E-commerce boosts consumer - McRock Capital boosts consumer. April 2017 I 2 Contents Global Corporate Venturing ... GCV contributing editor Tom Whitehouse’s feature on the flying

April 2017

INSIDEFlying cars vs autonomous vehicles

The power of chatbots

Spotlight on Australia

Quarterly and monthly data reports

E-commerce boosts consumer

April 2017 I 2

Contents

Global Corporate Venturing

Address: 52-54 Southwark Street, London SE1 1UN

Published by Mawsonia Ltd™, all rights reserved, unauthorised copying and distribution prohibited. © 2017

Editor-in-chief: James Mawson Email: [email protected]

Features editor: Nicole Idar Lee Email: [email protected]

News editor: Rob Lavine Email: [email protected]

Reporter: Thierry Heles Email: [email protected]

Chief operating officer: Tim Lafferty Tel: +44 (0) 7792 137133 Email: [email protected]

Production editor: Keith Baldock

Website: www.globalcorporateventuring.com

3 Editorial: Customer choices – the key to innovation

5 News 11 Big deal: NBCUniversal invests $500m in a Snap 12 Big deal: MuleSoft musters $221m in IPO 13 Big deal: Flipkart files away $1bn 14 Big deal: iFlix inflates funding with $90m 14 Analysis: Venture and maturity go hand in hand

16 Interview: Corporate-startup collaboration goes to the Heart Tomasz Rudolf, the Heart

19 Sector focus: E-commerce expansion boosts consumer sector 26 Interview: John Haugen, 301 Inc 27 Interview: Ben Lee, CircleUp

30 New technologies: Flying cars versus autonomous vehicles 32 Interview: Thomas d’Halluin, Airbus Ventures 33 Viewpoint: Jon Lauckner, GM Ventures; Varun Jain, Qualcomm Ventures; Raj Singh, JetBlue Technology Ventures

35 Spotlight on UK innovation 35 Interview: Francesca Wuttke, Merck Global Health Innovation Fund 36 Interview: Paul Morris, UK Department for International Trade VC unit

38 Comment: The product launch fallacy of big consumer packaged goods Ryan Caldbeck, CircleUp

40 Comment: 2017 Startup Outlook Tracy Isacke, Silicon Valley Bank

41 Comment: Embracing innovation means thinking about the future Neal Hill, BDC Capital

42 Comment: Seeding Canada’s VC innovation ecosystem Whitney Rockley and Scott MacDonald, McRock Capital

44 Comment: CVCs back tech investment in the UK and Ireland Stuart McKnight, Ascendant Corporate Finance

46 Comment: Fintech chatbots: are they worth the hype? Jeff Allen, Mastercard

49 Gaule’s Question Time: Bill Taranto, Merck Global Health Innovation Fund

52 University Corner: Touchstone highlights the allure of immunotherapy

53 Government House: Airbnb booking takes CIC beyond infrastructure

54 Innovative region: Australia bolsters triple helix collaboration 57 University venturing in Australia 58 Profile: Reinventure pioneers fintech venturing model

60 Analysis: Last month’s venturing activity

64 Quarterly report

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April 2017 I 3

EDITORIAL

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Why do customers choose to buy one product or service rather than another? Clayton Christensen, the Harvard Business School professor who coined the phrase “disruptive innovation”, believes companies fail because they have neglected this critical question.

In his new book – Competing Against Luck – Christensen argues that in order to innovate effectively, companies must recognise that customers buy a particular product “to get a job done”. The key insight is that customers are not looking for a product – they have a job that needs to be seen to.

For example, if a fast-food restaurant wants to sell more milk shakes, the owner must first understand the nature of the job that has led customers to “hire” that brand of milk shake. Having studied the “job to be done” in the milk shake case, Christensen’s team discovered that customers hired the beverage to perform a specific task depending on the time of day. In the morning, the job was to provide a treat for customers during their morning commute. So to sell more milk shakes in the morning, the restaurant should offer a thicker, more viscous drink that takes longer to consume, to keep customers occupied during a long dull commute, Christensen’s team concluded.

Customer choices – the key to innovation

Nicole Idar Lee, features editor

Startupsector

Investors' sectorIT Financial Media Health Telecoms Services Industrial Consumer

ITHealthConsumerMediaServicesFinancialTransportIndustrialEnergyTelecomsTotal 149

113

10112021471124

1503

212510

433

122445

1771466

16412232

544

2071065

154

1924221092

285

2

22

6263

10

34814

41921488863

685

51739

16268542397597

125

71089

23375467627354

323

Corporate activity in startups

2015

2016

ITHealthConsumerServicesMediaFinancialTransportIndustrialEnergyTelecomsTotal 137

117

10117

1855

720

164732

14162016

81167

1642

193212

737

112744

1831288

112440311048

257

12

3

31

23710

3342168

279948541277

52976

17253056565636

240

553

68

33125

34534791

156

Transport Energy

381

2551

1

14

50222

2614

21

10

492

285

113

18

76131

493

4249


April 2017 I 4

EDITORIAL


Identifying the “job to be done” matters not just for milk shake providers, but for any corporate concerned with innova-tion. This month’s issue of GCV focuses on the consumer sector, which is getting to grips with major disruptions in the type of “jobs” customers want done. Investment professionals who spoke to GCV noted that for today’s consumers of packaged goods, the job to be done is more multi-faceted – “reflect my values as well as taste good and improve my health”, for instance.

Or as Ben Lee, managing director of funds at CircleUp, a US-based investment platform that connects early-stage consumer brands with investors, put it: “Even the act of selecting a household cleaner is now a form of self-expression.” (See interview). The failure to recognise the shift in jobs customers want done in the consumer sector might help to explain why incumbents in the consumer packaged goods sector are los-ing market share.

One way to import innovation could be by investing in emerging enterprises, and according to data from GCV Analytics, consumer CVCs appear to be among the laggards when compared with other sectors, such as services and industrials. The chart on the previous page shows the number of corporate-backed fundraising rounds in 2016 and 2015, separated by sector. Consumer CVCs were involved in the third-lowest number of rounds after energy and transport when compared with other sectors – 137 in 2016, down from 149 in 2015.

GCV contributing editor Tom Whitehouse’s feature on the flying cars versus autonomous ground vehicles debate offers another way of thinking about Christensen’s “jobs to be done” theory (see New technologies). We might be used to thinking of France-based Airbus as an aerospace company, but if we think in terms of the job to be done – “move me from point A to B quickly and efficiently” – it becomes clear why Thomas d’Halluin, CEO of the US office of Airbus Ventures, describes the ecosystem that Airbus’s CVC unit is operating in as “urban air mobility” (see interview). Whitehouse will be moderating a panel debating flying cars versus autonomous vehicles at the GCV Symposium in London on May 23.

In the meantime, join GCV at the Canadian Corporate Innovation Summit, to be held April 11-13 at the Fairmont Royal York in Downtown Toronto. This year’s summit will consider questions such as how cor-porations can identify relevant innovation strategies and incorporate them into their operations for greater agility and profitability. Use the code GCVBDC2017 when registering at www.ccisummit.ca to get a 20% GCV reader discount.

With this issue, my time as features editor of GCV magazine has come to a close. Thanks to the GCV team, our guest columnists and our loyal readers, without whom this magazine would not be possible. It has been a privilege and a pleasure serving as features editor, and I hope you will all enjoy this issue as much as I have.

For more insights on innovation, see GCV’s interview with Tomasz Rudolf, founder of the Heart, a Warsaw-based Euro-pean centre for corporate-startup collaboration, and our Spotlight on UK Innovation. u

Consumer CVCs appear to be among the laggards when compared with other sectors

The Coller Institute of Venture 2017 annual conference – Hong Kong

Tim Lafferty, chief operating officer of Mawsonia, the parent company of Global Corporate Venturing and sister titles Global University Venturing and Global Government Venturing, will be a keynote speaker at the Coller Institute of Venture 2017 (CIV2017) in Hong Kong on April 21.

The event, organised by the Coller Institute, includes on its speaker list such luminaries as Lita Nelsen, former director of the MIT technology licensing office, Jeremy Coller, chief invest-ment officer of secondaries firm Coller Capital and a Mawsonia shareholder, and Prof Dong-min Chen, director of the science and technology office of Peking University.

The event brings together policymakers, venture capitalists, governments, universities and others to help universities evolve from being research institutions into their new role as cen-tres of venture and innovation. Delegates will also have the opportunity to visit innovation centres in Shenzen.

For more information, visit: https://civ.global/civ2017hk/

In addition, CIV2017 will have a panel at the Association of University Technology Managers (AUTM) Asia conference the following day: http://autmasia2017net.youdomain.hk/en/home/

Tim Lafferty

Lita Nelsen

Jeremy Coller


http://www.ccisummit.ca

https://civ.global/civ2017hk/

http://autmasia2017net.youdomain.hk/en/home/

April 2017 I 5


NEWS

Maris to amass $100m for new fundBill Maris, formerly CEO of internet and technology group Alphabet’s GV corporate venturing subsidi-ary, is investing $100m in a new venture capital fund, Bloomberg has reported.

A co-founder of GV, originally known as Google Ventures, Maris played a prominent role in expand-ing its parent company’s focus to life sciences. He left the unit in August 2016, saying he wanted to spend more time with his family and explore new projects.

Reports later in the year indicated Maris had entered talks with prospective investors over a fund of between $350m and $500m. He secured the capital for a $230m healthcare-focused fund called Section 32, but then pulled the plug in December 2016, telling technology news site Recode that doing “exactly what I just did was not inspiring me”.

However, Maris changed his mind after finding financiers willing to contribute capital without requiring him to add other investing partners, or locate the fund outside San Diego, where he is based, according to a source. Maris will be the fund’s sole investment partner. It will retain the Section 32 name and concentrate on healthcare and biotechnology.

Siegel to Align for board positionSusan Siegel, CEO of industrial product and appliance manufacturer General Electric’s corporate venturing unit GE Ventures, has joined the board of US-based dental technology developer Align Technology.

Founded in 1997, Align produces a removable set of braces called Invisalign and a 3D digital scan-ning system for orthodontic or restorative dentistry dubbed iTero3D. Siegel, who ranked sixth on GCV’s 2016 Powerlist, also heads GE’s healthcare innovation initiative, Healthymagination.

