Amid the Covid-19 pandemic and an almost worldwide lockdown, most people spent much of the second quarter at home. That does not mean, however, that everyone stopped working or the world came to a halt – and venture investing is no exception.
In this odd, locked-down second quarter, GCV Analytics tracked 762 funding rounds involving corporate venturers, representing a nearly 11% drop from the 855 rounds recorded in Q2 2019. The estimated total investment dollars stood at $25.69bn, down 14% from the $29.92bn recorded during the same period last year. The US hosted the largest number of funding rounds (279), while Japan came in second with 135 deals, and China third with 72 deals.
Comparing Q2 2020 with the previous quarter, there is a slight decrease in deal count, down 6% from 810. Estimated total investment, however, went up slightly by about 4% from $24.69bn.
If we look at the results on a half-year basis, H1 of 2020 registered 1,572 deals with an estimated capital deployed of $50.38bn. These figures show a 5% drop in the deal count and a 21% reduction in the estimated total dollars in rounds from the same period in 2019, which registered 1,656 rounds and $64.14bn.
Emerging enterprises from the IT, health and fintech sectors proved the most attractive for corporate venturers, accounting for more than 100 deals each. The top funding rounds by size were raised mostly by IT companies.
The most active corporate investors, in turn, came from the financial services, IT and health sectors.
The leading investors by number of deals were diversified internet conglomerate Alphabet, telecoms firm SoftBank and cloud enterprise software provider Salesforce. The list of corporate venturers involved in the largest deals by size was headed also by Alphabet, SoftBank and conglomerate Legend Holdings.
The lockdown measures across the globe and the looming economic downturn benefited some emerging businesses while threatening the existence of others. Many corporate venturers who participated in our first GCV Digital Forum reported that they had first looked to recapitalise existing portfolio companies and then explore new investment opportunities.
GCV Analytics estimates suggest that between March and May roughly one in every four deals was a follow-on, with the other three new investments (or at least the first round with disclosed corporate backing). The latter should be taken with a grain of salt, because venture investors tend to remain discreet about much of their investment activity.
Another interesting indicator to look at are the relative proportions of small (under $10m), medium ($11-$99m) and large (over $100m) deals. In Q1 and Q2, the relative share of the three types remained fairly stable and roughly in line with previous years.
Most of the corporate investors taking minority stakes during the second quarter were investors that had done at least one previous deal (76%). However, one out of every four (26%) corporates was disclosing its first minority stake deal, even in this quarter. There appears to be a trend of newcomers to venturing – whether having a specific venturing unit or not – comprising roughly a fifth to a fourth of all corporate investors, from 2018 onwards. In previous years, the proportion of first-time corporate investors was consistently lower than 20%. We are yet to see if this trend will continue during the downturn.
Deals
Most of the funding from the biggest rounds reported in the first quarter went to emerging enterprises from the IT, health and services sectors. Only one of the top 10 rounds stood above $1bn.
MGI Tech, a gene sequencing technology developer spun off by China-based genomics services provider BGI, completed a $1bn series B round. VC group IDG Capital and private equity fund CPE Capital co-led the round, which included investment bank China Renaissance’s New Economy Fund and Goldstone Investment which, like CPE, is part of state-owned investment manager Citic. Huatai Securities’ private equity arm, Huatai Zijin Investment Fund, filled out the round along with fund manager Sailing Capital, private equity firm Co-Stone Asset Management, VC firm Green Pine Capital Partners and an entity called Shanghai Guofang FoF. Formed in 2016, MGI Tech is working on high-throughput sequencing technology, reagents and consumables for applications in life sciences, precision medicine and agriculture. The applications of the company’s systems range from mass spectrometry and medical imaging to laboratory automation.
China-based online tutoring service Zuoyebang closed a $750m series E round that included SoftBank’s Vision Fund, according to a company post on WeChat. Private equity fund FountainVest Partners and investment firm Tiger Global Management co-led the round, which also featured Qatar Investment Authority, Sequoia Capital China, Tiantu Capital and Xiang He Capital. Zuoyebang operates a platform where users can access online courses and homework assistance in addition to live tutoring through video. It claims 170 million monthly active users, 50 million daily active users and roughly 12 million paying subscribers.
US-based stem cell medicine developer Sana Biotechnology closed its first round, raising more than $700m from investors including GV, a corporate venturing subsidiary of Alphabet. The round also featured F-Prime Capital, a fund owned by investment and financial services group Fidelity, as well as Canada Pension Plan Investment Board, Alaska Permanent Fund and the Public Sector Pension Investment Board. Sana is working on technology intended to repair and control genes in cells and replace missing or damaged cells to tackle the underlying causes of serious diseases, ranging from cancer and central nervous system conditions to heart disease and various genetic disorders.
