In the second quarter (Q2), GCV Analytics tracked 781 funding rounds involving corporate venturers, near the all-time record number (796) registered in the first quarter and representing a nearly 6% increase over the 745 rounds recorded in Q2 2018. The estimated total investment stood at $29.6bn, down 41% from the $50.4bn recorded during the same period last year.
The US hosted the largest number of funding rounds and nearly half of them (319), while Japan came in second with 104 deals, China third with 73 deals, India and the UK joint fourth with 46 each.
When comparing Q2 2019 with the preceding quarter, there was a slight decrease in deal count, going down from 796. Estimated total investment, however, went down considerably from $35.9bn, by 18%.
If comparing the first half (H1) of this year with the same period of 2018, we also observe slightly mixed results with growth in deal count but considerable drop in total estimated capital in the corporate-backed round. H1 2019 registered a total of 1,577 deals, up 13% from the 1,390 in H1 2018. Total dollar volume, however, fell to $65.51bn, down 25% from $87.52bn of the first half of last year.
Emerging enterprises from the IT, health, services, financial and media sectors proved the most attractive for corporate venturers, accounting for at least 100 deals each. The top funding rounds by size, however, were raised mostly by companies from the transport, services and consumer sectors, as discussed below.
The most active corporate investors, in turn, came from the financial services, IT, media, industrial and services sectors, as illustrated by the deals heatmap.
The leading investors by number of deals were diversified internet conglomerate Alphabet, telecoms firm SoftBank and financial services SBI Group. The list of corporate venturers involved in the largest deals by size was also headed by SoftBank, Alphabet and financial services firm Fidelity.
Most of the corporate investors taking minority stake in the second quarter were investors that have done at least one deal before (75%). However, it is noteworthy that one out of every four (25%) of corporates was disclosing their first minority stake deal in this quarter, particularly led by Japan-based groups. There appears to be a trend of newcomers to venturing – whether with a specific venturing unit or not – comprising roughly a fifth to a fourth of all corporate investors, since 2018. In previous years, like in 2017, the proportion of first-time corporate investors was consistently lower than 20%, as GCV Analytics data suggest.
Deals
Most of the funding from the biggest rounds reported in the second quarter went to emerging enterprises from transport, services and consumer sectors. Three of the top 10 rounds were above $1bn, with SoftBank being the most often found investor in those top rounds.
US-based autonomous driving software developer Cruise Automation secured $1.15bn in funding from investors including carmaker General Motors (GM). Fellow carmaker Honda and SoftBank’s near-$100bn Vision Fund also participated in the round, which also featured investment manager T. Rowe Price Associates. The round valued Cruise Automation at $19bn post-money. GM acquired Cruise for $1bn in 2016, three years after it was founded, and spun it back off in 2018. Cruise is working on software that will enable driverless cars to process data from their sensors and adapt accordingly, particularly in electric vehicles such as GM’s Chevrolet Bolt hatchback.
SoftBank invested $1bn in Colombia-based logistics platform Rappi. The corporate’s $5bn Innovation Fund, which it is currently in the process of raising, supplied half the capital while its Vision Fund provided the other $500m. Founded in 2015, Rappi operates an on-demand delivery service that was present in 35 cities across Argentina, Peru, Chile and Uruguay as well as its home country, as of the end of 2018. The company collects and delivers orders of consumer goods and is diversifying into other areas such as medicine deliveries and the establishment of a digital payment platform.
US-based ride hailing company Uber spun off its autonomous driving subsidiary, Uber Advanced Technologies Group (Uber ATG). The company received $1bn of backing from three corporate venturing investors. Car components manufacturer Denso and car maker Toyota committed jointly $667m, while the SoftBank Vision Fund provided the remaining $333m. The round reportedly valued Uber ATG at $7.25bn post-money. Uber ATG is a subsidiary of Uber’s which is developing autonomous vehicle technologies including sensors and systems geared with object perception, motion and prediction planning, mapping as well as data visualisation technology.
UK-based supply chain financing provider Greensill received $800m in funding from the SoftBank Vision Fund. The transaction reportedly valued Greensill at $3.5bn, more than doubling its previous valuation of $1.64bn in 2018. The Vision Fund also obtained board seats as part of the deal. Founded in 2011, Greensill provides supply chain finance to clients in North America, Europe, Africa and Asia, working with financial services firms and institutional investors to supply capital. Greensill has extended more than $60bn in financing to date, covering more than 8 million clients across 60 countries. It also owns Germany-based commercial lender Greensill Bank, having acquired and rebranded financial services firm NordFinanz Bank in 2014.
