SoftBank’s Vision expands
It is fair to say no VC investor – corporate or otherwise – has had as big a year as SoftBank Vision Fund’s 2018. The fund expanded from $97.7bn to $98.6bn over the course of the year, and though it is yet to reach that 12-figure targeted close, barely a week went by without it making a large investment of one kind or another.
The most notable of those deals included a $1.1bn investment in dynamic glass supplier View, up to $2.25bn for autonomous driving technology developer Cruise, $2bn for e-commerce platform Coupang and a $3bn commitment to workspace provider WeWork. The fund has also made large investments in the likes of Oyo, OpenDoor, Zymergen, Wag, Zume and Cohesity.
The vehicle is showing no signs of slowing down, making nine-figure investments in flexible car provider Fair and telematics technology provider Cambridge Mobile Telematics last month. It also generated its first big return – an estimated $1.5bn profit on the $2.5bn it invested in Flipkart last year, when Walmart acquired a majority stake in the e-commerce marketplace in August.
None of that is to suggest that it has all been rosy for the Vision Fund. It is still in a growth phase, expanding its team and exploring an entry into the Chinese market, but a pledge of $45bn from Saudi Arabia’s Public Investment Fund for a second fund was called into question by the murder of journalist Jamal Khashoggi in a Saudi consulate in October, and recent news that its limited partners are opposed to a $16bn acquisition of WeWork suggests it may have a harder time of it in 2019.
That is bad news for SoftBank, as the fund’s rapid rate of investment means it may well have to raise a second fund just to ensure it can make follow-on investments in portfolio companies, and it is reportedly already seeking a total of $13bn from two credit facilities. Such is the weight of its current participation in venture funding, a downturn in its activity could end up impacting the tech space as a whole.
IPOs return to prominence
The IPO market had been recovering slowly since late 2016 but in 2018 it really accelerated, with the number of corporate-backed tech IPOs reaching 79 by the end of November, 10 more than the last high point in 2014, generating more than $25bn of proceeds.
Banner offerings included fashion e-commerce platform Farfetch floating in an $885m offering in September, Dropbox becoming the latest enterprise unicorn to go public in an $869m IPO in April, Moderna fetching $604m last month in what was reportedly the largest IPO yet by a biotech company, and music-streaming platform Spotify opting for a direct listing in April, an approach now being considered by several other unicorns.
The US IPO market may have looked good but Hong Kong was really booming, in the wake of new regulations implemented in April allowing companies to sell dual-class shares and non-revenue-generating businesses such as drug developers to float. The largest offering in Hong Kong involved telecoms tower manager China Tower raising $7.5bn, but electronics manufacturer Xiaomi raised $4.7bn in June and local services platform Meituan Dianping secured $4.2bn in September, floating at the top of its range at a $52bn valuation. However, the share price of both are markedly down since their IPOs, and the viability of the Hong Kong Stock Exchange is being questioned by other Chinese companies looking to list.
In addition to straight tech IPOs, SoftBank and Tencent both spun off subsidiaries in lucrative offerings. SoftBank Group’s mobile subsidiary, SoftBank Corp, went public last month in a $24bn IPO that was the second-largest in history – behind Alibaba – while Tencent unit Tencent Music raised $1.1bn when it floated earlier in December.
Right now, however, it looks as if next year could be the biggest yet for tech IPOs, with the likes of Uber, Lyft, Slack, Pinterest and AirBNB among the decacorns that have confidentially filed for an offering, hired banks to oversee a flotation or stated that they have targeted 2019 to go public. The big question is whether the poor performance of the markets in 2018 means they have left it too long.
Crypto grows its presence
Digital currencies and crypto-technology continued to expand in 2018, and one notable development is that companies in the sector have begun to become active corporate venturers themselves.
Cryptocurrency trading platform Coinbase set up Coinbase Ventures in April while another exchange, Binance, committed $1bn to a strategic investment fund in June that was followed by an incubator in August. Both have been among the most active new entrants in the space, but Ripple also began investing, and it feels like almost every time a cryptocurrency or blockchain startup raises funding we see a new operator among the investors.
Corporates began to explore the sector more thoroughly too. Messaging platform Line launched $10m digital token fund Unblock Ventures in August, while internet company Kakao took part in a $15m cryptocurrency-only round for hybrid blockchain platform Orbs last month, suggesting this structure may become increasingly common.
