With the internet of things (IoT) gaining momentum and interesting developments yet to be seen, 2015 was marked by impressive fundraising activity and the establishment of new corporate venturing arms in the industrials sector. As far as portfolios of corporate VCs are concerned, there appears to be a significant degree of diversification, albeit with a clearly discernable focus on certain sectors.
The top investor by number of deals in the industrial sector for the past year has been US-based General Electric (GE) with 27 deals in total, while China-based conglomerate Fosun Group led in terms of amount of money invested – over $1.4bn.
However, it is noteworthy that most of the investments made by corporate venturing arms of big industrial players were not made in industrial startups. The money, as disclosed, has gone mostly to emerging enterprises from the IT, healthcare and consumer sectors. However, this statistic might be slightly misleading, if we were to conclude that industrial corporates seem to have lost interest in industrial startups. When we examine investments in industrial startups only, we see that a big segment – estimated at $428m by GCV Analytics – came from undisclosed strategic investors.
Curiously, the second-largest investor in industrial companies was International Data Group (IDG) with $187m committed. Another IT company, Qualcomm, has invested $88m in industrials. The leader in number of investments among corporate VCs, GE, actually ranks sixth, with a $63m investment in such enterprises.
Deals
Most of the largest deals in which industrial corporate VCs were involved were not in industrial firms. Sizeable quantities of cash have been invested primarily in promising IT and healthcare-related enterprises. This should hardly come as a surprise in the age of the internet of things and at a time when health companies appear to be on the rise.
In April 2015, it was announced that China-based online services reviewing platform Dianping closed an $850m series E round backed by investors including smartphone manufacturer Xiaomi, as reported by the Wall Street Journal. The round also included internet company Tencent, conglomerates Wanda Group and Fosun Group, Singaporean state-backed fund Temasek Holdings and private equity firm FountainVest Partners.
In June, OneWeb, a UK-based company building a network of satellites to provide internet connectivity worldwide, secured $500m in funding from a consortium of corporate investors, including aerospace company Airbus, conglomerates Virgin Group and Bharti Enterprises, technology business Qualcomm, Coca-Cola, satellite communications company Intelsat, Hughes Network Systems, and Totalplay, a subsidiary of conglomerate Grupo Salinas. The funding was to support development of new technology for providing internet in rural and undeveloped places, as well as ships, planes, trains and oil platforms, including solar-powered user terminals.
Three months later, in September, China-based healthcare services tool GuaHao raised $394m in a funding round featuring internet company Tencent and conglomerate Fosun, among other investors. GuaHao’s mobile app and online platform enables patients to book hospital appointments and pay related bills.
In October, US-based regenerative medicine technology developer Humacyte raised $150m in a series B round led by a consortium of investors including conglomerate Access Industries. The financing was to support phase 3 clinical trials of Humacyl, a human acellular vessel the company is developing.
Access industries was also involved in another interesting deal from January 2016, though in a European company. The France-based music streaming platform Deezer raised €100m ($110m) in a round led by conglomerate Access Industries that included telecoms company Orange. Deezer’s music streaming service has more than 6 million subscribers from more than 180 countries. According to official filings, Access was the company’s largest shareholder, owning a 36.7% stake.
In addition to all these gargantuan funding rounds, there were also newsworthy investment deals worth $100m or less.
In March last year, US-based mobile operating platform developer Cyanogen closed an $80m series C round backed by a host of corporate investors, including wireless technology maker Qualcomm, Twitter Ventures, Telefónica Ventures and Access Industries. Notably, Cyanogen was the first company to receive funding from Twitter Ventures. Cyanogen develops and commercialises an open-source version of the Android mobile operating system (OS) called CyanogenMod.
In July, US-based cloud infrastructure company DigitalOcean closed an $83m series B round led by diversified conglomerate Access Industries and including venture capital firm Andreessen Horowitz. DigitalOcean supplies cloud infrastructure technology for developers to build websites and applications.
