars.
A significant share of these deals was taken by Intel Capital, Qualcomm Ventures, Samsung Ventures, IBM Venture Capital Group, Cisco Investments, Citrix Start up Accelerator, Microsoft Ventures, Dell Ventures, Baidu, Nokia Growth Partners and Spirox Ventures.
Intel completed a $900m round of funding in Cloudera, a US‐based software company that provides Apache Hadoop‐based software, support and services, and training to business customers. This investment was for an 18% stake at a $4.1bn valuation.
The investment in Cloudera is the largest Intel has made to date in the data centre space. An investment Intel made with Iconiq Capital and Battery Ventures was a $40m series D investment in Sprinklr, an independent enterprise social relationship platform provider.
Qualcomm Ventures and IBM Venture Capital invested $22.1m in a series C funding for Welltok. The round is IBM’s first direct investment from the recently formed Watson Group and supports its partnership with Welltok to
Google Ventures and several others invested $40m in One Medical Group, a disruptive primary care medical practice. One Medical Group won the 2013 Crunchie award for Best Health Start up.
Samsung Ventures invested $48m for a 10% stake in Pantech, a South Korean company that manufactures mobile phones.
China‐based technology company Tencent and Japan‐based industrial group Itochu invested $150m in series D financing for Fab, a US‐based e‐commerce company. Tencent Industrial Collaboration Fund also invested $214.7m to acquire a 15% stake in JD.com, to go head to head with China‐based rival Alibaba.
SAP Ventures joined six other investors in a $101m series D round for virtual computing platform Nutanix, a virtualised data centre platform that provides disruptive data centre infrastructure solutions.
Cisco and others invested in a $12m series B financing round in RiverMeadow Software, a US‐based software‐as‐a‐service company that migrates servers into the cloud.
Citrix Start up Accelerator invested an undisclosed level of series A funding in WhoKnows, a US‐based software start up.
Microsoft Ventures invested $1m in video journalism company Watchup, with four other investors.
Skyera, a US-based data storage provider, has raised $45.6m in its series B round from a consortium including computer maker Dell’s corporate venturing unit, Baidu led a $15m series C funding for Yoka, a quality content provider.
Motorola Solutions Venture Capital joined another investor in a $4m series C funding for Canvas, which develops mobile apps for businesses.
Nokia Growth Partners invested in a $90m round for Quikr, the Indian classified advertisements business.
Spirox Ventures together with other investors invested in a $14.8m series C round for SunPower, a US‐based solar technology company.
Other exits in the sector included the sale of bring-your-own‐device software developer Divide, sold to Google. Divide was backed by Qualcomm Ventures after it won the unit’s early‐stage QPrize competition in 2011.
This year’s QPrize winner – MediSafe
They were speaking on the fringes of Bloomberg’s Next Big Thing Summit fresh from being handed a cheque on stage for $150,000 by Qualcomm Ventures’ head Nagraj Kashyap. Qualcomm Ventures, the corporate venturing unit of the semiconductor company, screened 1,200 companies. This was part of more than $1m of prize money given to start ups, and MediSafe received an additional $100,000 for winning the Israel regional prize.
MediSafe is attempting to use the traction from its prize to raise funding of $4m to $6m. Yossi Bahagon, a Medisafe managing director, said: “We go now into our A round. This is the short‐term challenge. We have had very strong investors until now and we are looking for strategic partnerships like that with Qualcomm. The second thing is in launching our user database. We have nearly 650,000 users and growing. We have got to these numbers in less than a year. Hopefully next year we will double to quadruple that.
The business believes its medication management platform can significantly improve patients’ regular use of medication. Yaara Grinberg Dana, MediSafe’s vice‐president of partnerships, said: “The statistics are that chronic patients take only 50% of their medications. For people using MediSafe, the average adherence rate is 86%. We manage to do that through a support system which includes family, friends and caregivers, really getting the whole healthcare ecosystem to talk to one another when it comes to medication management.”
