AAA Venturing activity increases in the first quarter

Venturing activity increases in the first quarter

In the first quarter of 2018, GCV Analytics tracked 625 funding rounds involving corporate venturers, a 3% increase over the 609 rounds recorded in in the first quarter of last year. However, the estimated total investment surged to $34.26bn, 87% higher than the $18.31bn recorded last year.

The US hosted the largest number of funding rounds (274), while China was second with 67 deals, India third with 39, and the UK fourth with 33. The total was 10% higher than the last quarter of 2017, up from 569. Estimated total investment also went up 10% from $31.28bn.

Emerging enterprises from the IT, health, services and financial services sectors proved the most attractive for corporate venturers, accounting for at least 66 deals each. The top funding rounds by size, however, were raised mostly by companies from a variety of sectors. The most active corporate investors came from the financial services, IT, media, consumer and services sectors.

The leading investors by number of deals were diversified internet conglomerate Alphabet, internet company Tencent and telecoms firm SoftBank. The list of corporate venturers involved in the largest deals by size was topped by e-commerce firm Alibaba, along with Tencent and SoftBank.

Deals

Most of the funding from the biggest rounds reported in the first quarter went to emerging enterprises in the transport, consumer and services sectors. Six of the top 10 rounds were above $1bn.

Alibaba bought $3bn of shares in China-based bicycle rental platform Ofo from private investor Allen Zhu. Alibaba reportedly acquired the shares at a $10bn valuation. The stake was probably held by venturing capital firm GSR Ventures, run by Zhu. Founded in 2014, Ofo has developed an app-based bicycle rental platform that had 200 million registered users worldwide at the end of last year. It has 10 million bikes in service across 250 cities in 22 countries.

JD Logistics, a spinoff of China-based e-commerce firm JD.com, received funding from investors including Tencent and insurer China Life in a round that closed at about $2.5bn. JD Logistics was formed by its parent company a year ago out of a logistics operation it had already been running for a decade. It has seven fulfilment centres and more than 400 warehouses, which it claims is the largest fulfilment infrastructure of any China-based e-commerce firm.

Alibaba paid approximately $857m for a 15% stake in China-based furniture retailer Beijing Easyhome Furnishing Chain Store Group as part of a RMB13bn ($2.04bn) funding round. Founded in 1999, EasyHome operates a chain of 223 stores across 29 Chinese provinces and municipalities that sell furniture, home improvement and building materials. It also provides home design and renovation services.

Alibaba committed $2bn to online marketplace Lazada, thus doubling its investment in the company. Alibaba now holds an 83% share. Lazada runs an e-commerce operation spanning Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam with more than 145,000 merchants selling items such as electronics, household goods, fashion, toys and appliances.

Tencent also led a $1bn funding round for China-based social media app Kuaishou, which reportedly valued the latter at $18bn. The round’s other investors included venture capital firm Sequoia Capital China. Kuaishou runs a mobile app which enables users to upload and share photos and videos, and livestream videos to their followers, who can reward them with virtual gifts.

Exits

GCV Analytics tracked 50 corporate-related exits during the first quarter, including 35 acquisitions, 10 initial public offerings (IPOs), two mergers, two business closures and one stake sale. The majority of these transactions took place in the US, China and Europe.

The top exiting corporate was technology and internet company like Alphabet, with nine exits. The total estimated value of exits was $19.52bn – a single transaction accounted for around half of this.

Media and e-commerce firm Naspers sold a HK$76.95 ($9.8bn) stake in Tencent, in which it had invested $32m in 2011. Tencent operates large-scale online services centred on its messaging app, WeChat, which boasts more than a billion users. Naspers had purchased a 46.5% share of Tencent through its $32m investment three years before its initial public offering in Hong Kong, and now holds 33.2%.

Pharmaceutical firm Roche agreed to acquire cancer research technology provider Flatiron Health, paying $1.9bn, thus giving an exit to GV – the corporate venturing unit of Alphabet. At the time of the acquisition, Roche already owned a 12.6% stake in Flatiron. The price for the remaining shares implied a valuation of approximately $2.15bn. Founded in 2012, Flatiron develops an oncology research software platform that stores data from electronic health records. The company works with more than 265 community cancer clinics.

Pharmaceutical firm Lundbeck agreed to acquire Netherlands-based central nervous system disorder therapy developer Prexton Therapeutics for up to €905m ($1.11m), allowing another pharmaceutical company Merck to exit. Lundbeck is to pay €100m up front, with the rest to come in the form of development and sales milestone payments. Founded in 2012, Prexton is developing foliglurax, a small-molecule modulator of a glutamate receptor that could potentially be an oral treatment for Parkinson’s disease.

Pharmaceutical company Sanofi exited cancer treatment developer Impact Biomedicines, which was acquired by fellow pharmaceutical firm Celgene for $1.1bn. Celgene paid $1.1bn up front. However, an additional $6bn in capital may come contingent on specific milestones. Founded in 2016, Impact Biomedicines develops therapies for complex cancers based on fedratinib, an oral small-molecule inhibitor of the JAK2 kinase enzyme, which addresses bone marrow disorders polycythemia vera and myelofibrosis.