In August, Tata Opportunities Fund, a private equity fund sponsored by India-based conglomerate Tata Group, invested $100m in US-based ride sharing service Uber Technologies, according to the Wall Street Journal. Uber entered India in 2013, since when some 150,000 drivers have signed up to its service spanning 18 cities, more than any market outside the US.
Also in August, US-based field service management software provider ServiceMax secured $90m in series F funding from a host of investors, including industrial conglomerate General Electric (GE), which invested through its corporate venturing unit, GE Ventures. ServiceMax’s cloud-based software provides a variety of services for workers who install, maintain and repair machines across a range of industries.
In mid-October, US-based cloud software developer Bracket Computing closed a series C round of over $45m, backed by GE and wireless technology producer Qualcomm. Bracket’s technology, dubbed Bracket Computing Cell, enables businesses to run applications seamlessly through their own data centre and various cloud providers.
A number of industrial startups raised funding successfully, although the amounts raised were more modest in size.
The largest VC funding of an industrial startup was raised in August last year: Royole, a China-based developer of flexible LED display technology, closed a $172m series C round, featuring IDG Capital Partners, Shenzhen Capital Group, Shenzhen Green Pine Capital Partners, Alpha Wealth Finance, and Jack and Fisher Investment, according to China Money Network. This deal may be considered industrial, as Royole aimed to use the funds to extend its technology to various sectors, including consumer electronics, home IT, automotive, computing, instrumentation, networking, solar, peripherals, storage and telecoms.
The second-largest funding for an industrial startup also took place in China. Zhaogang.com, a China-based online steel trading platform backed by media company IDG, closed a $153m series E round, funded by undisclosed investors, in January 2016. Reportedly, some 200,000 tons of steel are traded daily by businesses on the platform, which has more than 60,000 registered corporate buyers.
In August, US-based specialist glass producer View raised $150m from investors including glass manufacturer Corning, NZ Super Fund, and private equity fund Madrone Capital. The company produces high-tech architectural glass – so-called dynamic glass – which automatically tints depending on light levels outside, helping increase energy efficiency and maintaining optimum light levels indoors.
In January this year, US-based satellite systems producer Kymeta raised $62m in a series D round backed by university venture fund Osage University Partners, philanthropic outfit Kresge Foundation, venture capital firm Lux Capital, private investor Bill Gates and several undisclosed strategic investors. Kymeta is developing antenna beams for satellites. The thin and flat antennae have applications in a range of products, including broadband services.
In July, US-based LED sensor developer Sensity Systems raised $36m in a series C round led by Cisco Investments, which was joined by Acuity Brands, GE Ventures and Simon Venture Group. Sensity’s Light Sensory Network technology embeds sensors in lighting to collect data on parking, the environment and public safety, among other functions.
In August, Cavendish Kinetics, a US-based radio components manufacturer backed by Qualcomm, closed a $36m round involving undisclosed investors. Cavendish Kinetics produces radio frequency antenna tuners for devices such as smartphones and wearables. The funding will be used to develop the next generation of its technology, to keep up with demand as the industry moves towards 4G and 5G mobile phone networks.
Exits
Exits for industrial investors and startups have been rather scarce over the past year. Only three of the largest reported exits were successful industrial enterprises that were acquired or went public, while the rest were exits from startups specialising in other areas.
In October, it was reported by Quartz that cleaning and climate management equipment manufacturer Dyson had acquired one of its corporate venturing portfolio companies, US-based solid-state battery technology developer Sakti3, for $90m. This provided exits to investors including trading conglomerate Iotchu and automotive manufacturer General Motors.
In August, industrial conglomerate Robert Bosch agreed to acquire another US-based battery developer, Seeo, granting an exit to investors including electronics manufacturer Samsung, as reported by Quartz. Seeo also develops rechargeable batteries. The amount paid by Robert Bosch was not revealed, but it will get the company’s intellectual property, all its staff and the manufacturing line in California.