China-based facial recognition software provider Megvii received $750m in series E funding from investors including e-commerce group Alibaba at a valuation of more than $4bn. The round was led by a $200m investment from Bank of China Group Investment, the private equity arm of state-owned financial services firm Bank of China. Investment banking firm Macquarie Group, sovereign wealth fund Abu Dhabi Investment Authority and ICBC Asset Management, a division of financial services firm Industrial and Commercial Bank of China, filled out the investors. Megvii provides a software platform known as Face++ which uses artificial intelligence technology to identify faces, people and objects. The technology is used in consumer devices and retail.
Exits
GCV Analytics tracked 72 corporate-related exits during the second quarter of 2019, including 41 acquisitions and 31 initial public offerings (IPOs), including the long-awaited IPOs of ride hailing service providers Uber and Lyft.
Top exiting corporates this quarter include technology and internet companies like Alphabet, real estate investment trust Alexandria and financial services firm Goldman Sachs which reported at least five exits each.
The total estimated amount of exited capital in Q2 2019 was $21.84bn, considerably higher than the $14.84bn in Q1 but significantly lower than the figure from the same quarter last year ($34.33bn). The top four recorded exits stood above the $1bn mark.
Uber, the US-based on-demand ride service backed by a range of corporate investors, raised $8.1bn when it floated on the New York Stock Exchange. The company priced 180 million shares at $45.00 each, near the foot of the $44 to $50 range it had set. It was the largest public offering since Alibaba raised $25bn in 2014, and valued the company at $82.4bn. Digital payment services firm PayPal bought an additional $500m of shares through a private placement. Uber´s previous corporate backers include SoftBank, carmaker Toyota, its China-based peer Didi Chuxing, software provider Microsoft, internet company Baidu, media groups Axel Springer and Bennett Coleman & Co, as well as GV, a corporate venturing subsidiary of Alphabet. Founded in 2009, Uber operates a ride hailing platform with 91 million monthly active users that ties into adjacent services such as food and freight delivery.
Internet technology provider Google agreed to pay $2.6bn to acquire Looker, a US-based data analytics technology provider backed by CapitalG, Alphabet’s corporate venturing unit formerly known as Google Capital. Looker has built a platform that can take business intelligence data from a range of sources and use a proprietary data modelling code language to unify it, allowing it to be used in other applications, analysed together more thoroughly and more easily shared. The company’s technology will be added to Google’s cloud computing services provider, Google Cloud, expanding the breadth of its business analytics capabilities.
Pinterest, the US-based social media platform backed by e-commerce firm Rakuten, raised $1.43bn when it floated on the New York Stock Exchange. The company priced 75 million shares at $19.00 each, above the $15 to $17 range it had set earlier, giving it a reported market cap of $12.6bn. Founded in 2009, Pinterest runs an online platform with more than 250 million monthly active users where people can post and share images they like with each other. It initially concentrated on building user numbers but has ramped up advertising revenue in recent years.
Harry’s, a US-based razor retailer backed by beauty product distributor Grace Beauty, agreed to an acquisition by consumer products supplier Edgewell Personal Care for $1.37bn. Edgewell agreed to pay approximately 79% of the amount in cash and the remainder in common stock. Harry’s shareholders will own approximately 11% in Edgewell following the transaction. Founded in 2013, Harry’s runs an online platform that sells men’s grooming products, including razors, shaving cream and post-shave balm as well as face wash and lotion, on top of accessories such as razor stands and wash bags. Customers sign up for a subscription service and regularly receive blades and shaving gel, selecting a frequency of every two months to every five months.
Tilos Therapeutics, a US-based biopharmaceutical company established by pharmaceutical firm Boehringer Ingelheim and hospital network Partners HealthCare, was acquired for up to $773m by pharmaceutical group Merck & Co. Merck will, through an unnamed subsidiary, purchase all outstanding shares in Tilos and make an upfront payment, with additional contingent milestone payments. Other details on the size were not disclosed. Tilos is developing treatments targeting TGFβ, a small protein that plays a crucial role in immune and stem cell regulation. It is hoping to develop antibodies aimed at cancer, fibrosis and autoimmune diseases. The company was co-founded by Boehringer Ingelheim’s corporate venturing subsidiary, Boehringer Ingelheim Venture Fund, and Partners Innovation Fund, the strategic investment arm of Partners HealthCare, in 2016.