Given that typically it is younger people which are digitally native, the business’s customers are generally from that demographic, but this is not holding it back. Grinberg Dana said: “Our user base is between 18 to 55 in ages. It is a sad statistic but younger people are becoming chronically ill with diseases such as Chrones, diabetes and cholesterol problems. So our user base is actually younger people. What we are seeing now is people of 40 years and older are engaging their parents, the older population, to use MediSafe, and teaching them how to use it.”
Other regional winners of the QPrize were Cambridge Wowo (China), a speech recognition company, Carffeine (Korea) a platform for car mechanics, Hand Talk (Latin America), a sign language machine translation platform, Konotor (India), an app engagement platform, Swift Navigation (North America), a high accuracy GPS for machines company, and Viewsy (Europe), a location analytics platform for retailers.
Many of the entrepreneurs said they would stay in California to capitalise on their QPrize wins.
QPrize stats
Total raised by all QPrize Winners: $118m
Total exit amounts – all QPrize winners and finalists: $452m
Percentage of QPrize winners securing series A funding:
QPrize 1 (2009): 100%
QPrize 2 (2010‐11): 83%
QPrize 3 (2012‐13): 63%
Note: QPrizes 2 and 3 were launched in one year and finished in the following year.
Nokia lands large exit after UCWeb move
Nokia Growth Partners, the corporate venturing unit of Finland-based technology company Nokia, sold portfolio company UCWeb, a mobile browser company with 500 million users, to China‐based Alibaba for a multibillion‐dollar sum. Yet according to one of the corporate venturing unit’s directors, the deal might never have happened, as it was in the area of mobile gateway, which its parent Nokia was looking to pursue itself.
The UCWeb deal was hatched in 2010 because Nokia Growth Partners believed UCWeb was a strong company, yet this required the unit to invest in a company potentially competitive to a goal of its sponsor and sole limited partner (investor).
Paul Asel, a managing partner at Nokia Growth Partners, said: “This was a case of investing in a grey space. This is one where we decided from a financial point of view this was a high‐potential business. We felt it was the most interesting mobile play in China at the time, and from a financial point of view we felt this was something we should back. It created some concern in Nokia, as this was an area they wanted to do themselves.”
Despite this concern, over time UCWeb developed stronger ties with the Finnish company, so much so that when then Nokia chief executive Stephen Elop launched the Lumia in China, UCWeb shared the stage with him alongside China Mobile.
The deal provides a case study in the argument over the merits of running an external fund, which can make decisions with a greater degree of autonomy. Asel said Nokia Growth Partners still sought those within Nokia to champion the deal, and he believed the deal would never have happened were the unit simply investing from Nokia’s balance sheet.
“We were perceived by the right people within Nokia at the right time to be doing the right thing. I really believe if we were an internal fund the investment in UCWeb never would have happened. Yet because we were external we were able to do that investment.”
Asel said he believed the UCWeb deal illustrated that having a third‐party structure with primary financial goals, yet at the same time attempting to secure strategic benefit for the corporate sponsor, was the most effective form of corporate venturing.
“It is my personal belief that this model has more staying power. It is much harder to do this from either the purely inside model or the purely financial model. It takes a fair amount of nuance, discipline and experience. Yet if you get it right it is one that is very powerful.”
Global Corporate Venturing will be analysing the strengths and weaknesses of the various models of corporate venturing as we put together a high-level brief on the state of play in particular industries later this year. Let us know which units are exemplars of the various models and we will profile them.
Juniper prepares two more exits
Looking at the successes of some corporate venturing units, it is hard to see quite how and why some venture capitalists find it such hard work.
Therefore, with two flotations for its three‐year‐old programme, Jeff Lipton, vice‐president of venture and strategic investments at computer network equipment company Juniper Networks, could be forgiven for feeling a trifle pleased with his performance as effectively a one‐man corporate venturing unit.