Schöfer looks to make mark at MerckSebastian Schöfer has joined Merck Ventures, the corporate venturing arm of Germany-based phar-maceutical firm Merck Group, as a senior associate.

Schöfer moved from High-Tech Gründerfonds, the VC fund backed by a range of corporate limited partners. He had been an investment manager there since 2014 after stints at solar system provider Azuri Technologies and technology transfer fund Imperial Innovations.

Merck Ventures has offices in the Netherlands, the US and Israel, and had its fund size doubled from €150m to €300m ($320m) in June 2016.

Hubert Burda’s CVC arm heads for SingaporeBurda Principal Investments, the corporate venturing arm of Germany-based media group Hubert Burda, has opened an office in Singapore, according to Tech in Asia.

Albert Shyy, formerly a principal for Gree Ventures, the corporate venturing vehicle for mobile gam-ing company Gree, will head the office as part of a three-person team. He told Tech in Asia the unit was particularly interested in investing at series B stage.

Burda Principal Investments has already backed Southeast Asia-based startups Priceza, Medical Departures and Coc Coc, and is a limited partner in funds raised by local firms Golden Gate Ventures, Jungle Ventures and Kejora Ventures.

Xu bids farewell to SIG AsiaEric Xu has left SIG Asia Investment, the regional invest-ment arm of trading firm Susquehanna International Group, to join venture capital GGV Capital, China Money Network has reported.

Xu was a managing director at SIG Asia Investment, and has taken the same position at GGV Capital. At the VC firm, he will be in charge of investments in startups developing smartphone and internet technologies for the e-commerce, financial and entertainment sectors. He had

been with SIG since 2007, and had previously worked at Citic Capital and TDF Capital.

His appointments follows other recent additions to GGV Capital’s team, including Denise Peng, former chief operating officer of Chinese online travel company Qunar, and Semil Shah, founder of investment firm Hay-stack, who both joined as venture partners. Jason Costa, product manager at Pinterest, has also joined GGV as an entrepreneur-in-residence.

Bill Maris

Sue Siegel

Hubert Burda

Sebastian Schöfer


April 2017 I 6


NEWS

Park follows Echo Health Ventures callJohn Park has joined corporate venturing firm Echo Health Ventures as a managing director of the market development team. He was previously chief strategy officer at consumer-directed healthcare company Ale-geus, a position he had held since 2012.

Echo Health Ventures was created in November 2016 when health services provider Cambia Health merged with Mosaic Health Solutions, the corporate venturing unit of health insurance provider Blue Cross and Blue Shield of North Carolina.

The market development team will drive and create relationships between Echo Health Ventures’ portfolio and parent companies.

Rob Coppedge, chief executive of Echo Health Ven-tures, said: “John has demonstrated success across the health care industry, and understands what it takes to develop meaningful, high-value relationships. His addi-tion to the EHV team demonstrates our commitment to hands-on participation in the development of the next generation of great health care companies.”

Joyme and Kee Ever Bright bet $360m on gamingChina-based gaming e-commerce company Kee Ever Bright Technology is to form a strategic investment fund with Joyme Capital, a subsidiary of online gaming community operator Joyme Group.

The fund will initially be $140m but the companies intend eventually to increase it to $360m. It will focus on the gaming sector, in particular game development and distribution, eSports, and ancillary services and business models related to the creation and publishing of PC and mobile games.

In addition to capital, portfolio companies will benefit from Joyme’s resources, including online community Joyme Wiki and partnerships with e-commerce group Alibaba and online video streaming platform Youku Tudou, to help penetrate the Chinese market, seeking, according to Yang Chen, Joyme Group’s founder and CEO, “opportunities to acquire own-ership stakes in successful game developers” and “bringing western games to market in China”.

Nan Fung puts $300m into Pivotal fundUS-based venture capital firm Pivotal BioVenture Partners has closed its first fund at $300m, securing the capital from China-based property developer Nan Fung Group.

The fund, Pivotal BioVenture Partners Fund I, will make early-stage investments in biotechnology developers, and is focusing on those looking to advance technology to the clinical stage.

The firm was co-founded by managing partner Tracy Saxton, formerly an investment director at pharmaceutical com-pany Roche’s corporate venturing unit Roche Venture Fund, and a Global Corporate Venturing Rising Star 2016.

Karoly Nikolich, chairman and CEO of anti-ageing therapy developer Alkahest, is an adviser and venture partner for the firm. Vincent Cheung, managing director of Nan Fung, is also listed as managing partner on the firm’s website.

Saxton said: “Pivotal will invest in biotechnology companies with strong teams and differentiated science that can be mined to develop therapeutics to improve human health. There are many funds focused on derisked clinical assets rather than early-stage therapeutics. However, we plan to be an active investor in the early-stage arena and look forward to partnering with leading-edge science-based companies to achieve this goal.”

Saxton told Fierce Biotech the company is considering investments in infectious diseases, immunology, oncology, ophthalmology and orphan diseases, and is chiefly seeking deals where there is an unmet medical need.

Accion accepts $141m for fintech initiativeUS-based microfinance non-profit organisation Accion has launched a $141m financial technology and services invest-ment fund with contributions from limited partners including insurance groups Axa, MetLife and Prudential, and payment services firm Mastercard.

Accion Frontier Inclusion Fund will invest in startups developing technology that can help expand the range and qual-ity of financial services available to those currently underserved, a figure the organisation estimates is above 3 billion.

The fund will in particular look to invest in sub-Saharan Africa, Latin America and Asia, where it will prioritise India and Southeast Asia. Its first nine portfolio companies are Konfio, Creditas, Coins, NeoGrowth, Yoco, Invoinet, Eseye, IndiaMart and CreditMantri.

Accion and the corporates were joined by financial services firm JPMorgan Chase, development bank FMO, World Bank subsidiary the International Finance Corporation, venture capital firm Quona Capital and investment firm PG Impact Investments. Other investors include family office Blue Haven Initiative, mutual fund Calvert Equity Portfolio, investment manager Triodos Investment Management’s Triodos Fair Share Fund and Triodos Microfinance Fund, and TIAA Invest-ments, an affiliate of investment manager Nuveen.


April 2017 I 7


NEWS

Panasonic to put $100m into corporate venturingJapan-based consumer electronics manufacturer Panasonic is putting $100m into a new California-based corporate venturing unit, Panasonic Ventures.

The unit will provide funding mainly for US-based startups, and is targeting unique business models, products and services that do not need to relate directly to the parent’s current focus. The $100m was described in a statement as an initial investment. The unit will be led by Masahiro Kinoshita, Panasonic’s head of business development and corporate planning.

The launch of Panasonic Ventures is part of a wide-ranging reorganisation within the company that will also involve the formation of a US-based sports and entertainment-focused sales division – Panasonic Media Entertainment. This will be one of six industry-specific divisions to be overseen by a new branch of the group – Panasonic Connected Solutions.

Panasonic has not been particularly active in the venture capital space but is an occasional investor, taking part in rounds for laundry-folding robot developer Seven Dreamers and waveguide optics technology company DigiLens in the past year. The corporate also launched a Japan-based accelerator in July 2016 in partnership with startup services provider Creww.

Aflac to assemble $100m corporate venturing fundUS-based insurance provider Aflac is to set up a $100m fund to make strategic venture capital investments, Atlanta Busi-ness Chronicle has reported. Aflac plans to develop the unit, Aflac Corporate Ventures, over the next three years and will target investments in developers of software or digital products that complement its core business and enhance the insurance value chain.

Nadeem Khan, senior vice-president of corporate development at Aflac, has been promoted to president of Aflac Corporate Ventures, with Bharat Rajaram as managing director. The unit will be run from offices in North Carolina and California and will be operated in conjunction with an as-yet undisclosed accelerator partner.

Paul Amos, Aflac’s president of global operations, said: “With a greater focus on the customer experience, we feel that it is vital that Aflac prioritises potential partners that will help us enhance services and shareholder value, while building our future growth engine.”

SAP supplies $35m to strategic fundGermany-based enterprise software provider SAP has launched SAP.iO, a $35m corporate venture capital fund that will invest in early-stage companies to expand the SAP ecosystem.

SAP previously directed its corporate venturing activities through SAP Ventures, the investment subsidiary it launched in 1996 and later spun out. The unit’s portfolio companies included LinkedIn and MuleSoft by the time it was spun out at the start of 2011. It rebranded as Sapphire Ventures in 2014, but retains SAP as its sole sponsor, and closed $1bn in financing for two funds in September 2016.

SAP.iO will invest strategically, backing startups that are using SAP data, technologies and application programming interfaces. The unit has been formed as part of the SAP.iO open innovation initiative and was launched alongside an incubator called SAP.iO Foundry, which will operate in San Francisco and in a Berlin centre to be managed by accelera-tor partner Techstars.

Ram Jambunathan is leading SAP.iO’s six-strong team as managing director. The first company to receive investment from the fund is Parable Sciences, a US-based creator of a big data analytics platform called Paradata.

Dymon Asia pulls in SCB to raise $20mFinancial services firm Siam Commercial Bank has com-mitted to the $20m first close of Dymon Asia Ventures, a VC fund formed by hedge fund Dymon Asia, TechCrunch has reported. The bank provided the capital through its fintech-focused corporate venturing vehicle, SCB Digital Ventures.

Dymon Asia Ventures plans to back between 15 and 20 fintech startups, with Southeast Asia of particular inter-est. Dymon Asia launched the fund to get more expo-sure to early-stage technology and to take advantage of potential in the space, partners Jinesh Patel and Chris-

tiaan Kaptein told TechCrunch.They said the fund would provide between $300,000

and $3m from seed stage to series B and had “significant reserves” for follow-on rounds. Dymon Asia Ventures has targeted a $50m close and intends to raise the full amount in the next year. It has already invested in five companies – blockchain asset management platform Otonomos, peer-to-peer lending startup Capital Match, foreign exchange technology developer 4XLabs, trad-ing platform Spark Systems and networking service WeConvene.


April 2017 I 8


NEWS

MFEC to establish $20m investment armThailand-based software company MFEC is to establish a corporate venturing division equipped with Bt700m ($20m) to invest in startups, local news provider Nation has reported.

MFEC will seek out opportunities in the education, media and entertainment sectors. It will also offer training and consultation to entrepreneurs, collaborating with the computer engineering department of Chulalongkorn University and the Industrial Liaison Program to set up a facility dubbed Data Café Thailand.