Funding initiatives
Corporate venturers supported a total of 79 fundraising initiatives in the second quarter of 2019, comparable to the 76 initiatives reported during the same period in 2018. The estimated total capital raised, $6.42bn, however, was considerably lower (28%) than last year’s Q2 figure of $8.89bn.
The initiatives in question included 49 announced, open and closed VC funds with corporate limited partners (LPs), 16 newly launched corporate venturing units, eight corporate-backed accelerators and three incubators, among other.
Germany-based public-private partnership High-Tech Gründerfonds (HTGF) closed its third corporate-backed fund at $375m after securing €3m ($3.5m) from the co-founders of backpack and fashion label Fond Of. Founded in 2005, HTGF backs early-stage startups and typically provides up to $3.5m per portfolio company, though it has the option to supply more capital to particularly promising opportunities. It has backed more than 540 startups to date and celebrated more than 100 exits. The partnership has been investing from its third fund since achieving an initial $275m close in mid-2017. Its LPs include 32 corporate backers as well as Fraunhofer Society, development bank KfW and Germany’s Federal Ministry for Economic Affairs and Energy. Corporates backers include Boehringer Ingelheim Venture Fund, pharmaceuticals and chemicals producer Bayer, maritime industry group Wilh and conglomerate Werhahn, among many other.
Cathay Innovation, the venture capital arm of France-based private equity firm Cathay Capital, reached a €320m ($358m) first close of a €500m fund, securing capital from several corporates. The LPs include hospitality chain Accor, airport operator ADP, biotech firm BioMérieux, diversified conglomerate Dassault, outdoor advertising company JCDecaux, luxury goods producer Kering, appliance maker SEB, tire manufacturer Michelin, alcoholic beverage producer Pernod Richard and automotive components supplier Valeo. French government-owned investment bank BPIfrance also threw its weight behind the fund. Cathay Innovation was established in 2015 to invest in startups based in Europe, North America and China, supporting portfolio companies through multiple rounds. The venture capital operation has grown to 30 staff across offices the cities of Paris, San Francisco, Beijing and Shanghai.
DTCP, the investment arm of Germany-based telecoms firm Deutsche Telekom formerly known as Deutsche Telekom Capital Partners, secured external investors for a $350m fund. The corporate launched its first fund in 2014 as a successor to T-Venture, its corporate venture capital arm since 1998, supplying $140m to take the total provided by Deutsche Telekom across various funds to $620m at the time. South Korea-based telecoms firm SK Telecom and optical systems producer Zeiss are LPs in the new fund, as are private equity firm HarbourVest Partners and investment manager Neuberger Berman. The new fund will invest at growth stage, providing $5m to $50m in funding to enterprise software developers operating in areas like 5G technology, the internet of things, cloud and network infrastructure, artificial intelligence, cybersecurity and marketing. It will also invest in other funds.
Japan-based venture capital firm Globis Capital Partners unveiled a ¥36bn ($321m) first close for its sixth fund, with commitments from various LPs including insurance provider Sompo Japan Nipponkoa Insurance. Tokio Marine Asset Management, the investment management arm of insurance firm Tokio Marine, also backed the fund, dubbed Globis Fund VI, as has financial holding company Sumitomo Trust through its Japan Vintage Fund 2019. Financial services firms Sumitomo Mitsui Banking Corporation and Bank of Yokohama are also among the LPs, as are the state-owned financial institution Development Bank of Japan and small business services provider Organisation for Small and Medium Enterprises and Regional Innovation, Japan. The Globis Fund VI has a $335m target size. Institutional investors are expected to make up 80% of the fund’s LPs. The fund will invest up to $45m in each portfolio company and has set a goal of supporting seed-stage companies all the way through to the unicorn stage when they achieve a $1bn valuation. Globis Fund VI will focus on technologies such as artificial intelligence, the internet of things and blockchain, and will also offer assistance with management development and staff recruitment.
