GCV Analytics defines the services sector as encompassing education and edtech, accommodation and travel, logistics and supply chain services, human resources and related technologies, real estate, business and legal consulting, classifieds and review platforms, as well as communications (market research) technology, among other services.
GCV reported 156 rounds involving corporate investors from the services sector for the period between January and December 2017. A significant number of those, 64, took place in the US, while 21 were hosted in India and 18 in China.
The majority of these commitments went to emerging enterprises from the same sector (56), with the remainder going into companies from the IT (20), consumer (19), financial (16) and health (15), among others.
On a calendar year-on-year basis, total capital raised in corporate-backed investment rounds went down from $5.14bn in 2016 to $3.17bn in 2017 – a 38% drop. The deal count also fell, decreasing by 12% from 178 deals in 2016 to 156 in 2017.
The 10 largest investments by corporate venturers from the services sector span mostly within services-related businesses.
The leading corporate investors from the services sector were Japan-based human resources company Recruit Holdings, communications company WPP, private education services provider New Oriental Education and Technology as well as business consultancy firm Accenture.
Property developer China Vanke topped the list of services corporates committing in the largest rounds, along with two other companies from the same subsector – property developer Sunac China Holdings and real estate developer CapitaLand. The most active corporate venturers in the emerging services companies were cloud services provider Salesforce, banking services provider Wells Fargo and media and research company International Data Group (IDG).
Overall, corporate investment in emerging services-focused enterprises registered growth from 2016 to 2017 in terms of total capital, although the deal count dropped slightly. According to GCV Analytics data, $15.38bn was invested over 264 rounds in 2017, significantly up from the $10.88bn over 278 deals in 2016.
The subsectors that have driven most of the growth of services since 2014 have been accommodation and travel, human resources and edtech.
Deals
Services corporates invested in a number of large rounds, raised primarily by other service and consumer-focused businesses, mostly China-based real estate and co-working space companies. While there were multimillion transactions, none of the top rounds stood above the $1bn mark.
China Vanke invested RMB3bn ($436m) in Lianjia, an China-based online real estate portal also known as Homelink, through a private placement. Vanke and Lianjia are already partners, having jointly launched home decoration service Wanlian in 2015. Vanke’s investment comes as part of an overall strategy to expand its services to include additional offerings surrounding the second hand property market. Lianjia started off in 2001 as a real estate agency but has grown significantly in recent years as it has developed an extensive property listings platform online.
Earlier, Sunac China Holdings invested RMB2.6bn for a 6.25% stake in Lianjia. Sunac took a board seat as part of the deal and, at the time of the transaction, announced plans to collaborate with Lianjia.
Easy Life Financial Services Holding Group, a financial services spinout of aviation-focused conglomerate HNA Group, received RMB1.9bn in series B-plus funding from a consortium of investors. The investors included CapitaLand, among a host of other investors. Founded in January 2016, Easy Life provides a range of payment services catering to the tourism industry, including foreign currency exchange, traveller’s cheques, tax rebates and prepaid debit cards.
China-based co-working space provider URWork closed a $178m pre-series C round co-led by diversified conglomerate Aikang Group, real estate developer Beijing Land Capital and media company Star Group. Investment firm Prosperity Holdings also co-led the round. URWork, also raised $58m from undisclosed investors earlier in 2017, as reported by Bloomberg. Founded in 2015, URWork operates 88 co-working spaces in 22 cities across China, and in Taiwan, London and New York. URWork was founded by Mao Daqing, formerly a vice-president of China Vanke.
US-based home security technology developer Ring secured $109m in debt and equity financing from investors including real estate firm JF Shea, mobile semiconductor producer Qualcomm and insurance firm American Family. Qualcomm and JF Shea invested through their respective corporate venturing units, Qualcomm Ventures and Shea Ventures, in the series D equity portion of the round, while Silicon Valley Bank supplied the debt portion. Ring develops a video-based doorbell that allows residents to see who is at their door before answering, but it has added other cameras to its product range together with accessories such as a small solar panel to power the system and a tool that enhances the sound of alerts.