In September, India-based road construction company Sadbhav Infrastructure Projects raised Rs1.2bn ($31.6m) from anchor investors, including industrial conglomerate Tata, in a $64m initial public offering, according to the Economic Times. The IPO consisted of 20.4 million shares at $1.55 each. Tata invested through its Tata Mutual Fund subsidiary.
While some of the largest exits affected industrial investors, they were not in industrial enterprises. In November, China Huarong Asset Management, a China-based state-owned debt management firm, raised HK$17.8bn ($2.3bn) in its IPO, according to China Money Network. This provided an exit to a number of existing investors, including industrial conglomerate Fosun Group.
The most sizeable merger also took place in East Asia. In October, two of China’s largest private companies, online listing and review service Dianping and group buying platform Meituan, agreed to merge. Xinhua reported the merger was worth $15bn. The two companies had jointly raised over $2.6bn from investors, including internet portal Tencent, e-commerce group Alibaba, conglomerates Wanda and Fosun, and smartphone maker Xiaomi. Dianping alone had raised over $1.5bn from a range of investors, including industrial conglomerate Fosun Group. The two companies formed new company China Internet Plus.
However, it was not long before an important investor in China Internet Plus sought an exit. In January this year, the Wall Street Journal reported that e-commerce firm Alibaba had agreed to sell its stake for roughly $900m. Alibaba was reportedly looking to divest so it could focus on its own local services platform, Koubei. The firm’s shares were sold to existing investors at a price valuing China Internet Plus at $12.5bn, rather than the $18bn at which it had raised money. Other investors in China Internet Plus include internet company Tencent.
Some notable exits took place outside Asia. In June, UK-based secure mobile messaging platform Acision was set to be acquired by cloud-based payments processing and monetisation service Comverse, providing an exit to conglomerate Access Industries. The deal was worth $135m in cash, with potential earnout payments of up to $35m.
In July, semiconductor technology providers Intel and Semtech exited Ireland-based digital power technology developer Powervation, which was acquired by another semiconductor company, Rohm, for $70m in cash. Powervation develops integrated circuits that facilitate digital power management for cloud computing, communications and high-performance systems, primarily targeting the consumer, automotive and industrial sectors.
In February last year, Check-Cap, an Israel-based medical diagnostics company, backed by GE, closed a $12m IPO alongside a $12m private placement. Both the IPO, which took place on Nasdaq, and the placement consisted of 2 million shares at $6 each.
In March, Israel-based cybersecurity company CyActive was set to be acquired by online payment processing company PayPal for $60m, giving an exit to industrial conglomerate Siemens, according to Globes. The company had received $2m in funding from Siemens Venture Capital, which invested in September 2014.
Another Israel-based company, Pebbles Interfaces – a 3D motion sensor developer – was set to be acquired by virtual reality technology producer Oculus VR in July, providing exits to industrial product maker Robert Bosch, flash storage provider SanDisk, and Xiaomi. Oculus was acquired by social network group Facebook in March 2014. The size of the acquisition deal was reported by the Wall Street Journal to be $60m.
Funds
It has been an exciting and active year for funds and new venturing units targeting industrial startups. New funding opportunities for industrial companies has been flowing from both industrial and non-industrial corporate players. There has been a surge of interest in aerospace and drone technology, robotics and agriculture. New early-stage funding and support services have also turned up, along with funds that are strategically aligned with corporate goals.
Aerospace and drones: In May last year, France-based aerospace company Safran launched Safran Corporate Ventures, equipped with €50m of capital. The unit is investing in innovative startups over a three-year period, focusing initially on companies based in Europe and North America. Safran will target startups developing technology for the aerospace, defence and security sectors.