Social media company Momo agreed to acquire China-based social engagement platform Tantan for about $760m, allowing media group Bertelsmann and social network operator YY to exit. The transaction consists of $601m in cash and 5.3 million new shares in YY. Tantan runs a social meeting app that operates through a swipe-left-or-right mechanism that can be used to make platonic or romantic connections.

Funding initiatives

Corporate venturers supported a total of 64 fundraising initiatives in the first quarter, down from the 83 reported during the same period in 2017. The estimated total capital raised, $7.07bn, was also considerably lower than last year’s figure of $21.1bn.

The initiatives in question include 44 announced, open and closed VC funds with corporate limited partners, nine new corporate venturing units, seven corporate-backed accelerators and three corporate-backed incubators, among others.

Norwest Venture Partners (NVP), the US-based venture capital firm sponsored by financial services firm Wells Fargo, closed its largest fund yet c at $1.5bn. NVP was originally founded as a VC affiliate of financial services provider Norwest Corporation, before the latter merged with Wells Fargo in 1998. Norwest Venture Partners XIV will invest from seed to late stage in consumer, enterprise and healthcare technology developers. The firm’s previous fund, Norwest Venture Partners XIII, had closed at $1.2bn at the start of 2016.

Automotive manufacturing partnership Renault-Nissan-Mitsubishi launched a corporate venturing fund to invest up to $1bn in startups. Alliance Ventures intends to provide up to $200m per year. The alliance, initially formed when France-based Renault and Japan-headquartered Nissan exchanged equity stakes in 1999, was extended in 2016 when Nissan acquired a 34% share of Japan-based Mitsubishi. The unit will target mobility technologies such as automotive electrification, vehicle connectivity, artificial intelligence and autonomous systems. It intends to invest at all stages of company development as well as incubating new businesses.

China-based fast food chain Zhou Heiya International formed a RMB3bn retail-focused investment fund in partnership with venture capital firm Tiantu Capital. The fund, tentatively named Shenzhen Tiantu Xingnan Innovative Consumption Industry M&A Investment Partnership, was disclosed through a Hong Kong Stock Exchange filing. It will target investments in the “consumption upgrade” and new retail space.

Israel-based social game developer Playtika launched corporate venturing unit Playtika Growth Investments. The vehicle will invest up to $400m, targeting domestic digital entertainment and consumer internet companies, particularly those with annual revenues of $10m or with profitable business models. Founded in 2010, Playtika develops immersive social games and claims to have been the first company to bring free-to-play casino-type games to social networks.

Eight Roads Ventures, a venture capital branch of financial services group Fidelity, launched a $375m third fund aimed at Europe and Israel-based growth-stage companies. ERVE III will be sector-agnostic, but Eight Roads identified enterprise, consumer, financial technology and healthcare IT as areas of particular interest. The vehicle will be managed by its London office, and is expected to make 15 to 20 investments of $10m to $30m each.

B Capital Group, the US-based investment firm sponsored by management consultancy Boston Consulting Group (BCG), closed an oversubscribed venture capital fund at $360m. Founded in 2015 in partnership with BCG, B Capital targets global investments in healthcare, financial and insurance technology, transportation and industrial logistics, and what it refers to as “consumer enablement”. The firm intends to back between 20 and 25 portfolio companies with the fund, and the extra capital will also enable it to make follow-on investments.

Baidu Ventures, the corporate venturing subsidiary of China-based internet group Baidu, closed its second renminbi-denominated fund after raising almost RMB2bn. In addition to capital from Baidu itself, the fund secured commitments from external limited partners. Although their identities were not disclosed, they include industrial firms and a government-owned entity. Baidu Ventures focuses on artificial intelligence and big data technology developers, generally investing between seed and series B stage in China and the US.

Total Energy Ventures (TEV), the corporate venturing subsidiary of oil and gas company Total, agreed to form a RMB1.5bn fund in partnership with two other investors. TEV, private equity firm Cathay Capital and Hubei High Technology Investment Guiding Fund Management, a fund overseen by the local government of the Chinese province of Hubei, committed RMB300m for the fund, while the rest is raised from external partners. Cathay Smart Energy Fund will target China’s new energy sector and will invest in areas such as renewable energy, energy storage, distributed energy, smart energy, internet-connected energy and low-carbon technologies.

Baidu launched a $200m venture capital fund in partnership with Singapore-based mobility and artificial intelligence technology provider Asia Mobility Industries. The Apollo Southeast Asia fund was formed to support Baidu’s autonomous driving software platform, Apollo. It will invest in autonomous driving and smart transportation technology developers. In addition to venture capital investments, the fund will provide capital for advanced mobility research projects, technology exchange and deploying Baidu’s driverless vehicle technologies.

US-based early-stage venture capital firm Aspect Ventures closed its second fund at $181m having raised capital from limited partners including networking equipment manufacturer Cisco. Investment firm Knollwood Investments also committed to the fund, as did Melinda Gates, co-chairwoman of philanthropic organisation Bill & Melinda Gates Foundation. Aspect’s Fund II will invest in early-stage technology startups, following the model of the firm’s $150m Fund I, which targeted sectors such as cybersecurity, digital health, autonomous driving and artificial intelligence.

By Kaloyan Andonov

Kaloyan Andonov is head of analytics at Global Corporate Venturing.

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