Italy-based wireless broadband service provider Linkem secured €100m ($106m) in a round that included diversified holding group and existing investor Leucadia National Corporation. Financial services firm Cowen Group also participated in the round alongside funds managed by asset manager BlackRock on behalf of its clients, among other backers. Founded in 2001, Linkem provides an ultrabroadband fixed wireless network service to more than 400,000 subscribers across Italy.
US-based conversational intelligence technology developer SoundHound secured $75m in funding from investors including subsidiaries of human resources provider Recruit Holdings, electronics manufacturer Samsung and graphics technology provider Nvidia – Recruit Strategic Investments, the Samsung Catalyst Fund and Nvidia GPU Ventures respectively – among other investors. SoundHound develops a technology based on its Houndify artificial intelligence platform, which enables connected products to convert sounds into actionable processes.
US-based physical storage service Clutter closed a $64m series C round. The transaction featured real estate technology-focused VC firm Fifth Wall Ventures, which is backed by a host of corporates, including real estate services provider CBRE, real estate and warehouse logistics company Prologis, house builder Lennar, office space developer Hines, apartment owner Equity Residential, real estate investment trusts Macerich and Host Hotels & Resorts and Lowe’s Ventures, the venturing arm of home improvement retailer Lowe’s. The round also featured GV, the corporate venturing unit formerly known as Google Ventures. Founded in 2015, Clutter operates a service for users to store physical possessions on demand. Users can arrange the collection or delivery of selected goods using an app.
India-based healthcare appointment booking platform Practo raised $55m in series D capital from a consortium, featuring Recruit Strategic Investments. The round was led by internet company Tencent, which was joined by Capital G, the growth equity arm of diversified conglomerate Alphabet. Established in 2008, Practo has developed an online software for doctors and healthcare providers such as hospitals to conduct online consultations and manage appointments and health records.
There were other interesting deals in emerging services-focused companies that received financial backing from the corporate investors of other sectors.
Telecoms firm SoftBank and its SoftBank Vision Fund invested a total of $4.4bn in US-based working space operator WeWork. The two will pay $3bn to acquire a mixture of primary and secondary shares, and will provide $1.4bn in funding for three new regional WeWork subsidiaries in Asia. WeWork did not disclosed which investors sold shares through the deal. Founded in 2010, WeWork oversees a network of 160 co-working spaces, stretching across 50 cities in 16 countries.
This was not the only financial injection into WeWork last year. A month previously, WeWork raised $500m from SoftBank and private equity firm Hony Capital for its new China-based subsidiary WeWork China. Earlier, in March, SoftBank committed $300m at a $17bn valuation in a series F round, according to the Wall Street Journal. Hotel operator Shanghai Jin Jiang International Hotels, conglomerate Legend Holdings and Hony Capital, the private equity arm backed by Legend, also participated in that round.
US-based short-term accommodation marketplace Airbnb closed a $1bn series F round that, according to reports, featured Alphabet. Airbnb did not disclosed the identity of investors in the round, which numbered 40, according to a regulatory filing, and valued the company at $31bn. Airbnb runs an online and mobile platform that enables users to lease or rent properties over short periods, with the company taking a cut of the payment. It has since expanded into local tourism services under the Experiences banner, as well as travel booking.
E-commerce group Alibaba agreed to pay RMB5.3bn to raise its stake in China-based logistics affiliate Cainiao Smart Logistics Network from 47% to 51%. Cainiao was originally formed in 2013 by Alibaba, which held a 48% stake at the time of its formation, together with diversified conglomerate Fosun and retail chain Intime Retail Group. The company operates a logistics platform that coordinates delivery and warehousing for e-commerce operators, including Alibaba, and uses third-party partners to fulfil the groundwork.
The Softbank Vision Fund invested $450m in US-based online real estate transaction platform Compass. The funding, which followed the company’s entry into the Chicago property market, will support an expansion into every major US city. Founded in 2012, Compass runs a luxury real estate brokerage that spans 30 US cities, and which operates using proprietary technology intended to simplify the property buying and selling process.