US-based digital payment technology provider Stripe increased its series G round to $850m, adding $600m from investors including GV, a corporate venturing subsidiary of Alphabet. VC firms Andreessen Horowitz, General Catalyst and Sequoia Capital also took part in the extension, having contributed to the $250m first close in September 2019. The extra cash was provided at the same $35bn pre-money valuation. Stripe provides payment processing technology for online merchants. The funding will support a growth in the company’s operations as it deals with large amounts of offline commerce migrating online due to the lockdown.
Insurance firm Sompo Holdings invested ¥54bn ($500m) in a US-based data analysis services provider Palantir which is reported to be lining up an initial public offering. The deal comes after Sompo and Palantir launched a Japanese joint venture in November 2019, and the companies said in a statement that Palantir Japan’s duties have included work combatting Covid-19. Palantir has built big data analysis software that uses artificial intelligence to sift through massive amounts of structured and unstructured data in order to find informative patterns. Its customers include US law enforcement agencies as well as businesses such as Sompo.
Exits
GCV Analytics tracked 61 corporate-related exits during the second quarter of 2020, including 32 acquisitions, 22 initial public offerings (IPOs), five mergers, one stake sale and one other transaction. Top exiting corporates this quarter were chipmaker Intel, Alphabet and Salesforce.
The total estimated amount of exited capital in Q2 2020 was $11.41bn, considerably lower than the $22.39bn in Q2 of the previous year and also lower than the figure from the first quarter of this year ($20.9bn). Only two of the top reported exits stood above $1bn.
Genetic information provider Invitae agreed to acquire US-based genetic testing technology developer ArcherDX in a deal valued at about $1.4bn that will allow medical researcher Qiagen to exit. The transaction will consist of $325m in cash and 30 million shares of Invitae stock, which rose 40% after the announcement. Another 27 million shares are dependent on the completion of milestones. ArcherDX has created a range of precision oncology products informed by genetic sequencing technology and bioinformatics software to assist in cancer research. It has been preparing a regulatory submission for its debut in-vitro diagnostics product in late 2020.
Networking equipment manufacturer Cisco agreed to acquire ThousandEyes, a US-based network management software provider backed by Alphabet and Salesforce. The price was reported to be approximately $1bn. Founded in 2010, ThousandEyes provides cloud analytics software that collects data from a range of access points, such as data centres and consumer devices, to identify potential sources of disruption and ensure websites, applications and services are delivered optimally. Cisco will integrate the company’s technology into its new networking services division and expects the combined capabilities to help clients accelerate their digital transformation.
Israel-based urban mobility app developer Moovit confirmed an acquisition by its existing shareholder, semiconductor producer Intel, for a total consideration of $900m. Intel paid $840m, net of the equity gain of its corporate venturing unit Intel Capital. Founded in 2012, Moovit has built a real-time transit data app for users that pulls in public traffic data and user-generated updates to calculate the most efficient routes. It also offers third-party business access for clients such as municipalities or ride sharing providers. The service currently covers 3,100 cities in 102 countries and attracted more than 800 million users – a sevenfold increase over two years. Intel will integrate Moovit’s enterprise platform into its autonomous driving technology subsidiary Mobileye, turning it into a full-fledged mobility provider with offerings such as robotaxi services. It will maintain the consumer app under the existing branding.
Payment services firm Mastercard agreed to buy US-based financial data provider Finicity in an $825m transaction that will enable credit scoring service Experian to exit. Finicity’s core business involves a digital budgeting platform that provides data to help users manage their finances more effectively, but it has added financial wellness tools and application programming interfaces (APIs) that enable business to build their own financial data apps. The company’s shareholders will have the chance to potentially get up to $160m in earn-outs depending on its performance post-acquisition.
Retirement services provider Empower Retirement agreed to acquire Personal Capital, a US-based digital wealth manager backed by financial services firms BBVA, USAA and Power Financial Corporation, for $825m.The deal consists of $825m upfront, and Empower plans to commit up to $175m more to drive business growth. Personal Capital has built a digital wealth management platform that aggregates a user’s financial accounts and offers financial planning tools and recommendations from investment advisers. It has more than 2.5 million customers and manages more than $12bn in assets.
Funding initiatives
Corporate venturers supported a total of 59 fundraising initiatives in the second quarter, down from 81 initiatives reported in the same period in 2019 and the 77 reported in 2018. However, the estimated total capital raised, $7.34bn, was roughly 11% higher than last year’s Q2 figure of $6.62bn.