Additionally, the corporate will spin out a range of businesses beginning with Playtorium Solutions, a one-stop shop for software and crowd-testing services as well as IT staff recruitment.

Virginia Tech and Carilion launch $15m fundVirginia Polytechnic Institute and State University (Virginia Tech) and healthcare provider Carilion Clinic have raised a $15m VC fund for the local area in their third such collaboration, according to the Roanoke Times.

The VTC Innovation Fund is aiming to back seven to 10 startups around Blacksburg and Roanoke over the next four years. About 60% of the investments will be in the life sciences industry and most will be based in Virginia. If they are in another state, the companies must have some tie to the university or to Carilion. The fund will be managed by James Ramey and Scott Horner at Middleland Capital.

Virginia Tech and Carilion previously jointly formed the NewVa Capital Partners fund in 2004. The two also formed Valleys Ventures in 2013, but that fund reportedly went dormant after just two investments.

Intex enters venturing with Rooter investmentIndia-based consumer electronics producer Intex Technologies is investing between Rs1.5bn ($23m) and Rs2bn in a corporate venturing fund, Times of India has reported.

Intex manufactures smartphones, computer accessories, televisions and other home entertainment products. The decision to go into strategic investments comes weeks after competitor Micromax launched its own venturing unit.

Keshav Bansal, a director at Intex Technologies, told Times of India that the company was moving into corporate ven-turing to diversify its holdings into sectors such as sport, healthcare and the internet of things. Intex will target ticket sizes of between Rs100m and Rs150m and will look to take stakes of between 10% and 25%. Its first investment is in Rooter, an India-based creator of an app that allows sports fans to engage with each other during live events.

Phoenix rises with corporate-backed fundUS-based venture capital firm Phoenix Venture Partners has closed its second fund with limited partners that included pharmaceutical firm Pfizer, manufacturing con-glomerate 3M and glass and ceramics materials producer Corning.

Chemical producers Eastman Chemical, Solvay and Showa Denko, and manufacturing company WL Gore & Associates have also contributed to the fund, the size of

which has not been disclosed. Other LPs include undis-closed family offices and financial institutions.

Phoenix Venture Partners focuses on startups operat-ing in the advanced materials sector, working with its cor-porate network to identify strategic opportunities in their respective fields. John Chen, managing general partner of PVP, said the new fund had already made several new investments.

Stock exchange backs Digital-Plus PartnersStock exchange operator Deutsche Börse Group has contributed capital to Digital Growth Fund I, a growth-stage fund raised by Germany-based venture capital firm Digital-Plus Partners, Mondo Visione has reported.

The fund’s first tranche closed at about €132m ($139m), and it will invest in business-to-business software providers. It will provide between €20m and €30m for each company, which will be provided over several rounds.

Carsten Kengeter, CEO of Deutsche Börse, said: “Innovative and fast-growing companies are essential to our eco-nomic development. And so we support initiatives to ease their access to capital. Our investment in the fund launched by Digital-Plus Partners is the perfect supplement to our own direct investments in fintech firms via the DB1 Ventures platform.”

The fund’s limited partners also include optics and optoelectronics manufacturer Zeiss.


April 2017 I 9


NEWS

Henkel to heave funds into venturingGermany-based industrial and consumer product manufacturer Henkel has formed corporate venture capital subsidiary Henkel Ventures and plans to invest up to €150m ($163m) via the unit.

Henkel has so far invested €25m in its venturing activities, supplying capital to barrier technology manufacturer Vit-riflex and coating material producer DropWise, as well as funds raised by VC firms Emerald Technology Ventures and Pangaea Ventures. In addition, the company’s laundry and home care division has invested in UK-based on-demand laundry and dry cleaning service ZipJet. However, the launch of Henkel Ventures will mean all the corporate’s venturing activities will be overseen by a single entity.

Robert Günther, the Henkel Ventures team member focusing on corporate development, said: “With Henkel Ventures, we are combining our corporate venture capital activities across our three business units – adhesive technologies, beauty care, and laundry and home care. We are partnering startups, helping them to develop their innovative ideas and technologies.”

Henkel Ventures will seek to invest at an early stage, preferably series A, and will provide portfolio companies with access to its brands and global network.

In addition to Günther, the unit’s team consists of Paolo Bavaj, focusing on adhesive technologies, Esther Kumpan-Bahrami, overseeing beauty care, and Thomas Schuffenhauer, specialising in laundry and home care deals.

Spectrum to add colour with venture capital unitUS-based healthcare system Spectrum Health is to commit up to $100m to a corporate venturing fund that will back healthcare startups, MiBiz has reported. Spectrum Health Ventures will invest in early-stage companies seeking to bring to market technology and services capable of improving the cost and effectiveness of medical treatment, according to Spectrum chief strategy officer Roger Jansen.

Five areas in particular are being considered – behavioural tools to improve health and wellbeing, personalised medicine and genomics, digital technology, population and health analytics, and artificial intelligence and cognitive computing software to help prevent disease.

The capital will be provided over a 10-year period, and Spectrum will look to participate in deals where it can co-invest with other health systems. The unit expects to make initial commitments of about $2m at series A or B stage, and to make follow-on investments in portfolio companies.

Spectrum Health Ventures is working with Avia, an innovation network that manages VC funds for health systems, and will seek to back two to four companies each year.

Symantec engineers CVC armUS-based cybersecurity company Symantec has launched corporate venturing subsidiary Symantec Ventures to target opportunities in the cybersecurity sector.

The unit will provide funding and help startups reduce expenses and accelerate their time to market. Symantec has not disclosed how much capital it is allocating. Startups will have access to Symantec’s next-generation technology assets, expertise in artificial intelligence, go-to-market resources and the corporate’s threat intelligence network.

The decision follows Symantec’s investment in US-based enterprise mobile threat platform Appthority, which closed a $17m series B round last July with the support of Symantec subsidiary Blue Coat Systems.

Greg Clark, chief executive of Symantec, said: “We are launching Symantec Ventures to catalyse innovation in the cybersecurity space. We can help startups by allowing them to build on our extensible Integrated cyberdefence plat-form. For example, a new algorithmic approach to anomaly detection can be built on top of our endpoint platform or run on top of our network and cloud security drive train.”

Walmart shops for startupsUS-based retail chain Walmart is set to launch an incuba-tor in Silicon Valley, Bloomberg has reported. The incuba-tor, Store No 8, will seek to partner startups, venture capi-tal investors and academics, and will back technologies such as drone delivery, personalised shopping, robotics, autonomous vehicles, virtual and augmented reality, and artificial intelligence.

Store No 8 will aim to help develop the technologies for use across Walmart. It takes its name from an early

Walmart store location where the retailer experimented with floor layouts.

The program was announced by Marc Lore, chief executive of the retailer’s e-commerce operations. He founded e-commerce company Jet, which was acquired by Walmart for $3.3bn last August.

Store No 8 will be led by principal Seth Beal, who was appointed Walmart’s senior vice-president of incubation and strategic partnerships in January 2017.


April 2017 I 10


NEWS

Cemex cements corporate venturing plansMexico-based building materials provider Cemex has launched corporate venturing vehicle Cemex Ventures to invest in innovative construction technology.

Cemex Ventures will be based in Spain and will act as an open innovation and venture capital unit, investing in tech-nologies in adjacent areas to its parent company’s core business and providing accelerator and incubator services for earlier-stage technology. The unit will be headed by Gonzalo Galindo, president of US east operations.

Specific targets for the fund include urban development, construction models and technologies, innovative project finance sourcing, and technology that improves the construction ecosystem by enhancing connectivity.

The unit has also announced it will launch a contest for startups and entrepreneurs developing technology in its investment areas. The Cemex Ventures Competition is accepting applications now.

Startup help arrives from Roc NationRoc Nation, the US-based entertainment services pro-vider founded by entertainer Shawn “Jay-Z” Carter, has launched Arrive, a platform to supply funding and assis-tance to startups.

Arrive will provide advice, brand services and business development help to early-stage companies. It also plans

to launch a corporate venturing fund to back portfolio companies as they grow. Venture capital firm Primary Venture Partners has been appointed venture adviser to the initiative, and institutional and operational support will come from GlassBridge Asset Management, part of hold-ing company GlassBridge Enterprises.

Innogy and OurCrowd forge investment strategyGermany-based energy utility Innogy has formed a partnership with crowdfunding platform OurCrowd to seek out investment targets in the latter’s home country of Israel.

The initiative will form part of Innogy’s open innovation strategy and involves OurCrowd looking for companies in areas such as smart and connected technology, urban solutions, disruptive digital technology, big data and automated technologies such as blockchain.

Peter Terium, Innogy’s CEO, said: “We are on a quest for innovation and are excited to be present in the vibrant and innovative ecosystem here in Israel. We have our own innovation team in Israel, connecting us with the startups and innovators in the country. OurCrowd is a natural partner for us. We are impressed by the depth of OurCrowd’s exposure and the quality of their portfolio.”

Verizon and R/GA to give startups studio timeVerizon Ventures, the corporate venturing subsidiary of telecoms company Verizon, has launched an accelerator scheme called Verizon Media Tech Venture Studio in partnership with advertising agency R/GA.

The initiative, described by the corporates as a venture studio, will work with early and growth-stage developers of disruptive digital media and entertainment technology. Applications opened last month and up to 10 companies will be admitted. Areas of interest will involve content creation, personalisation and distribution, virtual and augmented reality, artificial intelligence and image recognition, advertising and eSports.

The studio will be housed in New York and participants will be able to work with Verizon Ventures, Verizon’s digital media businesses and various teams from R/GA. They will also have access to the corporates’ investor network.

John Doherty, head of Verizon Ventures, said: “The Verizon Media Tech Ventures Studio with R/GA will connect us with emerging startups that are shaping the future of this business. Verizon and R/GA have created an advanced program for startups with unparallelled access to resources, technology and intellectual capital that will accelerate their growth.”

Stephen Plumlee, managing partner of R/GA’s corporate venturing fund, R/GA Ventures. added: “This program will be a game changer for the companies selected.”

Philips and EDBI push healthtech partnershipNetherlands-based electronics and healthcare technology manufacturer Royal Philips has boosted the digital health investment agreement it has in place with Singaporean state-owned venture capital fund EDBI.