Initial coin offerings may not have grown to the extent some predicted a year ago, and stablecoin may not be as viable as was expected, but the continued interest in blockchain technology means that in 2019 there may well be some significant rounds to follow the $300m raised by Coinbase in October and the $110m secured by cryptocurrency finance platform operator Circle at a $3bn valuation in May.
Agriculture’s new approach
Farming and agriculture became increasingly important to corporate venturing over the course of the year, as the need for fresh local produce precipitated new models and corporate investors began to dip their toes into funding cannabis startups.
Urban farming first began to emerge properly in 2017, but activity increased this year, as more and more businesses began exploring an approach that involves combining vertical indoor crops with advanced sensor and artificial intelligence technology.
Alphabet investment unit GV led a $90m round for Bowery last month, following earlier investments in meat substitute developers, while BrightFarms doubled its overall funding to $111m in a $55m series D round in July, and InFarm received $25m in a February series A round. Elsewhere in agriculture, plant breeder Cibax filed for a $100m IPO, and crop technology developers Pivot Bio, Benson Hill Biosystems and AgBiome all raised substantial sums. The distribution process also attracted disruption, as farm-to-plate platforms began to spring up, particularly in Asia.
The vertical farming approach owes some debt to the practices pioneered by cannabis growers, and as recreational cannabis becomes legal in more and more locations, and the sector attracts more funding, the question is how long it will take corporate investors – who have been understandably skittish – to get involved.
The answer is likely to mirror activity in the cryptocurrency sector, with the most active corporate participants consisting of the largest players in that industry. The likes of Scythian Biosciences and MJardin may not be immediately familiar to some, but they both took part in deals this year, and may well ramp up their investment activity in 2019. The tobacco industry has also begun to take notice, so be prepared to see companies such as Imperial Brands and Aleria popping up more often in deals.
The new breed of Chinese tech giants emerges
While WeChat owner Tencent, e-commerce firm Alibaba and internet group Baidu remain the largest players in Chinese tech, last year some of their biggest counterparts – and in some cases portfolio companies – accelerated growth and began to make their presence felt in corporate venturing.
Bytedance was already known as the operator of China’s most popular news aggregation app, Toutiao, but some crafty acquisitions – in particular that of Musical.ly – widened its reach into a more diversified digital media company that received $3bn of funding from SoftBank in October at a reported $75bn valuation. Musical.ly was merged with Bytedance’s TikTok short-form video app and became the company’s star attraction, and by December ByteDance had followed investments in companies including 17Zuoye by pledging some $280m for a $1.44bn corporate venturing fund.
Meituan Dianping, meanwhile, went public at a $52bn valuation, floating at the top of its range in Hong Kong in September to raise $4.22bn, $400m of which was a cornerstone investment by shareholder Tencent. Meituan Dianping had already flexed its muscles by paying $2.7bn to acquire bicycle rental service Mobike in April. The subsequent downturn in China’s bike-sharing industry and the decline in Meituan Dianping’s share price – down more than two-thirds from the IPO price – may not be good signs, but the company has the basis for some rapid growth.
China’s increasingly oppressive surveillance society is throwing up some rapidly-growing players, especially in the image recognition sector. SenseTime secured $620m in series C-plus funding at a $4.5bn valuation in May, and was in talks to raise $1bn from the SoftBank Vision Fund in July. By August it had hired Jennifer Xuan Li from Baidu as investment director, having invested in 51HiTech, Helian, Suning Sports and Moviebook last year, subsequently backing a $173m round for internet-of-things technology producer Terminus Technologies in October.
SenseTime’s biggest rival, Megvii, is looking to raise a $500m round that will be closed at an expected $3.5bn valuation. Also known as Face-plus-plus, Megvii has also begun to take part in corporate venturing, investing in retail technology provider XianLife and video-based image recognition technology supplier Video-plus-plus.
Technology drives transport forward
Autonomous driving software continued to progress, as the added corporate interest in 2017 blossomed into some huge rounds. SoftBank invested up to $2.25bn in Cruise in June, Pony AI closed a $214m round in July and Momenta secured a $1bn valuation in October, while lidar sensor developer Quanergy raised funding at a $2bn valuation, and automotive mapping software providers DeepMap, MapAnything and RoboSense all raised cash.