Airbus, also based in France, launched Airbus Group Ventures in June 2015, arming it with $150m of capital. The fund was announced alongside the imminent opening of a technology and business innovation centre in Silicon Valley, California. Subsequently, Airbus opened two more such centres in Hamburg, Germany, and Bangalore, India. Airbus Group Ventures now targets disruptive and innovative companies related to its parent company’s fields of interest, including aircraft and communications systems.
In January this year, Japan-based financial services firm Nomura teamed up with the Tokyo-situated Keio University to raise an $84m fund, Keio Innovation Initiative, which will invest in 15 to 20 startups over the next five years, according to Bloomberg. The fund will focus primarily on life sciences, regenerative medicine and space technology.
There has interest in smaller-scale aerial vehicles (drones) either. In May, two drone-related funds came to life on the same day, one launched by US-based drone development platform Airware and another jointly by China-based camera tech developer DJI and venture capital firm Accel Partners.
Airware’s Commercial Drone Fund will invest between $250,000 and $1m in early-stage companies working on unmanned aerial vehicle (UAV) technologies such as sensor hardware, software, aerial data analysis technology and drone-based services. DJI and Accel’s SkyFund will target the wider UAV sector, looking to invest in startups focused on robotics and machine intelligence, drone-related software, computer vision and navigation, multimedia communities and tools, and general drone-related services. SkyFund will operate as a 50:50 joint venture between DJI and Accel, and has been equipped with $10m of capital.
Agriculture: In Europe, new funding opportunities have also been set up for industrial startups specialising in agriculture. In March last year, Bayer CropScience, an agribusiness subsidiary of Germany-based chemical and pharmaceutical company Bayer, invested in a $150m agriculture technology fund raised by venture capital firm Finistere Ventures.
In July, CapAgro Innovation, a venture capital alliance between six France-based industrial groups and financial institutions, increased its investment budget to €60m. CapAgro is a fund dedicated to agronomy, farming, the food industry, nutrition and the industrial and energy exploitation of biomass.
Early-stage funding and opportunities: New early-stage funding and support also appeared over the past year. In April, Japan-based biotech company Euglena launched a ¥2bn ($17m) early-stage investment fund, along with financial services provider SMBC Nikko Securities and science venture company Leave A Nest. The fund will focus on startups working in the robotics, IoT, agriculture, energy and R&D-related sectors.
Another robotics accelerator was launched by US-based venture capital fund Coal Hill Ventures in August, backed by GE Ventures. Coal Hill said it planned to raise $20m by the end of 2015 to begin investing between $200,000 and $2m in startups from early this year. The accelerator will welcome 20 to 30 companies developing technologies based on advanced robotics.
In August, China-based automobile parts manufacturer Wanxiang invested $10m in the InnoSpring incubator, intending to boost its portfolio with industrialisation and financial services startups. InnoSpring helps enterprises expand operations from the US into China and vice versa.
Funds and investment units for strategic alignment: In January this year, automotive manufacturer Ford and accelerator operator Techstars launched an accelerator program to supply 12 mobility technology startups with $120,000 each in a three-month program, starting in June this year. The initiative was dubbed Techstars Mobility, Driven by Detroit. The scheme aims to find startups that align with the Ford Smart Mobility plan, meant to beef up the company’s connectivity, mobility, autonomous vehicles and customer experience offering.
By early July 2015, the Canada-based venture capital fund McRock Capital was already preparing to close its debut fund after securing backing from energy utility EDF, which joined networking technology provider Cisco Systems, and fellow limited partners Alberta Enterprise, BDC Capital, Kensington Capital, Teralys Capital, Export Development Canada and Wilson Sonsini Goodrich & Rosati. The McRock fund is to operate as a dedicated industrial internet of things (IIoT)-focused one, and expects to reach its $65m target, as reported by PE Hub Canada.