Philips and EDBI launched the partnership early last year with a view to investing in connected health technology that could be beneficial in the Asian healthcare market. The first company to receive funding through the initiative is CXA Group, a Singapore-based employee benefits and wellness marketplace that closed a $25m series B round in February.


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Banco do Brasil backs BR StartupsA subsidiary of financial services firm Banco do Brasil has provided an undisclosed amount of capital for BR Startups Fund, a Brazil-based initiative backed by several corporates, Baguete has reported.

BR Startups is managed by private equity and venture capital firm MSW Capital and was launched to invest in early-stage insurance technology and services providers. The holding company in question, BB Seguridade, oversees a range of funds for Banco do Brasil. The fund’s limited partners include Microsoft Participações, the Brazilian investment subsidiary of Microsoft, agribusiness Monsanto, mobile chipmaker Qualcomm, financial services firm Banco Votorantim, conglomerate Grupo Algar and the Rio de Janeiro State Development Agency, AgeRio.

Google launches machine learning startup contestInternet technology provider Google has launched a contest for machine learning technology startups. The winner will be eligible for up to $1m in venture funding. The Machine Learning Startup Competition is open to startups implement-ing machine learning in their products, and which have raised less than $5m in funding. VC firms Data Collective and Emergence Capital could each invest up to $500,000 in the winner of the contest. Google Cloud is running the scheme and will supply up to $1m in Google cloud platform credits for the winner as well as technical support.

Comcast NBCUniversal to give startups a LiftMass media group Comcast NBCUniversal has launched US-based startup assistance initiative Lift Labs for Entrepreneurs.Lift – leveraging innovation for tomorrow – will encompass a startup accelerator, entrepreneurs’ resource centre and a series of advice programs intended to help media, entertainment and connectivity technology startups bring their prod-ucts to market. The accelerator will be run by Techstars out of the Comcast Technology Centre, which is scheduled to open in Philadelphia in early 2018. A second branch of Lift is set to begin in Atlanta later the same year, with an accelera-tor partner yet to be announced.

PayPal’s Singapore incubator graduates threeUS-based online payment platform operator PayPal has graduated the first three startups from Start Tank, its Sin-gapore-based Technology Centre incubator, Tech in Asia has reported.

The startups in question are digital insurance tech-nology provider Axinan, blockchain network developer

TenX and InvoiceInterchange, in which external investors help businesses with financing for late invoices.

PayPal launched Start Tank last May. It does not pro-vide funding but does supply coaching and mentoring, and will put startups in touch with its venture capital connections.

IDG Ventures and Axilor look to new FrontierIDG Ventures India, a venture capital affiliate of media and events firm International Data Group, has formed a partner-ship with accelerator and seed fund Axilor Ventures to invest in disruptive startups.

The Frontier Tech Innovators initiative seeks to make investments in advanced technologies such as artificial intel-ligence, robotics, blockchain, drones, autonomous driving systems, and augmented and virtual reality. The scheme accepts about 20 startups at seed or pre-series A stage, with the partners particularly interested in those under three years old, according to the Economic Times.

Big deal: NBCUniversal invests $500m in a Snap

James Mawson, editor-in-chief, and Thierry Heles, editor, Global Government Venturing

When US-based visual media platform Snap’s long-awaited initial public offering took place last month the company priced 200 million shares, or about 6% of its stock, at $17 each, resulting in a $3.4bn windfall.

The flotation valued Snap – creator of the Snapchat messaging app, which has about 160 million daily users, and developer of hardware such as augmented glasses – at $24bn, a jaw-dropping 60 times its revenue. Its aftermarket

Big deal: NBCUniversal invests $500m in a Snap


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performance lifted the share price above $24, meaning investors were trading the stock at nearly 100-times revenue.

While it is not unusual for a company to go public before making a profit, it is nevertheless noteworthy that Snap’s losses have been increasing – they were up 38% last year – and the company has been fairly vague about how it intends to make a profit in future. Adding to that struggle is the reality that Facebook is trying to steal Snap’s thunder by copying a range of features into its own suite of apps, which include WhatsApp, Instagram and Messenger.

Also noteworthy is that investors buying the new shares will not have voting rights, while co-founders Evan Spiegel and Bobby Murphy are reinforcing their hold over the company through their voting shares, a move taken from Facebook co-founder Mark Zuckerberg’s playbook.

Amid that enthusiasm, however, media operator NBCUniversal, a subsidiary of mass media group Comcast, paid $500m for a stake of about 2.1% in Snap via the IPO. NBCUniversal has previously bought stakes in private companies, investing $400m in online media company BuzzFeed and $200m in news site Vox.

However, NBCUniversal’s investment in Snap is a bet both on its potential financial returns – perhaps with an eye on the subsequent success of Facebook since its own flotation – and an indication that it wants to build a closer partnership with the hardware maker and communications service.

In a memo to staff, NBCUniversal CEO Steve Burke described the investment as another step in a “growing partnership” with Snap, news provider Recode reported. The companies worked together on the Rio Olympics, and NBCUniversal media properties the Voice, SNL and E! News: The Rundown have launched series on Snapchat.

While it has been increasingly common for corporations to try to build strategic relations with entrepreneurs in the pri-vate market – GCV Analytics tracked investment rounds of more than $83bn by nearly 1,000 corporate venturers last year – and there is a long history of larger corporations taking minority stakes in one another, there have been relatively few private corporate investments in public equities at the IPO stage.

More common has been mutual funds and other fund managers trying to invest in startups in order to understand the disruption that might impact their public holdings, and to ease greater access to hot prospects at their IPOs.

In its annual letter to investors, mutual fund manager T Rowe Price’s $17bn New Horizons fund for the first time provided more transparency about its $1.2bn of investments in 63 private companies, including Twitter and GrubHub since 2009, noting annualised weighted returns of 34.8%.

The fund had previously provided only a list of individual investments, the purchase price and current valuation. It has 28 investments valued at a total of $836m in its portfolio, including a $79m stake in GrubHub.

While the letter admitted that “any early-stage growth investment – especially a private investment – carries a high level of risk”, it argues that the strategy helped the fund understand industries under disruption and was a valuable contributor to returns, Henry Ellenbogen, the fund’s manager, told the Financial Times.

Fund rating agency Morningstar, which acquired corporate venturing portfolio company PitchBook last autumn, counted 194 US mutual funds that have invested in 133 private companies, with their overall holdings valued at $11.5bn. Fidelity is the biggest investor in unlisted companies according to the study, followed by T Rowe Price and Hartford. u

Big deal: MuleSoft musters $221m in IPO

Rob Lavine, news editor

Salesforce Ventures, the corporate venturing arm of the enterprise software provider, has achieved another exit in a $221m initial public offering by US-based integration software producer MuleSoft.

The company issued 13 million shares on the New York Stock Exchange at $17 each, above the $12 to $14 target range it set earlier last month, allowing backers that included networking technology supplier Cisco and enterprise software producer ServiceNow to exit.

Founded in 2006, MuleSoft has built a software integration platform that helps businesses integrate their various appli-cations into a single network. It has more than 1,000 customers, more than 30 of which each provide over $1m in sales of subscriptions and services each year, spread across 60 countries. According to its IPO prospectus, MuleSoft made a $49.6m full-year loss in 2016 from revenue of approximately $188m, having made a $65.4m loss the year before from $110m in revenue.

The offering followed $259m in funding, including a $128m series G round in 2015 that valued the company at $1.5bn and was led by Salesforce Ventures. Other backers were ServiceNow, Cisco Investments, Sapphire Ventures, Adage Capital Management, Brookside Capital, Sands Capital Ventures, New Enterprise Associates (NEA), Lightspeed Venture Partners, Meritech Capital Partners, Bay Partners, Hummer Winblad Venture Partners and Morgenthaler Ventures.

Salesforce Ventures first invested in MuleSoft as part of a $37m series E round in 2013, subsequently returning for a

Big deal: MuleSoft musters $221m in IPO


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$50m round the following year that valued MuleSoft at $800m and which included Cisco, Sapphire Ventures, NEA, Lightspeed, Meritech Capital, Hummer Winblad, Morgenthaler and Bay Partners.

None of the corporates are major investors – the company’s largest shareholder is Lightspeed Venture Partners, which saw its stake diluted from 17% to 15.3% in the offering. Other notable shareholders are Hummer Winblad (with a 14.1% post-IPO stake), NEA (12.7%), Morgenthaler (6.7%), Sapphire (6%) and Bay Partners (5.6%). MuleSoft’s stock opened at $24.25 on March 17 and held steady to close at $24.75, an increase of around 44% from the offering price.

The offering is Salesforce Ventures’ second exit of the year, after Amazon Web Services’ acquisition of meeting tool developer Do in March. But the offering could be the first of many, as the success of MuleSoft and the kickstarting of the IPO market looks likely to encourage several more enterprise software companies looking to list.

MuleSoft formed part of a substantial stable of unicorns – venture capital-backed companies valued at more than $1bn – built up by Salesforce Ventures, including SurveyMonkey, InsideSales, Apttus, Anaplan, MongoDB, Evernote and the largest of them all, Dropbox, the data storage provider valued at more than $10bn in its last round.

SurveyMonkey CEO Zander Lurie has said the company is looking beyond 2017 to go public, but Anaplan has said it is preparing a flotation and InsideSales and Apttus have been touted as likely IPOs this year. Dropbox reportedly met advisers last August to discuss plans for an offering, but has so far been quiet on the subject.

Still, the relative success of messaging platform Snap’s IPO – the largest for a VC-backed company in two and a half years – combined with MuleSoft’s bump will inevitably lead to more offerings, particularly as investors may want to get in before a market downturn. This could well be the year in which Salesforce Ventures cashes in and starts racking up some big exits. u

Big deal: Flipkart files away $1bn


Last month India-based e-commerce company Flipkart raised $1bn from several corporates, but at a lower valuation for the business, suggesting investors may have to sacrifice returns to ensure portfolio companies continue to grow.

The round included software producer Microsoft, online marketplace eBay and internet group Tencent, and followed a reported $38.8m investment by media firm Bennett, Coleman & Co in December 2016.

Flipkart operates a diversified online marketplace that lists more than 80 million items spanning some 80 categories, including books, clothing, jewellery, appliances and electronics.

