It has been a quiet year for the services sector, perhaps exacerbated by our editorial decision to reposition cloud computing company Salesforce into the IT sector reviewed later in the year – Salesforce was a major player in our look at the services sector last year and would have been represented in seven of the top 10 deals here.
In addition, Global Corporate Venturing perceived no personnel movement in the sector over the past 12 months, though three companies have launched funds.
Among these launches was human resources firm Recruit Holdings’ strategic investment fund HR Technology Fund, which has received a total commitment of ¥2.36bn ($20m). The fund will back human resources technology startups from seed stage to pre-flotation rounds. Previously, Recruit conducted its corporate venturing efforts only through its Recruit Strategic Partners unit.
Meanwhile, human resources firm Slogan and investment fund Coent Venture Partners joined forces to launch a ¥160m ($1.3m) fund that invests $120,000 in seed-stage startups in the human resources sector throughout Southeast Asia. The fund has been dubbed Slogan Coent and is jointly managed by the two partners.
Finally, employment assessment company Aspiring Minds has launched a $1m fund to back educational technology and employment technology startups in India, China and the US. Apart from providing seed capital, the company will also offer advice and help startups access markets.
While corporates in the services sector have been less active than some of their counterparts in other industries, their investments reveal an interesting trend to diversify business models and tap into a wide range of verticals. Here we look at a sample of investments made by services companies in 2015.
Recruit’s largest deal of the year, and one of the biggest to emerge over the past 12 months in the sector, was its acquisition of Germany-based restaurant booking service Quandoo for ¥26.5bn. Recruit previously invested an undisclosed sum in 2014 in return for a 7.1% stake, and the acquisition bought out remaining Quandoo shareholders HV Holtzbrinck Ventures, a VC firm backed by publisher Georg von Holtzbrinck, DN Capital, Piton Capital and Erich Sixt Vermögensverwaltung.
Recruit also backed a $135m series E round for US-based online lending platform Kabbage, valuing the company at $1bn. The human resources firm invested through its Recruit Strategic Partners unit and was joined by logistics firm UPS’ investment arm UPS Strategic Enterprise Fund as well as Reverence Capital Partners, which led the round, and financial services firms Santander, which participated through its Santander InnoVentures unit, ING and Scotiabank, as well as Yuan Capital, BlueRun Ventures and Thomvest Ventures.
Education and publishing company Benesse celebrated an exit when Recruit acquired UK-based learning app developer Quipper for $40m. Quipper had first secured funding from Benesse as part of a $3.6m series A round in 2012, led by Globis Capital Partners and featuring Atomico. Benesse and Atomico also backed a $5.8m series A extension in 2014. Quipper offers quiz-based learning apps.
Outsourcing firm Transcosmos secured an exit alongside digital media company Gree when Singapore-based online cosmetics retailer Luxola was acquired by cosmetics retail chain Sephora for an undisclosed sum that reportedly reached up to $37m. Transcosmos had led a $13m series B round in 2014 with participation from Gree’s investment vehicle Gree Ventures, F&H Fund Management, Global Brain, Tholons Capital and Queensbridge Ventures. Gree had also injected $2m in series A capital in 2013.
Meanwhile, law firm Wilson Sonsini Goodrich and Rosati (WSGR) backed a $9.4m series A round for US-based medical device maker DynoSense. The consultancy joined healthcare services provider Jkom Cloud Health Technology, arguably a more obvious backer, accelerator Plug and Play Tech Centre, VC firm WI Harper and investment firm Jinmao Capital. DynoSense’s flagship product is a handheld scanner that measures up to 33 health metrics within a minute.
WSGR also contributed equity funding to a series F round for Pivot3, a US-based virtual desktop infrastructure technology developer. The round also featured Argonaut Private Equity, S3 Ventures, InterWest Partners and Mesirow Financial Private Equity, while unnamed banks provided the financing.
Pivot3 secured a total of $45m as part of the round, which consisted of both debt financing and equity funding. Pivot3’s infrastructure IT technology is aimed at video surveillance and video-based security sectors as well as disaster recovery and virtual desktops. Existing shareholders include consumer electronics conglomerate Samsung.
Not to be outdone, KPMG Capital, the investment unit of professional services firm, has also focused its corporate venturing efforts on a range of IT startups.
Norse, a US-based cybersecurity network provider, obtained $11.4m in a series A extension led by KPMG Capital, which was joined by a range of unnamed existing backers. Oak Investment Partners had provided the initial $10m series A close in 2013. Norse has created a global early warning system for cyberattacks. The network analyses hundreds of terabytes of traffic across the internet each day, comparing it with a database containing 7,000 terabytes of data on potential threats.
Mark Toon, chief executive of KPMG Capital, said of his firm’s investment in Norse: “KPMG member firms work to find smart, creative and forward-thinking technologies like Norse threat intelligence solutions to help address cybersecurity challenges. Through KPMG Capital’s strategic investment in Norse, we can ensure that clients will benefit from their industry-leading technologies today and in the future.”
KPMG Capital also purchased a majority stake in UK-based data-mining and predictive modelling technology provider Software Development and Research Technology in return for an investment of undisclosed size. KPMG is using the company’s technology to improve its predictive financial analytics tools.
Astrus, a due diligence and monitoring platform, and customer experience management platform Customer Compass also secured capital from KPMG Capital. Both startups were developed internally at the firm.
KPMG Capital had already backed US-based big data analytics company Bottlenose earlier in the year, leading a $13.4m series B round. Origin Ventures, Lerer Ventures, Transmedia Capital, FF Venture Capital and unnamed investors joined the round, which was made up of both equity and debt financing. Bottlenose has developed cloud-based software to analyse social media data in real time to help companies gain insight into trends.
Elsewhere, Apigee, a US-based operator of a mobile app design and development platform, provided an exit to shareholders, including management consultancy firm Accenture, when it completed an $87m initial public offering.
Remaining stakeholders in Apigee include IT technology provider Juniper Networks, Sapphire Ventures, the VC firm backed by software producer SAP, and Norwest Venture Partners, the investment affiliate of financial services firm Wells Fargo, as well as Pine River Capital Management, Wellington Management Company, Bay Partners, Third Point, BlackRock and Focus Ventures.
Finally, Accenture also backed a $42.8m round for US-based cloud-based software developer Vlocity, led by Salesforce Ventures. Vlocity’s range of applications are built on Salesforce’s platform and integrate industry-specific functionalities, enabling best practices and business processes.
In conclusion, and considering the increasing importance of IT products and services across a whole range of industries from healthcare to the consumer market, it is perhaps no surprise that the services sector is keen to gets it share of the pie and invest alongside arguably more obvious corporates, such Juniper or Jkom Cloud Health Technology. It certainly will be interesting to track whether this trend continues throughout 2016, or whether the new funds mentioned above will shift the balance back towards more services-based startups.