In early December 2015, the US-based software producer Autodesk launched a $100m investment fund aiming to facilitate a cloud-connected design ecosystem around its Forge initiative. The fund will target startups working on innovative technologies and services built on Forge, Autodesk’s cloud services platform for cloud-powered developers, which incorporates design, engineering, visualisation, collaboration, production and operations.
One of the newest venturing arms in the hi-tech and industrial area was also launched with strategic alignment in mind. In early March 2015, the Taiwan-based fabless semiconductor manufacturer MediaTek launched a corporate venturing unit, armed with $300m in capital. It was announced that MediaTek Ventures was to be investing in startups in Greater China, Europe, Japan and North America, while creating a collaborative ecosystem. It targets companies developing technology in the semiconductor-system-and devices, internet infrastructure, services and Internet of things sectors at all stages.
In January 2016, the Germany-based industrial product manufacturer Evonik Industries invested an undisclosed amount in China-based venture capital GRC SinoGreen Fund III, marking its entry into Asian corporate venturing. The GRC SinoGreen Fund III supplies funding to green and environmental technology startups. Read more on this investment in the special feature alongside this article.
People
Corporates VCs from the industrial sector have also registered quite a few changes and switching of roles in the leadership and human resources area over the past year.
In April 2015, Andrew Kodis, managing director of Sabic’s corporate venturing unit, left the company to take the reins of Black Diamond Structures, a developer and manufacturer of innovative nanomaterial products and solutions.
In May 2015, Jake Latcham was promoted to venture principal by Schlumberger, a US-based provider of technology and services to the oil and gas industry. Latcham previously spent two years as technology interface manager for OneSubSea, a Schlumberger subsidiary providing products to the subsea oil and gas market.
In August, Claus Schmidt – who had spent more than seven years as managing director of Robert Bosch’s corporate venturing unit – was replaced by Ingo Ramesohl, who was senior vice-president of the electric vehicle and hybrid systems business unit. Schmidt is launching an independent consultancy firm.
Also in late August, it was reported that Jens Umehag will act as the corporate venturing unit’s CFO in addition to serving as head of finance for BP’s Group Technology division. Previously, he served as a Finance director at Castrol for Germany, Austria and Switzerland.
In early September, Beth Comstock who leads corporate venturing unit GE Ventures, was appointed General Electric’s vice-chairman.
Also in September, it was reported that Gaurav Sachdeva had moved on from his position as general manager at Brand Capital, the investment arm of Times Group, to join JSW Venture Fund. At the same, it became clear that Ratan Tata, who served as chairman of conglomerate Tata for over 20 years, was take on an advisor role at IDG Ventures.
In late September, Premla Krishnan moved from Volvo Group Venture Capital to CPAC Systems to fulfil her three-year dream of working for the system integration company.
It was also announced in late September that Crispin Leick was to leave Innogy VC, the investment fund sponsored by RWE Innogy, where he served as managing director for five years, in order to join ENBW’s venturing unit at the end of 2015.
In mid-December, Peter Bastien left Toyota Tsusho USA where he oversaw strategy and business development to become principal at Siemens’ corporate venturing unit.
Cleantech analyst Edouard Bulteau was promoted to investment manager in January 2016 at Total Energy Ventures, the corporate venturing arm of oil and gas company Total.
Salmaun Ahmad, formerly head of corporate and business development at Disney, has taken on a role at Hyundai’s Silicon Valley strategic innovation office, since the beginning of 2016.
In early January 2016, chemicals producer DuPont announced that the managing director of its corporate venturing unit, Michael Blaustein is leaving and retiring at the end of the first quarter. Blaustein has been heading DuPont Ventures since September 2006.
Also in January this year it was announced that Fabien Mondini, Sabic Ventures’ senior investment manager for Europe since 2012, is leaving the chemicals and advanced materials producer.