The $1bn investment boosted the company’s overall funding to about $4.1bn since it was founded in 2007, its previous backers including media and e-commerce group Naspers, IDG Ventures India, an affiliate of media company Inter-national Data Group, and several institutional investors. However, the cash was raised at a valuation of about $10bn, sources told Bloomberg, a steep drop from the $15.5bn valuation at which Flipkart closed its last round in 2015. In that round, Flipkart received $700m from backers including Tiger Global Management and Steadview Capital.

The lower valuation can be attributed partly to the stiff competition in India’s e-commerce sector, which has made profit-ability difficult for all its players, not least after the entry of US-based competitor Amazon into the market.

Flipkart was reportedly losing ground until Tiger Global managing director Kalyan Krishnamurthy, previously chief finan-cial officer, rejoined the company last May to take charge of sales. He took on the CEO role in January and after a suc-cessful holiday season Flipkart is generally regarded as being on an upswing.

However, India’s startup space is going through a tough time following a boom in 2015. Hundreds of India-based startups reportedly closed down last year, while high-profile names such as Ola and Flipkart rival Snapdeal had their valuations written down and others, like Housing.com, were acquired for less than they had raised in VC funding.

Despite the lowering of its valuation, Flipkart has big plans that include raising a further $1bn in the coming months. Perhaps the most interesting part of the deal is the rumour suggesting eBay will provide $500m of the capital as part of a deal in which its Indian subsidiary will merge with Flipkart.

The funding was expected to be earmarked for promotions and coupons as part of a market war, but the proposed deal suggests that the long-term strategy for Flipkart, which has purchased fellow e-commerce companies Jabong and Myntra in the past three years, will involve at least some element of strategic investment.

Acquisitions that can increase its market share may be necessary to head off not only Flipkart’s present rivals but also a relatively new player, Paytm E-Commerce. One of two companies to emerge from One97 Communications – the other being financial services platform Paytm – Paytm E-Commerce is backed by the deep pockets of e-commerce giant Alibaba and its financial services affiliate Ant Financial, and is likely to pursue a similar strategy to the one that made Alibaba so successful in China.

Big deal: Flipkart files away $1bn


April 2017 I 14


Both Flipkart and Paytm E-Commerce are said to be in talks with Snapdeal over an acquisition, and that may be where a significant portion of Flipkart’s new funding goes. Either way it looks as if the online marketplace sector is ripe for con-solidation, and is still a viable attraction for corporate venturing funds. u

Big deal: iFlix inflates funding with $90m


Malaysia-based online video streaming service iFlix has raised more than $90m in a round backed by media com-panies Liberty Global and Sky, indicating that geographic opposition to global market leader Netflix is emerging in

several markets.

Evolution Media Capital (EMC), the investment firm co-founded by talent agency Creative Artists Agency and private equity firm TPG, also invested in the round along with domestic internet company Catcha Group, telecoms firm Zain and an unnamed investment management firm.

The company has begun talks with possible investors over an increase to the round, which values it at more than $500m post-money, co-founder Patrick Y-Kin Grove told Forbes. The capital, which boosted iFlix’s overall funding to $175m, fol-lows a $45m investment by Sky in March 2016 at a $450m valuation, and $30m from Catcha, EMC and telecoms group Philippine Long Distance Telephone (PLDT) 11 months earlier. Grove said its backers included entertainment producer MGM, broadcaster Emtek and venture capital firm Jungle Ventures.

Founded in 2015 by Catcha and EMC, iFlix runs an on-demand film and television streaming service. It has licensed con-tent from Walt Disney, Warner Bros, Fox, MGM, Paramount Pictures and Starz as well as local producers, and has built up a base of about 5 million users. The company began its service in Malaysia and the Philippines and operates in 10 Asian countries, having expanded across Southeast Asia before launching in Pakistan, Vietnam and Burma this year. The new capital will support a move into the Middle East and Africa.

The push will be backed by a joint venture with Kuwait-based Zain, which will offer iFlix to its 47 million customers across the Middle East and North Africa on top of its own service. That approach mirrors existing deals iFlix has struck with PLDT and several other telecoms networks across the Philippines, Malaysia, the Maldives and Indonesia.

Although Netflix is present in the region, iFlix is using local connections to forge ahead, not only utilising the help of local strategic partners, but also striking promotional deals with national celebrities, negotiating censorship rules with indi-vidual governments and offering its service at a fraction of the price of Netflix in a bid to cut into markets that are awash with piracy. “We are like McDonald’s and they are like a Michelin two-star restaurant,” Grove told Bloomberg, describing the companies’ relative positions in the market. “We both sell food, but we are not competitors.”

The progress of iFlix can perhaps be compared to that of ride-hailing company Uber’s regional rivals – though Netflix has a stronger global market position than Uber – but as it grows its challenge will be to see off not only its larger rival but also homegrown players offering a localised service. Hooq, which has raised some $95m from its founding partners, telecoms group SingTel, media conglomerate Warner Bros and electronics firm Sony’s AXN Investment unit, is already competing with iFlix in the Philippines, Thailand and Indonesia, and also operating in India.

The purported expansion will put iFlix up against the likes of Icflix in the Middle East and potentially iRokoTV in Africa, and at that point it will have to see whether the model that has served it well over the past 18 months still works when it is stretching its resources over a wider swathe of countries. It may well look to harness not only its telecoms partners but also the knowledge of Sky and Liberty Global, both of which have ample experience in paid television services. u

Analysis: Venture and maturity go hand in hand

James Mawson, editor-in-chief

Venture capital is risk management, and the finest exponents of the practice are still in Silicon Valley, California. Plenty of things with entrepreneurial companies can, and often do, go wrong, but being aware of what these issues are

hopefully allows for more sensible pricing and funding of these companies.

David Mes, managing partner at secondaries firm Arc Venture Partners, said he would question his process only if a portfolio company failed from a risk he had not considered. At a GCV drinks reception co-hosted by healthcare com-pany Johnson & Johnson and held at its innovation centre in Menlo Park, Silicon Valley, Mes talked about one of his angel portfolio companies, virtual reality technology developer Skylights, which has contracts to provide its headsets for airplanes, and the challenges it was taking on to improve passenger experience. The list was lengthy, but the founder’s user and business experience and successes so far gave Mes hope of a substantial win over the next few years.

NEWS

Big deal: iFlix inflates funding with $90m

Analysis: Venture and maturity go hand in hand


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It is classic venture capital by an experienced investor in an underappreciated area. Mark Suster, managing partner at VC firm Upfront Ventures, in his outlook for the technology startup world and venture capital overall – WTF Happened to Winter? – said: “A large number of VCs believed that virtual and augmented reality and blockchain, while interesting, would take a few more years to mature.”

Perhaps that is why angels, such as Mes, are getting involved in virtual and augmented reality – a classic stage of devel-opment for them to get in before an area of technology becomes mainstream.

But what is more interesting in the Skylights example is the other participants in its development. There appears to be an increasing willingness from large businesses to use startup services such as Skylights’ even if the technology is nascent. The pressure is on incumbents to compete, and speed and innovation are coming from their partnerships with entre-preneurs rather than internal developments. In turn, these contracts increase the chances of success for the startup.

Mes described Skylights’ two contracts with major airlines, with two more in the offing, while major media companies, such as 20th Century Fox, have struck content deals with it. Skylights, therefore, seems able with relatively modest funding to cover a full stack of hardware development, content distribution and sales. If it gains traction, any later-stage rounds are likely to be bigger and more expensive, which is great for entrepreneurial shareholders and early investors.

Entrepreneurs in some areas are able to cover the full stack at lower costs, but corporations can develop these ideas and take them into the business. It would be little surprise Skylights’ partners try to take a stake in the startup.

This, in turn, is helping to underpin a potentially seismic change in the venture market. Traditionally, ven-ture capital has been procyclical – one where more is invested in faster-growing economies and less in recessions – and dictated by VCs’ sentiment. If venture becomes more mature and steady throughout an economic cycle, because investors are looking beyond pure financial returns, then trying to time an economic cycle becomes less of a risk factor for entrepreneurs.

There is no greater sign of the shift in this direction than the relative stability of the past 12 to 18 months in global activity. A year or more ago, there was pessimism in the US that valuations had gone too far and funding would fall only in a new venture winter – hence the title of Suster’s analysis – but so far the decline has been muted and short-lived.

While this may be due to the resilience of the US and the world economy over the past year, it also points to the healthy interest in venture from other investor types beyond typical VC firms. GCV Analytics tracked corporations involved in rounds worth an aggregate $83bn last year, compared with the $134bn collected in nearly 10,000 venture capital-backed deals that data provider Preqin reported in 2016.

As data provider Go4Venture noted in its recent report: “Although VCs did cut investment, did take a more cautious approach to the burn rate of their portfolio companies, and did see a decline in valu-ations, overall the innovation financing market has been lifted by money from outside the classic VC realm.”

Looking at these investors and their likely reaction to any recession has become increasingly important given that an economic downturn is increasingly likely. After all, the US is eight years into its recovery from the global financial crisis, and China is preparing for slower growth and looking for systemic risks.

A straw poll of corporate venturers at a Global Corporate Venturing Leadership Society roundtable discussion before the drinks reception found about half feared the rapid growth in their communities over the past five years could decline if the economy slowed down substantially or went into recession. Their worries were that if the momen-tum swung towards cost-cutting rather than seeking growth then CVC would be one of the areas targeted, especially if portfolio company valuations fell, or if strategic insights or a new product built off venture were yet to be realised. The other half of the vox pop were more confident. The fear of missing out is a powerful driver for corporate, government and sovereign investors, either directly or as limited partners in VC funds.

So far, therefore, the risks are outweighed by the opportunity, with CEOs bluntly tasking their CVC units with finding “the next big thing”. Whether this will be virtual and augmented reality, artificial intelligence and machine learning – favoured by most VCs in Suster’s survey – or a host of other sectors, including healthcare, according to noted consultancy Cam-bridge Associates, remains to be seen.

But being around to see the results will be important.

The GCV-J&J roundtable hosted an interesting discussion on what leadership in the industry would look like in five years’ time and how to provide a means for sustainability through financial and strategic returns. These insights, shared under Chatham House rules, will form a separate article and complement the qualitative interviews of about 40 CVCs as an Insights Project carried out by consultancy Bell Mason Group and also to be published by GCV.