The Renault-Nissan-Mitsubishi partnership unveiled $1bn strategic fund Alliance Ventures in January, shortly before internet group Baidu formed a $200m investment initiative together with mobility and artificial intelligence technology producer Asia Mobility Industries later the same month. Aisin Group, Volvo and Toyoda Gosei also launched autotech funds.
There was growth in trucking services marketplaces. Manbang Group nabbed $1.9bn at a $6.5bn valuation in April and is in talks with Tencent and SoftBank to add $1bn more in a round that will value it at $9bn. Its chief rival, Fuyoukache, raised $170m in a series D round last month, and Convoy and Next Trucking extended the business model to the US, the former notching up $185m in a September series C round, while LetsTransport transplanted the model to India.
Fleet management technology also got a healthy boost, with G7 Networks closing a $320m round backed by Tencent, Total and GLP last month. Telematics technology providers Cambridge Mobile Telematics, TransWiseway and KeepTruckin secured $500m, $102m and $50m respectively.
Advances in autonomous driving also fuelled investment in a new breed of car producers as a raft of smart electric vehicle makers emerged from China to take on Tesla, including Nio, which floated in a $1bn IPO in September, while Xiaopeng Motors secured $348m in January and another $585m in August, Chehejia completed a $475m series B round in March and carmaker FAW invested $260m in Byton in May.
Scooters pick up the slack in on-demand transport
If 2017 was the year bicycle-hiring apps made the pace, last year turned out to be all about electric scooter services, particularly in the US where the bicycle-rental platforms never fully took off.
The big winners were Lime, which raised $335m in a July round led by GV that included on-demand ride provider Uber, and Bird, which had secured $300m at a $2bn valuation a few weeks earlier, in a round that contained no corporate investors.
Even by modern standards, the pace of growth for both has been staggering. Lime closed that round at a $1.1bn valuation just five months after raising $120m in series B funding, and had hired GV’s Joe Kraus as chief operating officer by November. Bird’s valuation rose exceeded its $300m with another $100m round in March, in the process reportedly becoming the fastest independent company to achieve a 10-figure valuation.
As with ride-hailing, the model is extending internationally, with India-based Vogo raising $100m and Europe-focused Dott securing $22.5m in corporate-backed rounds in recent weeks, adding to the $49m received by France-headquartered Cityscoot in February.
It is not clear how viable the model is in the long term, particularly considering the trouble afflicting the bicycle-sharing industry. Ofo raised more than $2bn in 2017 but is reportedly close to collapse after excessive growth and repeated breakage, with some 11 million customers said to be seeking refunds. The higher costs associated with electric scooters could make those operators more vulnerable.
Genomics generates big money
Healthcare had a healthy year, but much of the big money was directed toward genomics-focused companies, and Illumina, which launched its Illumina Ventures unit less than three years ago, proved to be a big winner.
Personal genomics platform developer Helix completed a $200m series B round featuring Illumina and Mayo Clinic in June, and Illumina also invested in Kallyope, which uses genomics technology to target the gut-brain axis, and which closed its own series B round at $87m in December. GlaxoSmithKline invested $300m in personal genetics service 23andme in July, genetic sequencing technology producer Oxford Nanopore Technologies closed a $206m round in October and contract genomics service provider Wuxi NextCode received $200m in November. Others in the sector, including Genomatica, uBiome, Genetron and Singlera Genomics, also raised substantial sums.
An Illumina spinoff, cancer test developer Grail, raised $300m at a $1.6bn valuation in May and had reportedly considered Hong Kong for an IPO before news emerged last month that it had switched its focus to the US markets. Illumina’s largest exit involved Myriad Genetics paying $375m for genetic screening service Counsyl in May.
Elsewhere in healthcare, Flatiron Health scored a huge exit for investors including GV in February, when Roche agreed to acquire it in a deal that valued the cancer research software provider at $2.15bn. Meanwhile, Moderna Therapeutics, the messenger RNA drug developer that closed the largest funding round for a biotech developer in 2015, went public in the largest IPO yet for a biotech company, securing $604m in the process.