The initiatives in question included 39 announced, open and closed VC funds with corporate limited partners (LPs), 11 new corporate venturing units and six accelerators, among other.
US-based e-commerce, cloud computing and consumer device group Amazon launched a $2bn investment fund that will back developers of products that support carbon reductions. The Climate Pledge Fund will target transportation, logistics, manufacturing, materials, food and agriculture technology developers, those engaged with clean power production and storage and with the circular economy. Amazon’s business now encompasses its Amazon Web Services cloud offering and consumer devices Echo, Fire and Kindle. Its market cap has expanded to $1.38 trillion in recent weeks as Covid-19 lockdowns increase remote buying patterns. The launch of this fund comes after Amazon formed a unit called Alexa Fund in 2015 to back startups working on products that can be integrated with its intelligent voice assistant, Alexa.
The UK government announced up to £1bn ($1.25bn) in support for innovative companies affected by the Covid-19 pandemic called the Future Fund. The government is putting up £250m for the initiative, which will offer convertible debt financing to domestic startups affected by the Covid-19 pandemic. The Future Fund will provide loans sized between £125,000 and £5m to UK-based companies in partnership with the state-owned British Business Bank, in the form of co-investment, matching capital supplied by private investors to make £500m theoretically available. The loans have a 36-month maturity period and will comprise unsecured bridge funding that will be converted to an equity stake in the recipients’ next equity round, with a minimum conversion discount of 20%. Companies will have needed to have raised at least £250,000 in the past five years and have a ‘substantive’ economic base in the UK to qualify for the loans.
US-based pharmaceutical firm Pfizer pledged to invest up to $500m in biotech companies while also providing expertise, through a scheme dubbed Pfizer Breakthrough Growth Initiative. Pfizer intends to acquire minority stakes in publicly listed companies with small to medium-sized market caps that are at the clinical stage with internal medicine, inflammation, immunology cancer and rare disease drugs, vaccines and hospital-related products. The company is already an active investor in the healthcare VC space, both off its own balance sheet and through Pfizer Ventures, the CVC subsidiary it established in 2004. Pfizer’s last exit was in a $75.2m initial public offering by haemoglobinopathy medicine developer Imara in March.
US-based VC firm VenBio Partners closed its third fund at $394m, with undisclosed pharmaceutical companies among the LPs. Founded in 2011, VenBio Partners invests in life sciences technology developers, generally concentrating on companies working on biopharmaceuticals for unmet medical needs. It typically leads or co-leads rounds and has secured about $1bn in capital across its funds. VenBio Global Strategic Fund III’s LPs also include unnamed financial institutions, corporate pension funds, family offices, funds-of-funds, endowments and foundations.
Internet company Tencent announced the launch of the Global Anti-Pandemic Fund, a $100m program, having previously set up a $211m Anti-Pandemic fund to support healthcare workers in its native China. The country’s second-richest man and Alibaba founder Jack Ma donated RMB100m ($14.4m) to help invent a vaccine for covid-19. Alibaba will lend nearly $3bn to small companies and covering purchases of medical supplies from its ecommerce platform and overseeing shipping logistics using a fund of more than $140m established on January 25 to fight the coronavirus. Fellow tech firms Netflix and Facebook also launched $100m funds. Payment services firm Mastercard committed $25m to Covid-19 Therapeutics Accelerator, a US-based drug development accelerator that launched with $125m in seed funding. Philanthropic organisation the Bill and Melinda Gates Foundation and life science research charity the Wellcome Trust have each contributed $50m to the scheme.
Luxembourg-based investment firm Blue Like an Orange Sustainable Capital has closed a Latin America-focused fund with LPs including insurers Axa, BNP Paribas Cardif, CNP Assurances and SG Insurance at $200m. Financial services firm HSBC, pension fund MACSF and family offices for Ronald Cohen and Ray Chambers also made commitments to the Latin America Fund I along with undisclosed additional investors. Founded in 2017, Blue Like an Orange concentrates on mezzanine financing deals supporting the United Nations’ Sustainable Development Goals mandate. The firm has already invested more than $80m out of Latin America Fund I and concentrates on areas including access to finance for the unbanked as well as infrastructure-as-a-service, agricultural, healthcare and education technology.