Combining data with insights and managing its risks makes more sense of the venture world than relying on one or the other. u

“Overall the innovation financing market has been lifted by money from outside the classic VC realm”


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INTERVIEW

You set up the Heart after noticing that corporates were taking far too long to create new ventures internally. Why is this, and how does the Heart solve this problem?

As Clayton Christensen, author of Innovator’s Dilemma, has noted, successful big organisations can do everything right and still lose market leadership. They are great at scaling proven business models, yet find it hard to experiment with new products and ventures. When an entrepreneur comes up with an idea for a disruptive innovation, it is more likely to be implemented outside corporate boundaries than within them.

It is natural that internal decision-making processes and organisational politics often slow down new business creation. After all, would you blame a leader managing a huge business line for focusing his attention on the core business that brings him hundreds of millions, and not some crazy ideas that have not been validated? It is so much easier to explore new oceans when you lose sight of the well-known shore. I believe the startup ecosystem is a perfect lab for discovering technologies, products and businesses of tomorrow. Smart corporate leaders recognise that, and want to leverage that potential as a source of innovation. The Heart is a European centre for such corporate-startup collaboration.

You began helping corporates innovate 12 years ago, when you co-founded Innovatika to run corporate accelera-tors. How has corporate innovation evolved since then?

I have been reflecting on that journey a lot recently. We have helped organisations build different “innovation muscles” – from design thinking to new business model generation. But the ones that are growing in importance, and are often underdeveloped in large organisations, are the ones connected with open innovation.

Even the greatest team of developers at Nokia could not compete with the ecosystem of independent innovators creat-ing apps for Google or Apple. In the digital world, organisations need to get ready for co-creating value with startups. They need to admit limitations of internal innovation units and buy, partner or invest in the best external solutions.

What lessons can you share with executives wishing to prepare their businesses to innovate?

We sometimes hear complaints from startups about corporations that just want to look around, see the solutions, but

Corporate-startup collaboration goes to the HeartTomasz Rudolf, founder and CEO of the Heart, a Warsaw-based European centre for corporate-startup collaboration, spoke to features editor Nicole Idar Lee about helping corporates develop “innovation muscles” and central Europe’s growing role as a digital sandbox for testing innovative ideas

The Warsaw Spire, home of the Heart


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INTERVIEW

lack the resources or decision-making power to actually implement anything. Often, this is a result of so called “innova-tion theatre” – launching corporate startup programs just for public relations value, without the commitment to open the organisation for true collaboration.

Such initiatives are not sustainable and often get killed when people start asking for results. The best open innovation initiatives that I have seen are deeply connected with the corporate’s business strategy, have well-thought processes and top-management commitment.

A great example is Unilever Foundry, a pragmatic approach that led to more than 100 commercial pilots in the first 18 months of the program, with 48% of them ending in longer-term collaboration. Part of that success was preparing the organisation properly – securing a $50,000 budget for each pilot, building a central unit and website to screen and select partners, or leveraging external scouts to find high-quality partners across the world.

Tell us about the tech-entrepreneur dynamic in central and eastern Europe.

We work across Europe, but the fact that we are headquartered in Poland is actually helpful. Many of our corporate clients treat the region as a digital sandbox. In the building where we have our hub – the tallest skyscraper in Warsaw – you can find digital R&D and the regional offices of companies like Samsung, Goldman Sachs, JLL and Mastercard.

Central Europe is not only a valuable spot for shared service centres, but increasingly a development and testing ground for innovations that later get scaled internationally. The startup ecosystem here is also developing fast, mostly thanks to the great talent pool – some statistics show the Central and Eastern Europe region has more engineering graduates than the US, and the quality of their work is perceived to be impressive.

EU and government support is also giving a boost to the ecosystem – many new programs inspired by Israel’s Yozma initiative [a government-led effort launched in 1993 to promote venture investment] are now under way. All of that puts us at the heart of digital transformation in Europe.

The Heart offers three types of service – a corporate club, sector-focused programs, and a scouting service to identify suitable business partners. How many members does the corporate club have, and what role does it play?

Since we started, more than 40 corporations have joined our community. The goal of the club was to help companies just starting to work with startups by giving access to regular knowledge-sharing roundtables. We regularly bring in international practitioners from around the world to inspire and share the learnings. It is great to see how our members develop their innovation initiatives, but also initiate joint projects with other corporations. It is a truly open community.

We also organise regular corporate demo days, bringing the best European scale-ups to inspire and work with corporate executives. Having such a diverse group is inspiring, as the industry boundaries are blurring and trends impact everyone.

Your sector-focused programs target fintech, omnichannel and healthtech. Why did you select these areas?

Besides doing individual scouting projects for our corporate clients, we decided to bring together companies interested in similar areas. Such innovation alliances allow us to identify the top three common themes for the cluster each year and match them with the best ready-to-scale startups in that space.

Fintech was a natural choice, as we work with many of the leading banks in that space, and topics like cybersecurity, PSD2 [the EU’s revised Payment Services Directive], big data or blockchain interest everyone. The omnichannel program is even more diverse, connecting companies that are transforming their retail operations and looking for innovations in areas like customer intelligence and marketing and sales automation of future point of sale.

A smart city program is also in the pipeline. Tell us more about it?

This will be the first of our global programs, and we are currently confirming the focus areas with our first partners. We are definitely looking at areas like smart offices and buildings or construction. Digital transformation will definitely affect those capital-intensive industries, and potentially drive both efficiency and new value-added services.

Together with our investor, international developer Ghelamco, we also want to create sand-boxes for testing such solutions. One of these will definitely be the Hub – a new real estate project in the heart of Warsaw that will become the regional centre for corporate digital R&Ds, startups and ecosystem partners.

How did payment services company Mastercard come to be a founding partner of the Heart?

We were lucky to have Mastercard as one of the first clients in our corporate club. Last year, they were moving their offices to Ghelamco’s Warsaw Spire building, and we were able to get

“The startup ecosystem here is also developing fast, mostly thanks to the great talent pool”

Tomasz Rudolf


April 2017 I 18


INTERVIEW

their support for joining forces on creating our centre as a European hub for corporate-startup collaboration. Two months later, we could already announce the opening of our space with Mastercard’s CEO, Ajay Banga.

It is a very synergistic relationship – Mastercard is very active in working with startups through the Start Path program. Together, we can offer both corporations and startups unique collaboration opportunities.

You recently launched a scale-up club and an investors club. What is the role of each, and what do you hope they will achieve this year?

Although the focus on corporate needs is part of our DNA, we act as a single point of contact for the whole tech ecosystem in the region. Working with accelerators and venture capital funds across Europe and Israel has always been important for us, as they support us in scouting and selecting the best startups for specific corporate needs.

Recently, we decided to use our growing corporate network to help investors introduce their ready-to-scale portfolio companies to enterprise clients and partners. The scale-ups can use our executive briefings to present their solutions to our corporate network and use scheduled one-to-one meetings with interested executives to move to enterprise deals faster.

In June, the Heart Warsaw will host GCV Academy, Global Corpo-rate Venturing’s training division, which helps organisations boost their open innovation and venturing capabilities. Tell us more about this collaboration.

As a hub, we like to work with global partners that bring in leading know-how and capabilities in their field. We have been attending the GCV Symposium in London for many years now, and had no doubt that we should bring the academy to Warsaw one day. Many of our clients are in the process of setting up corporate venturing activities and it is great that we can connect them with other practitioners and thought leaders in the space. u

The GCV Academy will be running one of its accredited two-day programs at the Heart in Poland on June 13-14. Speakers will include Marcin Hejka, vice-president and managing director of Intel Capital in Poland; Paul Morris, investment director of the UK Department for International Trade’s venture capital unit, who previously set up and ran the CVC operation of Dow Chemical Europe; Andrew Gaule, leader of GCV Academy, and other leading experts. See the details and register at www.gcvacademy.com.

See the accreditation of GCV Academy by the leaders of global CVC units such as GE, Merck, IBM, Swisscom, REV and Ten-cent at: https://www.linkedin.com/pulse/from-zero-cvc-heroes-andrew-gaule

For more on the Heart, visit: www.theheart.tech


https://www.linkedin.com/pulse/from-zero-cvc-heroes-andrew-gaule

https://www.linkedin.com/pulse/from-zero-cvc-heroes-andrew-gaule

http://www.theheart.tech

April 2017 I 19


SECTOR FOCUS

Our definition of the consumer sector encompasses food

and beverages, hygiene and beauty products, apparel and other clothing accessories, e-commerce platforms, con-sumer electronics and other physical consumer goods.

GCV reported 124 rounds involving corporate investors from the consumer sector between March 2016 and Feb-ruary 2017 – 52 took place in the US, 27 in China and seven in the UK and six in Germany.

Most of these 124 commit-ments went to emerging enterprises in the consumer sector (50), IT (18), services (17) and financial (12).

On a calendar year-on-year basis, total capital raised in corporate-backed investment rounds rose significantly, from $17.61bn in 2015 to $21.59bn last year, a 23% increase. The deal count on the other hand went down, declining by 8% from 149 rounds in 2015 to 137 last year.

The 10 largest investments by corporate venturers from the consumer sector cover a range of businesses, spanning transport, tel-ecoms, fashion and apparel companies, and e-commerce platforms.

Investment professionals from consumer companies told GCV they were observing two key trends – the rise of e-commerce plat-forms and the growing importance of brands that resonated with today’s buyers, who were looking for high-quality products offering “unique consumer experiences”.

Natalie Hwang, managing director at Simon Ventures, the corporate venturing arm of US-based real estate company Simon Property, specialises in evaluating next-generation commerce and retail technologies. She said the rise of e-commerce reflected the evolution of the consumer sector in the digital age.

“There are good reasons why commerce [initially] evolved to a model where consumers go to stores rather than have

E-commerce expansion boosts consumer sectorConsumer-focused corporate venturers committed a record $21.59bn over 137 rounds in 2016, primarily in consumer businesses, with e-commerce platforms dominating

Kaloyan Andonov, reporter, GCV Analytics

27

52

3

3

7

6

6

2

2

2

1

1

1

11

1

1

1

Global view of past year’s deals

ConsumerFinancialHealth

IndustrialITMedia

ServicesTelecomsTransport

Total: 124

50

18 1712

9 7 6 41

Consumer IT Services Financial Transport Industrial Media Health Telecoms

Investments by consumer venturers by sector 2016

2011 2012 2013 2014 2015 2016 2017 to date

$5,426m

$21,589m

$2,524m

$1,812m

$1,111m $359m

$17,612m

4453 52

88

149137

16

ConsumerEnergyFinancial

HealthIndustrialIT

MediaServicesTelecoms

TransportUtilities

Deals by consumer sector investors 2011-17

Number of dealsTotal value


April 2017 I 20


SECTOR FOCUS

merchants go to the consumer,” Hwang said. “E-commerce reverses the product selection par-adigm by bringing com-merce to the consumer, making product selection and ordering much more efficient, but with product delivery remaining the weak link in online trans-actions, particularly with last-mile logistics.”