Online travel services provider Expedia committed $350m to Indonesia-based travel and accommodation booking platform Traveloka. The $500m total consisted of two rounds, and the rest of the funding was supplied by e-commerce firm JD.com, hedge fund manager Hillhouse Capital and venture capital firms East Ventures and Sequoia Capital. Traveloka had not previously disclosed other capital. Founded in 2012, Traveloka provides travel booking services for customers in Indonesia, Thailand, Vietnam, Malaysia, Singapore and the Philippines.
China-based holiday home rental marketplace Tujia.com secured $300m in a funding round co-led by online travel agency Ctrip and investment fund All-Stars Investment. The deal valued Tujia at more than $1.5bn. Founded in 2011, Tujia operates an online platform that enables users to rent out their homes to each other for short-term stays.
Exits
Corporate venturers from the services sector completed nine exits between January and December 2017 – eight acquisitions and one merger. These figures were a sharp and significant decrease from the 22 transactions recorded in 2016. The estimated value of exits dropped to $805m, from $906m the previous year.
The table shows the four reported exits, arranged by transaction size, in which services-focused corporate venturers are investors that are either exiting or acquiring the business.
Enterprise software provider Sage Group agreed to acquire US-based financial management software provider Intacct in an $850m deal, enabling payment services provider American Express and professional services firm Deloitte to exit. Founded in 1999, Intacct has built a cloud-based platform for enterprises that incorporates cash, inventory, contract and vendor management as well as accounting, purchasing, financial consolidation, revenue recognition, subscription billing, financial reporting and project and fund accounting.
Supply chain management company E2open acquired US-based business planning software provider Steelwedge in an all-share deal that gave property developer JF Shea an exit. E2Open provides software that helps companies operate their supply chain networks. Founded in 2000, Steelwedge has built a software platform that combines elements including product, sales, supply and demand, strategy, operations and finances in a single place, enabling businesses to put together plans spanning multiple markets.
France-based courier service Stuart was acquired by GeoPost, a subsidiary of mail and logistics services provider La Poste, for an undisclosed sum. Founded in 2015, Stuart operates a last-mile delivery service aimed at a vast range of sectors from retailers to restaurants. Its platform can be integrated into a business’s existing checkout infrastructure to offer real-time tracking. The company’s network of independent couriers uses a variety of vehicles, including bicycles, cargo bikes, mopeds and cars. Nearly 90% of deliveries are made on foot or by bike.
URWork agreed to merge with competitor and incubator New Space. The deal created a company with a valuation of RMB9bn. URWork runs a network of shared working spaces and also provides services such as marketing, accounting and human resources to startups. Founded in 2015, New Space runs its own working spaces and also supplies incubation and fundraising services to startups.
Cloud infrastructure technology producer VMware acquired Apteligent, a US-based provider of mobile app performance management software, for an undisclosed sum, allowing the subsidiaries of corporates Alphabet, Accenture and online service provider AOL to exit. Founded as Crittercism, Apteligent has built a software platform that enables developers to monitor app performance and user behaviour in real time.
Media and market research data provider Nielsen acquired one of its portfolio companies, vBrand, the Israel-based creator of a data analytics platform for sports media, for an undisclosed amount. The deal means vBrand and its machine learning technology, which uses image recognition to track the impact and reach of sports sponsorship across television and online media, will be incorporated into the Nielsen sports division. The company was a graduate of Nielsen’s incubator, Nielsen Innovate, which the corporate launched in Israel in 2013 with $25m in funding.
Investment firm Vista Equity Partners agreed to acquire Applause, a US-based digital brand services provider backed by Accenture, for an undisclosed amount. Originally known as UTest, Applause uses a software platform and a 300,000-strong network of what it calls on-demand digital experience experts to help brands ensure their websites, apps, internet-of-things products and in-store customer service are high quality. The service means clients can use a combination of digital testing, user feedback and market intelligence to determine whether new software or products will be received well by customers.