While many of the most sizeable deals and exits of Industrial corporate VCs have been sourced from other sectors, interest in new industrial enterprises has not waned. In the context of an ongoing digitalisation across the board, a great majority of corporate VCs have widened their investment scope to include worthwhile investment opportunities from many sectors, as reflected in their portfolios. Such companies from various sectors bring not only financial return but also synergies and align with corporate strategies. At the same time, however, a significant number of new funds and even three new corporate venturing arms have appeared. These new funds and venturing units will be providing more opportunities to industrial entrepreneurs who seek funding for their business undertakings. Finally, the changes of roles among key people in industrial corporate VCs also come to indicate that the industrial sector is a very vibrant one, indeed.
Evonik expands in Asia
In January this year, the Germany-based Evonik Industries announced that it had invested an undisclosed amount in the China-based GRC SinoGreen Fund (GRC III) fund, thus expanding its venture capital activities into Asia.
With this investment, Evonik´s geographical scope now encompasses the three most important venture capital regions worldwide – Europe, North America, and Asia. The GRC fund invests in privately-held clean technology companies from Greater China, focusing on energy and resource efficiency, clean transportation, sustainability, and climate change mitigation.
“By investing in GRC III, we are opening the door to the fast-growing startup community in Greater China,” and “we have found a strong partner with a proven track record and with immediate relevance to our own business activities,” commented Bernhard Mohr, head of Venture Capital at Evonik.
Mohr points out that Evonik’s long-term investment focus in Asia is not strictly limited to clean tech opportunities only, but it is rather similar to the one across other geographies: “We aim to globally invest in companies with innovative technologies in the field of specialty chemicals, providing solutions related to the megatrends: resource efficiency, health and nutrition, and globalisation.”
This implies that, in the future, Asia-based emerging enterprises specialising in these industrial areas may get financial backing from Evonik.
It also remains to be seen when Evonik will expands its geographical scope within Asia, outside of Greater China. While stating unequivocally that Greater China constitutes “a key innovation region for Evonik,” Mohr also said that the investment in GRC was “the first step to expand Evonik’s venture capital activities in Asia” as a whole.
Drone investments take off
With the Commercial Drone Fund and the SkyFund set up in 2015, drones seem to be decidedly rising up on the corporate VC horizon, and they will likely be up in the air for long. To get a broader perspective on drones and UAV investments, we turn to Gareth Keane, investment manager at the US-based Qualcomm Ventures.
Keane said drone startups were “very, very interesting opportunities,” and not merely in terms of the “significant financial return” they will bring but also as a way to help venture capitalists “view other areas, such as transportation, the internet of things or the internet of everything, and the healthcare sector through a different lens.” Keane had observed emerging UAV startups for quite some time and said Qualcomm Ventures has been exploring various ways to assist such emerging enterprises.
While Keane thinks UAV startups are still in their early days, he sees great potential for future value creation. In the long term, such companies will bring cost savings, efficiency and “new data streams” across numerous applications, including insurance, construction, manufacturing and agriculture. A case in point – Qualcomm Ventures has invested in the US-based 3DR, whose drones feature a wide range of everyday explorations and applications used in data analysis, mapping, surveying, 3D modelling for agriculture, construction, infrastructure, search and rescue and ecological study.
However, the biggest medium-term challenge such startups may have to face will be certain constraints imposed by regulations that are still in the making across various jurisdictions. Keane believes that, until a clear regulatory framework is laid out, this is, and may continue to be, “the main barrier to success”.
And when it comes to regulations, the security and privacy issues inevitably pop up in any serious conversation about UAVs. According to Keane, the security issue is “an important consideration” from an investor’s standpoint, and “there has been a lot of work on it going on. It has not been figured out yet but investors are following this every step of the way.”
In terms of privacy, Keane affirms the problems will be solved by regulators who are likely to demand a level of hackability in UAVs in order to ensure human intervention is still possible (such as kill switches, for example). Optimistically, he also points out that these issues, rather than being perceived as a huge stumbling block, are to be seen as an “opportunity for startups to stand out and provide new, innovative solutions.”