Hwang forecast a future in which e-commerce continued to dominate a wide variety of consumer products, while tra-ditional retail largely revolved around brand differentiation. “Commodity retailing and price-sensitive categories involv-ing goods that are inexpensive to ship will increasingly continue to transact online, with in-store retailing going to highly branded retailers who excel at crafting unique consumer experiences that Will inspire, engage and compel their audiences.”

John Haugen, vice-president and general manager of 301 Inc, the corporate venturing arm of US-based consumer foods manufacturer General Mills, also stressed the role of brand differentiation. “We seek to invest in emerging food startups with a compelling product and strong brand that can be expandable,” he said (see interview).

Ben Lee, managing director of funds at CircleUp, a US-based investment platform connecting early-stage consumer brands and investors, attributes the critical role of branding to a fundamental shift in consumer attitudes. “Today people want to feel connected to what they are buying and consuming. They do not want the makeup their parents wore, and do not want to feed their dogs the brands they grew up with.”

The challenge for large corporations was that consumers were losing interest in mass-market products that have remained unchanged for decades, Lee noted. “Better-quality authentic emerging products are surfacing left and right, and they have entered the mainstream,” he said (see interview).

The top two corporate investors from the consumer sector, accounting for the highest number of disclosed rounds, and each taking part in the largest rounds, were China-based e-commerce company Alibaba and Japan-based e-commerce business Rakuten. Other leading investors include Germany-based retail conglomerate Tengelmann, China-based e-commerce portal JD.com, General Mills as well as UK and Netherlands-based consumer goods conglomerate Unilever.

Corporate investment in consumer-focused emerging enterprises decreased between 2015 and 2016 in both deal count and total value. According to GCV Analytics data, $11.48bn was invested in 234 rounds in 2016, a 21% dip from the $15.13bn invested in 288 deals in 2015.

Some of the biggest investors in con-sumer-focused emerging businesses were US-based corporates from outside the sector, such as media and research company International Data Group (IDG), semiconductor manufacturers Intel and Qualcomm, and internet conglomerate Alphabet.

Deals

Consumer-focused corporates invested in a number of large rounds – one of which was record-setting – raised by emerging e-commerce and transportation-related businesses. China-based e-commerce

By number of deals

AlibabaRakuten

TengelmannJD.com

General Mills (301)UnileverAmazon

Suning CommerceCoca-ColaPatagonia

1717

76

55

44

33 By total value

AlibabaRakuten

Coca-ColaJD.com

TengelmannFfan.comCtrip.com

Suning CommerceFIH Mobile

Dalian Wanda Group

$11,117m$1,283m$1,223m

$658m$433m$230m$215m$200m$125m$120m

Top consumer sector investors

ConsumerFinancialHealthIndustrialIT

MediaServicesTransportTelecoms

International Data GroupAlibaba

QualcommAlphabet

Rocket InternetTencent

BertelsmannIntel

TengelmannWells Fargo (NVP)

149

7555

43

21

Top investors in consumer enterprises

2011 2012 2013 2014 2015 2016 2017


$15,125m

$9,676m

$2,968m

$2,374m

$2,371m

$11,475m

$613m

74

134124

169

288

234

28

Investments in consumer enterprises 2011-16


April 2017 I 21


SECTOR FOCUS

company Alibaba participated in five of the top 10 deals.

China-based ride-hailing service Didi Chuxing closed the largest funding round recorded by a private venture capital-backed company, raising $7.3bn in debt and equity, as the Wall Street Journal reported. The $4.5bn equity portion of the round included a reported $400m from Alibaba and its Ant Financial affiliate, $1bn from electronics producer Apple, $600m from insurer China Life, and contributions from internet company Tencent and telecoms group SoftBank. Didi Chuxing was formed by the merger of China’s two largest ride-ordering platforms – Didi Dache and Kuaidi Dache – in early 2015.

Alibaba and Ant Financial invested $1.25bn in China-based online food ordering platform Ele.me. Alibaba provided $900m while Ant Financial contributed the remaining $350m. Ele.me runs an online platform for ordering food for deliv-ery from local restaurants, operating in an increasingly busy sector in China.

Beverage producer Coca-Cola took part in a $1.2bn round raised by US-based satellite operator OneWeb. SoftBank invested $1bn of the total, while several other corporates, all existing investors in the company, provided the remaining $200m. These investors include Qualcomm, aerospace group Airbus, conglomerates Virgin Group and Bharti Enter-prises, cable and internet service provider Totalplay, and satellite services companies Hughes Network Systems and Intelsat. Founded in 2012, OneWeb is building a network of 720 low earth orbit satellites that will provide worldwide internet coverage.

China-based chauffeured lift service UCar received RMB3.68bn ($568m) in a funding round featuring Alibaba. The round also featured investment banks China International Capital and Citic Securities as well as state-owned equity investment company Shenwan Hongyuan. UCar’s service involves offering qualified drivers and high-quality cars to professional customers.

Rakuten Ventures, the corporate venturing vehicle of the e-commerce company, was among the investors that agreed to invest over $550m in Indonesia-based on-demand mobile platform Go-Jek. Go-Jek’s core offering is a ride-sharing service using motorcycle taxis called ojeks, but it has built a mobile platform that offers a range of on-demand services across 14 Indonesian cities, including courier deliveries, mobile payments, food delivery and lifestyle services.

Yixin Capital, a China-based online automotive financing subsidiary of automotive retail services provider Bitauto, raised $550m from a consortium featuring its parent company. Investors include local corporations such as e-commerce plat-form JD.com as well as internet companies Tencent and Baidu.

E-commerce holding group Rocket Internet was among the investors in a €330m ($363m) round closed by Global Fashion Group (GFG), a holding entity for several of its portfolio companies. Rocket Internet itself provided $75m of the funding. Established in 2014, GFG oversees six online fashion retailers – Jabong, Lamoda, Zalora, Dafiti, Namshi and the Iconic – covering 27 countries in Asia, South America, the Middle East and Australia.

United Arab Emirates-based ride-hailing platform Careem closed a first tranche of a $500m round co-led by Rakuten and telecoms group Saudi Telecom at $350m. Careem runs a ride-hailing service that spans 47 cities across 11 countries in the Middle East and North Africa, and southern Asia. The platform claims to have around 6 million users.

ETCP, a China-based creator of a smart parking app, secured RMB1.55bn ($230m) in a series B round led by Ffan.com,

Top 10 investments by consumer sector investors over the past year

Company Location Sector Round Round size InvestorsDidi Chuxing China Transport – $7,300m Alibaba | Ant Financial | Apple | BlackRock | China Life |

SoftBank | TencentEle.me China Consumer E and

beyond$1,250m Alibaba | Ant Financial | Didi Chuxing

OneWeb US Telecoms – $1,200m Airbus | Bharti Airtel | Coca-Cola | Hughes Network Systems | Intelsat | Qualcomm | SoftBank | Totalplay | Virgin

UCar China Transport Stake purchase

$568m Alibaba | China International Capital Corporation | Citic Securities | Shenwan Hongyuan

Go-Jek Indonesia Transport – $550m Capital Group Private Markets | DST System | Farallon Capital Management | Formation Group | KKR | Northstar Group | NSI Ventures | Rakuten | Sequoia Capital | Warburg Pincus

Yixin Capital China Financial Services

– $550m Baidu | JD.com | Tencent

Global Fashion Group

Luxembourg Consumer – $363m Access Industries | Kinnevik | Ontario Teachers’ Pension Plan Board | Rocket Internet | Summit Partners | Tengelmann | Verlinvest

Careem United Arab Emirates

Transport – $350m Abraaj Group | Al Tayyar Travel Group | Beco Capital | El Sewedy Investments | Endure Capital | Lumia Capital | Rakuten | Saudi Telecom | SQM Frontier | Wamda Capital

ETCP China Transport B $230m Ffan.comYiguo China Consumer C $200m Alibaba | Suning Commerce | Yunfeng Capital | undisclosed

strategic investors


April 2017 I 22


SECTOR FOCUS

an e-commerce subsidiary of conglomerate Dalian Wanda. Founded in 2012, ETCP has developed an app that uses big data and cloud computing technology to help users find, reserve and pay for parking spaces in advance. The company operates in 10 Chinese cities, where it has formed partnerships with about 5,000 car parks.

Yiguo.com, the China-based operator of an e-commerce platform for fresh food, raised $200m in a series C-plus round led by appliance retailer Suning Commerce Group. Alibaba and Yunfeng Capital, the private equity firm founded by Alibaba chairman Jack Ma, also took part in the round. Founded in 2005, Yiguo provides fresh food to customers in 310 Chinese cities and operates an extensive range of cold-chain logistics facilities.

E-commerce platforms offering services from food delivery and fashion to purchasing tickets dominated the top con-sumer-focused enterprises attracting corporate venturers.

Weiying Technology, the China-based operator of cinema and event ticketing app WePiao, raised RMB4.5bn ($693m) in a series C-plus round led by gaming company Dalian Zeus Entertainment. The round included Tencent and mobile game publisher iDreamSky. Founded in 2014, WePiao is an app-based service that sells tickets for more than 4,500 Chinese cinemas and around 1,200 theatres, stadiums and exhibition venues.

UK-based online food-ordering platform Deliveroo raised $275m in a series E round featuring Nokia Growth Partners, the corporate venturing subsidiary of communications technology provider Nokia. Founded in 2012, Deliveroo operates an online platform through which users can order food from local restaurants and cafes to be delivered to homes or workplaces.

Ant Financial, Alibaba and internet company Sina Corp co-led a RMB13.7bn ($260m) series A round for online ticketing platform Taobao Movie. Alternative asset manager CDH Investments also co-led the round, which valued the unit at $2.1bn. Media companies Bona Film, Hehe Pictures, Huace Media and undisclosed other Chinese entertainment com-panies also took part in the round, according to a regulatory filing. Taobao Movie lets users book tickets for films at more than 5,000 Chinese cinemas.