Canada-based investment firm Northleaf Capital Partners closed its latest fund at its C$300m ($223m) hard cap with the help of several corporate LPs. Northleaf Venture Catalyst Fund II reached its final close following commitments from insurance provider Manulife and BMO Capital Partners, the private equity arm of the Bank of Montreal, as well as high net worth individuals and undisclosed family offices. The new capital added to a December 2018 initial close that featured insurance and asset management group Sun Life, financial services firm Toronto-Dominion Bank, Canada Pension Plan Investment Board and BDC Capital, the VC investment arm of the state-backed Business Development Bank of Canada. A minimum of 80% of the fund’s capital will be invested in Canada-based VC and growth-oriented funds, with up to 20% mandated to funds based outside the country. Up to 25% will be set aside for direct investments, of which 80% will be allocated to Canada-based companies. Founded in 2009, Northleaf manages more than $12bn in venture capital, private equity, private credit and infrastructure commitments.
JD Logistics, the logistics services provider spun off by China-based e-commerce group JD.com, raised RMB1.5bn ($218m) or a strategic investment fund. JD Logistics and JD.com itself are among the 0LPs, along with several undisclosed public companies and government-led fund. The vehicle will focus on the logistics sector and will complement JD.com’s existing investment team, which has a remit to invest in a wider array of industries. The entity also adds to a fund launched by JD.com’s property management arm in partnership with Singapore’s sovereign wealth fund, GIC, which had secured $698m as of February. JD Logistics was spun off in 2017, when it began offering its delivery and warehousing services to external clients.
China-based retail group Suning agreed to provide up to $210m for a fund being raised by China-based private equity firm Yunfeng Capital with a $2.5bn target. Suning will provide the money through a wholly-owned subsidiary known as Suning International, and has already committed more than 61.4% of the capital. The fund, Yunfeng Investment III, will seek additional LPs as it looks to reach its target. Founded in 1990, Suning is the biggest retail store operator in China. It specialises in consumer electronics and household appliances as well as office equipment, and operates both brick-and-mortar stores and an e-commerce platform. Suning previously partnered Yunfeng, which was co-founded by Alibaba’s founder, Jack Ma, for a separate vehicle called Yunfeng IK Co-Invest in January 2019, committing $50m to that fund.
Investment manager Reliance Nippon Life Asset Management (RNAM) will manage a $187m fund of funds, backed by several Japan and India-based corporates. The LPs for the vehicle, dubbed Indo-Japan Emerging Technology & Innovation, include insurance firm Nippon Life, automotive manufacturer Suzuki, financial services firm Mizuho Bank and state-owned financial institution Development Bank of Japan. RNAM is promoted by Japan-based Nippon Life and Reliance Capital, the financial services arm of India-headquartered conglomerate Reliance Group. It holds 85.8% of the fund’s share capital. Indo-Japan Emerging Technology & Innovation is intended to invest in 15 to 25 India-focused venture capital funds, with the resulting capital eventually boosting sectors such as the internet-of-things, artificial intelligence, business-to-business software and robotics technology.
Japan-based investment firm Signifiant harnessed financial services firm Mizuho Financial Group to launch a ¥20bn ($186m) growth investment vehicle dubbed The Fund to back growth-stage companies. Mizuho Capital, the venture capital arm of Mizuho Bank, will own 33.3% of the vehicle while the rest will be held by Signifiant. In addition to providing capital for The Fund, the banking group will look to complement Signifiant’s business development initiatives through its consumer networks and resources. The Fund intends to invest several billions of yen (¥1bn = $9.3m) in each round to take a minority stake in portfolio companies. It will focus on startups at growth stage prior to their initial public offering and will offer management and financial assistance to achieve smooth and continuous growth once they have gone public. Signifiant will also provide assistance for portfolio companies in executing business and financial strategies, organisational management and governance, while The Fund will offer strategic support.
Japan-based financial services firm Mitsubishi UFJ Financial Group (MUFG) launched a ¥20bn ($180m) fund to focus on financial technology startups in Southeast Asia. The bank already invests through a venture capital arm known as Mitsubishi UFJ Capital, but set up a new unit called MUFG Innovation Partners (MUIP) to oversee strategic fintech investments and the formation of strategic partnerships. The new ¥20bn vehicle will invest in Japan and Southeast Asia, where it will focus on fintech startups that are looking to enter its home country. The fund will also explore more cutting edge technologies such as artificial intelligence, the internet of things and quantum computing.