Even 20 years ago it was possible to work and live without feeling the immediate impact of information technology (IT), but with the internet, more powerful chips, the cloud and mobile devices, the sector is ubiquitous and underpins all other sectors.
Its influenceis so pervasive that the corporate venturing head at one of the world’s largest industrial conglomerates said it was planning to set up a software-dedicated fund as early as this year because its importance to the sector equalled the metal-bending side.
This starts to meet the technology firmsthat are increasingly influentialin specialist sectors through the use of IT as a tool to disrupt business models, from search engine Google in media reimagining the index at the back of a book, to technology to findand create new drugs, with China-based computer maker Legend’s corporate venturing unit investing $100m in 14 healthcare portfolio companies over the past five years.
Or, as Andrew Clark, head of strategy and co-founder of technology pioneer IBM’s Venture Capital Group, put it in a news provider Infoworld article: “Our customers have broadened what they mean by IT. We still have a warm fuzzy spot for the data centre, of course. But increasingly our customers are moving toward the edge, and their needs are moving into all kinds of what were previously known as vertical spaces.”
IT is effectively acting as the tool to help people gather, understand and act on the information to join up the world in unprecedented ways. Clark added to Infoworld: “There was a lot of talk about 10 years ago about sensors. A lot of start-ups got started building smart appliances and smart sensor devices, but a lot of that got commoditised pretty quickly. Then they moved up the food chain to data and said: ‘Well, the real value is in the data. It never really was in the sensors.’
“What we are seeing now is that it is really analytics, that it is not just the data anymore, it is bringing the value from the data and being able to use that anal-ysis to make better decisions to do smarter things.”
Hence IBM’s marketing slogan of Smarter Planet is one we are all living on but it means deciding which firmis a technology provider and what is a technology deal. But some things remain the same.
US-listed semiconductor company Intel remains Global Corporate Venturing’s most influential unit from an IT parent. Since 1991, Intel has invested more than $10.6bn in more than 1,234 companies in 51 countries – 199 have floated, most recently Sinosun in China, while 296 have been acquired or merged.
Last year, Intel Capital invested $526m in 158 investments and launched its Connected Car fund to tap the underutilised potential of vehi-cles for technology use.
Fundraising
There have been at least 10 programme launches or restarts in the past two years, including US-listed computer maker Dell and chip company EMC, Taiwan-based Spirox starting Spirox Ventures and China-based equipment provider ZTE starting its ZTE Venture Capital Fund.
Dell’s programme has caught people’s attention with the $100m fund it has set up to provide debt to leverage venture-backed companies so as to gain a return and work with venture capital firms and entrepreneurs.
Although non-US groups made up about half the launches in the past two years, they also invest in the US and often their home countries. However, the scale of the launches has yet to match the size of existing programmes, such as Intel Capital’s, or that of Google Ventures, which last year said it would double its annual investment rate to about $200m per year (see profile), while there have been few closures, apart from Alcatel-Lucent Ventures, which an internal source said happened earlier this year, and Kodak’s.
Deals
Google, therefore, was one of the most active firmslast year, particularly in the US, which is the primary market for IT deals.
The US contributed 176 of the 244 deals in the 12 months to the end of June, according to Global Corporate Venturing. By comparison, data provider Dow Jones VentureSource tracked 376 deals last year, 13% of the 2,829 aggregate IT venture-backed deals and exits.
Global Corporate Venturing tracked 188 declared investment rounds for IT companies globally with at least one corporation as part of the syndicate, raising at least $3.2bn.
The volume of deals was down from the previous 12 months’ 225 deals but up by value from their aggregate $2.3bn, according to Global Corporate Venturing.
The big rounds of the past 12 months include China-based smartphone maker Xiaomi’s $90m round in December involving a syndicate including the corporate venturing units of equipment maker Qualcomm and publisher International Data Group.
Other big rounds included Joyent’s $85m, Dropbox’s $250m and Russian company Ozon’s $100m.Seed and series A rounds broadly matched the number of B and later-stage deals, according to Global Corporate Venturing, although there is a sizeable proportion of deals whose stage is undisclosed.
Exits
In the past year, corporate venturing units have been part of syndicates reaping more than they invested. Although the data is skewed by the proportion of trade sales with no disclosed value, Global Corporate Venturing tracked an aggregate $4.4bn in 45 public exits and initial public offerings (IPOs), compared with 60 in the previous 12 months to June 2011 worth $6.2bn.
This past year’s exits include Endeca ($1.075bn), Anobit ($450m) and Force10 ($700m), although corporate venturing units in the sector have had other big successes, such as SAP Ventures’ stake in business network LinkedIn ahead of its flotation.
Intel Capital has gained from a number of these exits. As well as being an investor in Anobit, Intel Capital has sold Sapato, Iptego, Likewise, PhaseLink, Picochip, Netretail, Gaikai and Aeroscout this year.
It has also completed six initial public offerings so far this year – Vocera, Synacor, AVG and
Envivio on US stock exchanges, MCX in India and Sinosun in China – reversing the past few
years’ trend for more IPOs to be held outside the US as a result of Asian stock markets cooling and just as the US government’s American Jobs Act was passed, designed to boost the number of flotations on the country’s domestic markets.
Almost all these IPOs have seen strong firstday price rises, including the most recent listing
of security chip portfolio company Sinosun Technology on China’s Growth Enterprise index.
Sinosun rose nearly 10% in its first day of trading on Thursday, while MCX poped by a quarter and Vocera also saw big gains.
However, the decline in VC firms has limited a number of potential deals and forced at least some exits for lack of a syndicate to continue a portfolio company’s growth.
Last month, UK-based chip developer ARM sold Cognovo to Switzerland-based peer U-Blox and a deal source said a lack of venture capital interest had hampered its chances (see case study).
People
IT corporations continue to manage their corporate venturing programmes using a number of strategies, from IBM committing only to third-party funds to Intel doing direct deals, and much in between.
And to run these strategies there has been a number of senior hires of venture capitalists to corporate venturing units, as well as intra-corporation moves and recruitment of entrepreneurs. Jim Lussier joined Dell from venture capital firm Norwest, while SAP Ventures hired Elizabeth Clarkson as chief operating officer from Draper Fisher Jurvetson.
Google has built a team of 17 investment partners, almost all having entrepreneurial experience as well as domain specialisation so they can help portfolio companies with
more than their list of contacts and investment experience.
Google Ventures’ most-recent hire, Kevin Rose, founded Milk, which was acquired by Google, a common “acquihire” route into the unit for some of Rose’s colleagues.
The international expansion of corporate venturing units was also evident in the IT sector, where Intel moved Baris Aksoy to Turkey to open an office.