Lock manufactuer Assa Abloy agreed to acquire US-based smart lock producer August Home for an undisclosed amount, enabling eight corporates to exits: energy supplier AGL, talent agency Creative Artists Agency, mass media group Comcast, insurance firm Liberty Mutual, chipmaker Qualcomm, data storage provider SanDisk and telecoms groups KDDI and SingTel. Founded in 2013, August Home provides smart locks allowing users to control access to their homes through their mobile devices. The company’s products are compatible with Google Home, Amazon Alexa, Apple HomeKit and other smart home hubs.
China-based online travel agency Ctrip acquired US-based travel planning platform Trip.com for an undisclosed amount, providing an exit for online travel services provider Expedia. Originally known as Gogobot.com, Trip.com offers travellers personalised recommendations for places to eat, stay and visit using predictive intelligence that takes into account various factors including location and weather. Users can book hotels, restaurants and event tickets based on the platform’s recommendations.
GCV also reported exits of emerging services-related enterprises that involved corporate investors from other sectors, most notably the telecoms, consumer and IT sectors.
Best Logistics, a China-based logistics service backed by e-commerce group Alibaba, raised $450m in an IPO in the US. The company priced 45 million American depositary shares on the New York Stock Exchange at $10 each, at the foot of the $10 to $11 range it had set. Alibaba had considered buying up to $150m of shares in the IPO but did not ultimately do so. Best Logistics provides supply chain services such as warehousing and last-mile package delivery through third-party affiliates which use its technology platform. It serves more than 500 corporate customers as well as a range of small and medium-sized businesses.
Despegar, an Argentina-based travel and accommodation booking marketplace backed by Expedia, raised $332m in an IPO on the New York Stock Exchange. The company issued almost 12.8 million shares at the top of the $23 to $26 range it had set earlier. Founded in 1999, Despegar runs an online platform that sells flights, holiday accommodation package holidays on behalf of third parties. Even though the platform, known as Decolar in Brazil, was responsible for $3.3bn in bookings in 2016, and Despegar made a $17.8m net loss that year from $411m in revenue.
Consumer internet group Sea invested $64m to acquire an 82% stake in Foody, a Vietnam-based online restaurant listings platform that counts internet company CyberAgent as an investor. Sea’s acquisition of a majority stake in a Vietnam-based restaurant booking and food ordering platform was revealed in the filing for its IPO, though the details of the deal were obtained from a source. Founded in 2012, Foody operates a local discovery service that helps users find nearby restaurants, cafés and take-away outlets, allowing consumers to order food from, and leave reviews about the establishments.
Housing.com, an India-based real estate listings portal backed by SoftBank, was merged with competitor PropTiger in an all-share deal for $55m. Housing.com was valued at $70m to $75m in the deal, while PropTiger was valued at $200m to $210m. The deal follows a six-month endeavour by Housing.com’s owner Locon Solutions and its lead investor SoftBank to find a suitable buyer. The merged company also received a $50m investment from Rea Group, a real estate advertising company owned by mass media conglomerate News Corp, and $5m from SoftBank. Housing.com runs an online realty portal that has listed millions of properties since it was launched.
Communications technology producer Motorola Solutions exited US-based gunfire detection and analysis technology producer Shotspotter in a $30.8m IPO on Nasdaq. The company issued 2.8 million shares at $11 each, in the middle of the $10 to $12 range it had set earlier. Its shares closed at $13.86 on its first day of trading. Shotspotter provides gunshot detection and location technology to law enforcement and security services through a software-based subscription model. The system combines cloud software with internet-connected sensors and communication networks.
Online classifieds company Quikr acquired home services start-up Zimmber for about $10m in an all-stock deal. The transaction was part of a series of acquisitions made by India-based unicorn Quick last year in the home services vertical. Zimmber was previously backed by IDG Ventures India, the local venturing subsidiary of International Data Group (IDG). Founded in 2014, Zimmber operates an online marketplace for home repairs designed to offer trusted home services. The company currently handles jobs like bike, car and sofa cleaning, handyman services as well as appliance repairs.
