Market Overview
Global Corporate Venturing recorded 206 investment deals by corporate venturing units worth $4.2bn in the third quarter of 2013. This was down on the second quarter of 2013, when 246 investments worth $5bn were recorded, but a little more in terms of value than the first quarter of 2013, which saw 222 investments worth $4bn. Compared year-on-year, there were 276 investment deals worth $4.3bn in 2012 Q3, so fewer deals this time around, but worth more.
The top sector in the third quarter, for both investments and exits, was IT– in fact, the IT sector totalled more deals than the next four sectors combined (there were 96 IT deals, followed by 27 in Consumer, 25 in Health, 24 in Media and 12 in Industrial). This predominance of IT has been carried through from the previous quarter, when there were 69 IT deals, followed by Health with 47 and Media with 37.
Of course, IT as a categorisation covers a range of sub-sectors, many of which represent new, emerging and rapidly evolving industries in their own right. Furthermore, given the ubiquity of IT, certain companies classified as IT could equally be classified under other primary sectors, such as consumer, health or media. So to see what has really been happening in the IT sector, you need to look at actual deal flow.
On the investment side, there were three IT deals in the top 10: HootSuite (a software company which provides a social network analytics platform for marketing and communications managers), Pure Storage (an all-flash enterprise storage array company) and TOA Technologies (a mobile workforce management software company). On the exit side, there were eight IT deals in the top 10: Virident Systems (an enterprise flash storage company), Whiptail, (a solid state data storage provider), FireEye (a cyber attack protection provider), ScaleIO (provider of scalable server-based storage software), Violin Memory (maker of data storage equipment), Aspect Software (customer service software company), Rocket Fuel (digital advertising platform) and RingCentral (cloud computing based phone systems).
Marketing and advertising technology
HootSuite and Rocket Fuel can both be termed as “marketing and advertising technology” companies, crossing over the IT, media and consumer sectors. Indeed, the mobile advertising technology company MoPub, acquired by social networking service Twitter for an estimated $350m in an all-stock deal seen as a sweetener to Twitter’s IPO, has been classified as “media”, but can be more closely defined as an advertising technology company, alongside HootSuite and Rocket Fuel. HootSuite’s $165m series B funding round also scored as the largest deal ever in Canadian venture capital history for a software company. Other “marketing and advertising technology” companies that have attracted corporate venture capital investment in the third quarter include: Gigya, which provides brands with social login technology ($25m led by Greenspring Associates with participation of Advance Publications); MobileRQ, a mobile app marketing platform ($800,000 led by Verizon Investments); HookLogic, an ecommerce advertising company which operates a bidding exchange for brands to place their products at the top of search results across a network of retail sites ($14.3m led by Intel Capital); Carnival Labs, a mobile marketing platform ($2.4m seed financing round co-led by seed stage venture capital firm Lerer Ventures and angel investor Gary Vaynerchuk, with participation by Google Ventures); Martini Media, a media and advertising company which targets affluent audiences ($14m led by existing investors Reed Elsevier Ventures); Apsalar, a mobile advertising and analytics company ($9m led by venture capital firm DCM, with participation from ThomVest Ventures, the investment vehicle of Peter Thomson, director of media company Thomson Reuters); Collective Media, which offers “brand-driven adaptive advertising” ($20m led by Cox Media Group and including Samsung Ventures); and Olapic, which helps brands collect photos from followers and fans ($5m led by Fung Capital USA).
Storage
Pure Storage, which raised $150m at a valuation of more than $1bn, together with Virident Systems (sold to Western Digital subsidiary HGST for $685m in cash), Whiptail (acquired by Cisco for $415m), ScaleIO (acquired by EMC Corporation for a reputed $200m), and Violin Memory (which floated on the New York Stock Exchange) are all IT deals which represent another extremely active sub-sector: data storage. And there have been many other Q3 funding deals in the data storage sub-sector, backed by corporate venture capital, including: Panzura, provider of cloud storage services (SanDisc revealed in Q3 that it had participated in the $25m raised in June from investors including Chevron); Cleversafe, provider of big data storage technology ($55m led by New Enterprise Associates with participation of Motorola Ventures); Maginatics, provider of enterprise storage systems ($17m led by Intel Capital, with participation from Comcast Ventures and VMware); Scality, a cloud storage software provider ($22m led by Menlo Ventures and Iris Capital); and Tegile Systems, provider of enterprise storage arrays ($35m led by venture capital firm Meritech Capital Partners with participation from Western Digital Capital and SanDisk Ventures). Within this same space, seeking to solve similar problems, there was a Deutsche Börse-led $20m funding round for Zimory, a Germany-based provider of cloud management software (return backers included T-Venture, High-Tech Gruenderfonds); the strategic funding underpins a partnership between Deutsche Börse and Zimory for launching the Deutsche Börse Cloud Exchange (DBCE), allowing enterprises to trade cloud computing capacity as a commodity and scheduled to open for business in the first quarter of 2014.
Cyber-security
FireEye, a cyber-security business that was backed by investors including Juniper Networks, Goldman Sachs and Norwest Venture Partners, launched on Nasdaq in September. Coming at a time of increased sensitivity to the threat of cyber attack, particularly as posed to systemic institutions such as banks, FireEye’s shares kicked in at double their initial public offering price.
And FireEye is not the only cyber-security, IT business to have received corporate backing in this sub-sector, as investment deals in the third quarter show: General Electric invested in ThetaRay, an Israel-based company which provides protection against advanced persistent threats and zero day attacks, so taking “a crucial step in a long and determined series of security efforts to safeguard our products”; Genacast Ventures (a partnership between entrepreneur Gil Beyda and Comcast Ventures) invested $2.2m in Riskive, a US-based cybersecurity software startup which sets out to identify social-based threats to consumers, businesses and governments alike; and Toshiba invested $2m in CyberFlow Analytics, underpinning a strategic alliance to take advantage of an opportunity for “next-gen security applications on large data flows.”
Category-creating companies
The sub-division of sectors can go on. As far even as the two similar software businesses (both US-based) which received corporate venture backing for their efforts in motivating and driving salespeople: LevelEleven, whose lead product is named “Compete”, received $2m in venture funding from Salesforce.com, amongst others; and Objective Logistics, which offers “workforce performance optimization”, raised $5.3m led by venture capital firm Atlas Venture with the participation of Google Ventures.
It may be because investors are looking for companies that are “disruptive”, that there is so much variation within the IT sector. However, there is one venture capital firm, QuestMark Partners, which actually states that it targets “category-creating” companies: in the third quarter, QuestMark joined a host of corporate venturing investors (Intel Capital, Turner Broadcasting System, Interxion and Juniper Networks) to invest $8m in iStreamPlanet. The US-based company is a provider of live streaming video solutions: comparable deals can be found.
See October issue PDF for more.