VC firm Kurma Partners achieved an oversubscribed €160m ($175m) close for its third therapeutics-focused fund with LPs including pharmaceutical developer Servier Laboratories. Research organisation Pasteur Institute, state-owned investment bank Bpifrance and its Investissements d’Avenir scheme, the EU-owned European Investment Fund (EIF), German regional public development bank NRW.Bank and VC firm Idinvest Partners have also backed the fund. Kurma Biofund III will typically invest $10.9m per deal, aiming to assemble a 12 to 15-strong portfolio comprising mainly early-stage companies. The fund has already helped launch five biotech companies across France, Germany and Belgium. It has also participated in three funding rounds, including a series C for acute kidney injury drug developer AM-Pharma that raised $182m following a $130m first close.
Pharmaceutical firm WuXi AppTec provided $5m for Cayman Islands-registered VC firm Creacion Ventures’ first fund through affiliate Wuxi PharmaTech Healthcare Fund I, according to a stock exchange filing. The filing states Creacion Ventures has so far raised approximately $155m for the fund, which has a $200m target according to a separate regulatory filing in January this year.
US-based garden and lawn product maker Scotts Miracle-Gro formed a $50m CVCl vehicle called 1868 Ventures in partnership with corporate VC services provider Touchdown Ventures. Scotts Miracle-Gro oversees a range of brands that collectively offer lawncare and gardening products such as fertiliser, soil and nutrients, pest and weed control, and equipment for indoor or hydroponic gardening. 1868 Ventures will target technologies such as plant genetics, natural fertiliser and plant control products, sustainable packaging and systems that can support plant growth in controlled environments. Portfolio companies will be able to access Scotts Miracle-Gro’s expertise in areas like product development, marketing, retail and distribution. Partnership opportunities will also be available. The fund will be stage-agnostic but will generally make investments sized between $250,000 and $2.5m for a first deal, with capital reserved for follow-on investments. It is prioritising portfolio companies in North America.
US-based financial technology provider FIS announced a $150m commitment to CVC subsidiary FIS Ventures. The $150m is a target for the unit’s investment over the next three years, and its priority areas include distributed ledger technology, financial inclusion, artificial intelligence and machine learning, data and analytics, security, privacy, digital enablement and automation. The announcement marks the official launch of FIS Ventures, though the company revealed in January 2020 that the unit would be overseeing the fifth iteration of its FIS Fintech Accelerator this year. FIS was revealed as one of the investors in the $35m series B round closed by Africa-focused payment technology provider Flutterwave, FIS Ventures’ first deal.
Some big corporates announced small or undisclosed deals.
Alphabet announced 11 startups chosen for the first batch of its Google for Startups Accelerator, which focuses on sustainable development goals (SDGs). The five-month initiative received 1,200 applications from Europe, the Middle East and Africa. Entrants were scrutinised against SDG criteria such as fighting poverty and fostering peace. Google for Startups Accelerator began in April and participants will represent Germany, the UK, France, Kenya, Nigeria, Israel, the Netherlands and Pakistan. The accelerator will lend expertise on business, IT and SDG-related topics to startups, relying on digital systems during the Covid-19 pandemic.
US-based social media company Facebook has begun setting up a CVC unit dubbed New Product Experimentation (NPE) subsidiary, which was formed to launch consumer-focused apps. The fund will be partially managed by Shabih Rizvi, who spent two years as founding partner at internet technology provider Google’s artificial intelligence fund, Gradient Ventures, before moving to a business development role at Google in April 2019. Facebook is reportedly pursuing investments as a method of keeping track with emerging technologies, rather than operating a general-purpose fund. It will make small investments in early-stage companies.
US-headquartered coffee shop chain Starbucks will start corporate venturing in China after signing a co-investment deal with venture capital firm Sequoia Capital China. The pact provides Starbucks with strategic access to local food and retail technology startups through investment opportunities and partnerships. Sequoia Capital China is an offshoot of US-based VC firm Sequoia Capital. Starbucks runs 4,200 stores across 177 Chinese cities and offers home delivery through a partnership with e-commerce firm Alibaba. It plans to access local startups in order to boost digital innovation in the country, which it described one of its two lead growth markets, along with the US. The corporate aims to digitise the management of its outlets in the country while also exploring data-driven optimisation of its inventory and supply chain. Portfolio companies will gain access to its retail infrastructure and expertise.
US-based talent agency Creative Artists Agency (CAA) formed an investment vehicle with venture capital firm New Enterprise Associates (NEA), launched with $100m in capital. Connect Ventures will leverage the existing relationships CAA has in the sports and entertainment industries and plans to invest up to $400m through the venture. The fund will be run by Rick Yang, the NEA general partner who is also the firm’s head of consumer investing, while CAA’s end will be overseen by its new head of consumer investments, Michael Blank.