With many of his 27 investments already exited, Juniper secured the initial public offerings (IPOs) of portfolio companies Violin Memory, a US‐based maker of data storage equipment also backed by Japan‐based conglomerate Toshiba, and FireEye, a US‐based provider of cyber‐attack protection. Both Violin’s and FireEye’s flotations gave them multibillion‐dollar market capitalisations.
Their IPOs added to Juniper’s previous public market exit for a portfolio company, Cyan, which listed on Nasdaq.
Juniper’s other corporate venturing exits have included McAfee buying Sentrigo in 2011, Akamai buying Cotendo and three purchases by the parent – Alto, Ankeena and Contrail Systems.
Lipton manages two corporate venturing programmes, the Junos Innovation Fund for early‐stage and growth‐stage software companies that expand the ecosystem for the parent’s Junos operating system, and Juniper Strategic Investments for hardware and components, and special situations where the investment helps the parent business.
While the latter has a more strategic focus, as the name implies, both sets of deals are expected to deliver strategic and financial returns. Understanding how Juniper’s separate mergers and acquisitions team could look through his portfolio companies to drive this strategic value is helpful, Lipton says, even if portfolio companies understand only about 10% of deals are likely to end in such an exit to Juniper itself.
Lipton puts part of the early success rate down to sourcing about 80% of deals from Juniper and its customers, but part of the learning curve for both parent and entrepreneurs has been about how the large company can work with start ups – a fact aided by Juniper’s own founder remaining involved.
That Juniper and the enterprise IT sector has remained in demand over the past year also augurs well for its other portfolio companies, such as Vidyo, CloudScaling, Illumio and Apigee, especially as the public markets have been opening up as an exit route.
At the time of the Juniper IPOs last year, news provider Fortune columnist Dan Primack, in an article entitled Don’t sweat the IPO boom, said: “A lot of companies have gone public this year – more than 140 at last count, already topping the whole of 2012’s total in the US. Don’t panic. IPO volume in 2013 has arguably been aided by last year’s bipartisan Jobs Act, which has resulted in more than 250 confidential registrations with US regulator the Securities and Exchange Commission.”
And more are on the way. Flash memory provider Pure Storage said it had raised $150m from pre‐IPO investors at a valuation of more than $1bn.
Dell Ventures charged with renewed ambition
Dell Ventures, Dell’s strategic investment arm, has ramped up its commitment to corporate venturing by establishing a $300m Strategic Innovation Venture Fund. The fund incorporates Dell’s existing $60m Dell Fluid Data Storage Fund – established in 2012 – while the scope of investments, as well as the existing focus on storage, has been broadened to include cloud computing, big data, data centres, security and mobility.
The fund is headed by Jim Lussier, managing director of Dell Ventures, who joined Dell two years ago from Norwest Venture Partners. Lussier told Global Corporate Venturing that the fund would be looking to write cheques of between $2m and $15m, or more, and that the sweet spot for investments would be the series B, C and D rounds.
Dell is undergoing a transformation from a computer hardware company to an end-to-end solutions provider, and the new fund has a remit to help Dell move forward in strategic areas.
Commenting on the bigger size of the Dell Ventures fund, Lussier said: “This increase will allow us to bring the power of Dell to more entrepreneurs and help us accelerate our end‐to‐end solutions strategy.”
Brian Gladden, Dell chief financial officer, added: “Dell is committed to bringing the most innovative, affordable and easy to manage technology solutions to our customers. To accomplish this, we will aggressively pursue organic investment in research and development, acquisitions and venture investing. The expansion of our venture investing will allow us to stay at the forefront of innovation for our customers, and support the entrepreneurs who are helping shape the future of IT.”
Dell’s publicly disclosed investments so far include Openstack, cloud software company Mirantis, for which Dell joined Intel in a $10m investment round in January 2013, and flash storage start up Skyera, for which Dell led a $51.6m second round of funding in February 2013.