Second Century Ventures, the venture capital arm of trade association the National Association of Realtors, exited referral management platform Reach150 in an acquisition by marketing technology producer SmartZip Analytics for an undisclosed amount. SmartZip, a developer of predictive marketing technology for the real estate industry, will integrate Reach150’s technology into its SmartTargeting software. Reach150 has built a referral management platform that generates online advertising through an app that can request, review and publish recommendations from past clients.
Rover, a US-based dogsitting service provider backed by pet products retailer Petco, joined forces with DogVacay, a US-based online and mobile petsitting platform. The two companies hope the deal will help them accelerate international expansion efforts. Founded in 2012, DogVacay enables owners to book a stay for their pet with a host while they are out of town. Rover operates an online marketplace for owners to book dog sitters and walkers, allowing owners to track activity and see photos of their pet through an app.
PetCoach, the US-based petcare services platform backed by mass media group Comcast, was acquired by pet product retailer Petco for an undisclosed amount. PetCoach operates a platform that enables animal owners to connect with certified vets, pet nutrionists, trainers and groomers to receive personalised advice on improving the welfare of their pet. Brock Weatherup, co-founder and chief executive of PetCoach, will join Petco as executive vice-president for strategic innovation and digital experience.
Wanderful Media, a US-based deal finding platform backed by a host of media companies, was acquired by advertising technology producer OwnLocal for an undisclosed sum. The companies shareholders were Advance Digital, AH Belo, Community Newspaper Holdings, Cox Media, EW Scripps, Gannett, GateHouse Media, Graham Holdings, Hearst, Lee Enterprises, MediaNews and McClatchy Company. Founded in 2011, Wanderful operates a platform called Find&Save that allows users to browse deals and coupons from local newspapers, retailers and other sources through Wanderful’s website and app.
Funds
Through 2017, corporate venturers and corporate-backed VC firms investing in the services sector secured over $3.67bn in capital via 27 funding initiatives, which included 18 corporate-backed VC funds, two new venturing units, four accelerators and two incubators. On a calendar year-to-year basis, the number of initiatives decreased, from 32 in 2016 to 27 last year. Total capital also went down from $4.44bn to $3.67bn over the same period.
China-based consumer electronics producer Xiaomi is set to invest up to $1bn in 100 India-based startups over the next five years. Xiaomi joined forces with its venture capital affiliate Shunwei Capital as it seeks to build an ecosystem of mobile apps around its smartphones. Its investments will focus on manufacturing, entertainment content, fintech and hyperlocal services such as phone repairs. The corporate, which entered India in 2014, hopes the investments will help create more loyalty among Indian users.
Germany-based e-commerce and online services holding company Rocket Internet closed its dedicated venture capital fund, Rocket Internet Capital Partners (RICP), at $1bn. The final close represented RICP’s hard cap, and Rocket Internet has claimed it is the largest internet-focused fund in Europe. RICP will target online companies in sectors including marketplaces, e-commerce, financial technology, software and travel services.
New Oriental Education and Technology announced plans to form a RMB2bn fund to invest in startups. The early-stage fund will be created alongside a $1.52bn fund that will focus on growth-stage investments and merger and acquisition deals. Both vehicles will concentrate on companies in the education sector and will seek opportunities across the globe. The corporate intends to leverage its resources to help scale portfolio businesses, and is particularly keen on companies that exploit artificial intelligence to generate new education technologies and services.
China-based local services platform Meituan-Dianping formed a RMB3bn venture capital fund that will invest in the consumer internet sector. The firm was formed in late 2015 by the merger of group buying specialist Meituan and local listings and reviews platform Dianping in a deal worth $15bn. The merged business raised another $3.3bn in a January 2016 round featuring internet group Tencent. Meituan-Dianping intends to initially raise RMB1.5bn for the fund, and in addition to providing capital itself, is set to secure finance from Tencent and agribusiness New Hope Group. The fund will invest in companies operating in the hotel and tourism sectors as well as in retail, entertainment, food and beverage, in an attempt to build out an ecosystem around Meituan-Dianping’s offering.
US-based venture capital firm Fifth Wall Ventures was launched with $212m from a syndicate of limited partners that includes several corporates, and will invest in real estate technology developers. Fifth Wall’s anchor investors are real estate services provider CBRE, real estate and warehouse logistics company Prologis, house builder Lennar, office space developer Hines, apartment owner Equity Residential and real estate investment trusts Macerich and Host Hotels & Resorts. Home improvement retailer Lowe’s is also an investor, as is real estate holding company Rudin Management Company. Fifth Wall is concentrating on technologies that feed into what it calls the “built world”, an ecosystem of companies that own and operate space, as well as those developing technologies that can modify and innovate how that space is accessed and used.
Korea-based consumer electronics producer Samsung launched the $150m Samsung Next Fund to invest in early-stage advanced software and services startups. The fund will be overseen by Samsung Next, the open innovation division formerly known as Samsung Global Innovation Centre, which has offices in San Francisco and Mountain View in California, as well as New York, South Korea and Israel. Samsung Next Fund will back startups at seed to series B stage, and is targeting technologies including virtual reality, artificial intelligence and the internet of things.
Germany-based venture capital firm Project A closed a €140m ($148m) early-stage fund with contributions from several domestic corporates: retailer Otto Group, broadcaster ProSiebenSat.1, diversified holding company Franz Haniel & Cie, games and toy maker Ravensburger, food producer Dr Oetker and publishers Axel Springer and Gruner & Jahr are all limited partners in the fund. The European Investment Fund is also cornerstone investor in the fund. Project A targets the human resources, fintech, insurance technology, property technology and industry 4.0 sectors.
France-based venture capital firm Elaia Partners reached the first close of its latest fourth fund, having raised €115m from limited partners (LPs) including real estate services provider Nexity and energy utility EDF. Elaia Delta Fund’s other LPs include airport operator Groupe ADP, insurance firm Mgen and financial services firms Bred Banque Populaire and BNP Paribas, as well as state-owned investment bank BPIfrance and the multilateral European Investment Fund. Elaia Partners IV will focus on Europe-based, early-stage companies developing digital technologies in the business-to-business or business-to-business-to-consumer spaces.
China-based venture capital firm YI Capital closed a first fund at RMB800m after securing home appliance manufacturer Joyoung as a limited partner. Joyoung was joined by national industrial guidance fund Zhongjin Qiyuan and Citic Industrial Fund of Funds, part of alternative investment management firm Citic, as well as additional publicly-listed companies and state-owned guidance funds. Founded in 2014, YI focuses on online and IT technologies that will enable traditional industrial companies to upgrade. In particular, the firm is looking to back industrial internet startups that will participate in the accommodation, transport and financial services industries as well as those providing other traditionally offline-based services.
Singapore-based venture capital firm Prestellar Ventures raised $100m for a fund that counts Nepal-headquartered conglomerates CG Corp Global and NE Group as general partners. The fund’s other GPs are India-based microfinance provider Satin Creditcare and Mauritius-registered private equity firm Frontline Strategy. Prestellar will invest in startups operating in the hospitality, consumer, financial services and rural product and services sectors, and is targeting deals in India, Sri Lanka, Bangladesh and Nepal in South Asia, as well as in Southeast Asia.
People
David Harris Kolada left OpenText, the enterprise software producer whose corporate venturing activities he led, to form venture capital advisory firm DHK Ventures. Kolada was hired by OpenText from cleanech fund Sustainable Development Technology Canada in 2015 as vice-president of venture capital, and he oversaw direct CVC deals as well as fund-of-funds investments. Further details of DHK Ventures were not disclosed.
Brian Walsh, short-lived head of Japan-based Konica Minolta’s innovation strategy and new venture development efforts for North America, joined management consultant McKinsey’s New Ventures Fast Growth Tech practice. At Konica Minolta’s Business Innovation Centre, Walsh led an investment into robotics startup Knightscope that included a “significant strategic partnership”.
Jeannine Sargent, president of innovation and new ventures at Flex, a US-based logistics services company, became a senior adviser at fund manager Generation Investment Management. Sargent had spent nearly six years at Flex, “responsible for worldwide innovation activities including Innovation labs, global design and engineering, launching new product businesses, the Lab IX technology accelerator, and corporate and venture investments”.