US-based e-commerce app operator Letgo raised $175m from investors including media and e-commerce group Naspers. Founded at the start of 2015, Letgo runs a mobile marketplace that has been downloaded more than 45 mil-lion times, and which has roughly 20 million monthly active users. Users list items for sale by uploading a photograph.

China-based smartphone service provider Tink Labs has obtained $125m in a funding round from investors including FIH Mobile, a unit of contract manufacturing company Foxconn. Tink Labs indicated that the deal valued the company at more than $500m. Founded in 2012, Tink Labs provides hotel chains with mobile phones in the rooms.

China-based online fruit and vegetable retailer Benlai Life closed $117m in series C and C-plus funding from investors including kitchen appliance manufacturer Joyoung. Benlai Life, which is operated by holding company Kindler’s Informa-tion Technology, sells fresh produce to Chinese customers through a logistics chain that covers 22 major cities.

UK-based fashion e-commerce company Farfetch raised a $110m series F round co-led by IDG Capital Partners. The round valued Farfetch at about $1.5bn. Founded in 2008, Farfetch operates an e-commerce business that sells fashion products from some 400 designer boutiques across the world, together with brands from 37 countries.

Exits

Consumer-focused corporate venturers completed a record 26 exits over the past year, including 21 acquisitions, two mergers and three initial public offerings. These exits are a significant increase over the 18 recorded in 2015 and 17 reported in 2014. Half the exits (13) took place in the US.

Top 10 investments in consumer sector emerging enterprises over the past year

Company Location Round Round size InvestorsEle.me China E and beyond $1,250m Alibaba | Ant Financial | Didi ChuxingBeijing Weiying Technology

China C $693m China Everbright | CMC Holdings | Dalian Zeus Entertainment | IDreamsky Technology | Ocean Capital Group | Tencent

Global Fashion Group

Luxembourg – $363m Access Industries | Kinnevik | Ontario Teachers’ Pension Plan Board | Rocket Internet | Summit Partners | Tengelmann | Verlinvest

Deliveroo US E and beyond $275m Bridgepoint | DST System | General Catalyst | Greenoaks Capital | Nokia

Taobao Movie China A $260m Ant Financial | Bona Film Group | CDH Investments | Hehe Pictures | Huace Media | Sina | undisclosed

Yiguo China C $200m Alibaba | Suning Commerce | Yunfeng Capital | undisclosed strategic investors

Letgo US – $175m 14W | Accel | Insight Venture Partners | Naspers | New Enterprise Associates

Tink Labs China – $125m Cai Wensheng | FIH Mobile | Sinovation VenturesBenlai Life China C $117m CDH Investments | China Equity Group | China Urban Realty

Association | Integral Group | JoyoungFarfetch US E and beyond $110m Eurazeo | International Data Group | Temasek | Vitruvian Group


April 2017 I 23


SECTOR FOCUS

Retailer Walmart sealed a $3.3bn acquisition of Jet.com, a US-based e-commerce company backed by Alibaba and Alphabet. The trans-action was made up of $3bn in cash to be paid in instalments and $300m in stock. Jet launched its e-com-merce platform in July 2015, two years after it was founded, and offers customers the chance to save money on a range of con-sumer products by using algorithms that calculate the final bill based on the amount of goods bought and a customer’s proximity to one of Jet’s warehouses. Walmart made the acqui-sition to compete against established e-commerce players such as Amazon.

MakeMyTrip agreed to buy fellow India-based online travel services platform Ibibo in an all-share $1.8bn deal, making Ibibo’s backers, Naspers and Tencent, shareholders. Naspers owned 91% of Ibibo and Tencent 9% through holding company MIH Group. The two companies received a 40% stake in MakeMyTrip through the deal, which valued Ibibo at $720m. Ibibo was incubated by Naspers and launched in 2007. Since then it has grown through a series of acquisitions, including bus-ticketing service RedBus, hotel and air travel aggregator Goibibo, bus-tracking app YourBus and car-sharing platform Ibibo Ryde.

Beverage producer Dr Pepper Snapple Group agreed to acquire US-based antioxidant-infused beverage maker and portfolio company Bai Brands for $1.7bn. Founded in 2007, Bai manufactures canned and bottled fruit-flavoured drinks under the Bai and Bai Bubbles brands, the latter of which includes caffeinated drinks, ready-to-drink teas and bottled waters.

Alibaba invested $1bn in Singapore-based e-commerce marketplace Lazada in a deal that gave partial exits to investors including Rocket Internet and retailer Tesco. Alibaba acquired a 67% stake in Lazada through the investment, securing $500m of new shares and $500m of shares held by existing investors. Founded in 2012 and incubated by Germany-based Rocket Internet, Lazada operates a diversified e-commerce platform that covers Indonesia, Malaysia, the Philip-

133

4

2

1

1

1

1

Global view of past year’s exits

ConsumerFinancialIT

MediaServicesTransport

Total: 26

2011 2012 2013 2014 2015 2016 2017 to date

$5,415m

$17,369m

$1,410m $1,386m$338m $2m

$14,180m

12 12

6

1718

26

3

Exits by consumer sector investors 2011-17

ConsumerEnergy

FinancialHealth

IndustrialIT

MediaServices

TelecomsTransport

Number of exitsTotal value

Top 10 exits by consumer sector corporate investors over the past year

Company Location Sector Exit type Acquirer Size InvestorsJet US Consumer Acquisition Walmart $3,300m Alibaba | Alphabet | WalmartIbibo India Services Merger - $1,800m Ctrip.com | Naspers | TencentBai Brands US Consumer Acquisition Dr Pepper

Snapple Gp$1,700m Dr Pepper Snapple Group

Lazada Germany Consumer Acquisition Alibaba $1,000m Alibaba | Kinnevik | Rocket Internet | Temasek | Tesco | Verlinvest

Dollar Shave Club

US Consumer Acquisition Comcast $1,000m Comcast | Dragoneer Investment Group | Forerunner Ventures | Technology Crossover Ventures | Unilever | VenRock

Dada Nexus US Transport Merger JD.com $200m DST System | JD.com | Sequoia Capital | undisclosed investors

Olapic US IT Acquisition Monotype $130m angel investors | Felix Capital | Fung Capital US | Jose Marin Investments | Longworth Venture Partners | Monotype | Unilever

Shakey’s Pizza Asia Ventures

Philippines Consumer IPO - $80m Century Pacific Food Group | GIC

Jabong India Consumer Acquisition FlipKart $70m FlipKart | Global Fashion GroupImpinj US IT IPO - $67m Arch Venture Partners | Madrona Venture Group |

Mobius Venture Capital | Polaris Venture Partners | Unilever | UPS


April 2017 I 24


SECTOR FOCUS

pines, Singapore, Thailand and Vietnam. It receives some 5 million visits each day.

Consumer goods manufacturer Unilever agreed to buy US-based grooming product seller Dollar Shave Club in a deal reported by Fortune to be vaued at $1bn in cash, giving an exit to mass media group Comcast. Founded in 2012, Dollar Shave Club’s online platform sells men’s grooming products through a subscription model. It began with razors before expanding to include skincare products such as cleansers, wipes and creams, as well as haircare products.

China-based last-mile delivery services provider Dada Nexus secured a $200m investment from JD.com and is to merge with the latter’s logistics subsidiary JD Daojia. The merged company continues to operate under the Dada Nexus brand. Founded in 2014, Dada Nexus runs a crowdsourced delivery platform available in 37 Chinese cities, boasting 1.3 million delivery contractors.

Typeface services provider Monotype acquired US-based visual marketing software provider Olapic in a $130m deal, providing an exit to consumer goods manufacturer Unilever. Olapic’s Earned Content Platform enables companies to find, curate and utilise user-generated images and videos as part of their brands’ e-commerce marketing activities.

Processed food conglomerate Century Pacific Food exited the Philippines-based owner of the local Shakey’s pizza fran-chise when the latter listed on the stock exchange. The IPO provided an exit for both Century Pacific Food and Singa-pore’s sovereign wealth fund GIC. Founded in 1954 by entrepreneur Sherwood “Shakey” Johnson, Shakey’s began as a pizza parlour and live music venue in Sacramento, California. The US-based chain launched in the Philippines in 1975.

Flipkart agreed to acquire Jabong, the India-based branch of GFG, for $70m in cash. Jabong sells a range of fashion and apparel through an online platform. However, the company has not been profitable and had announced it was changing its business model from an inventory-based structure to an online marketplace for other vendors.

Impinj, a US-based radio-frequency identification technology provider, backed by several corporate investors, raised $67.2m when it priced its IPO at $14 a share. The flotation gave an exit to Unilever, Intel and logistics firm UPS. Founded in 2000, Impinj develops technology that uses tag integrated-circuits to identify, track and locate items such as clothing, medical supplies, auto parts, driving licences, food and luggage, and then sends the data to businesses that manage, sell or transport them.

Emerging enterprises operating in the consumer sector provided their corporate investors with exits vauled between $2m and $3.3bn. The transactions included 29 acquisitions, an IPO and a business closure.

Internet and electronics group LeEco agreed to acquire US-based flat screen television producer Vizio in a $2bn deal, giving exits to contract manufacturers AmTran Technology and Foxconn. Founded in 2002, Vizio develops low-cost consumer electronics products such as smart televisions and sound bars which are assembled in China.

Cinema operator Wanda Cinema Line, a unit of conglomerate Dalian Wanda, agreed to buy Mtime, a China-based web-site that provides news on the film industry and sells tickets. Wanda Cinema Line paid $280m in cash for Mtime.com and all its operational entities. Mtime will keep its brand and operational team and will form an international film marketing website, according to Bloomberg. Set up in 2006, Mtime runs a Chinese language entertainment portal. Dalian Wanda bought US film studio Legendary Entertainment for $3.5bn in January 2017, making Wang Jianlin, Dalian Wanda’s chair-man, the first Chinese executive to control a major Hollywood film company.

Brainbees Solutions, the India-based operator of childcare products e-commerce platform FirstCry, agreed to acquire the franchise business of online baby products retailer BabyOye from Mahindra subsidiary Mahindra Retail for Rs3.6bn ($54m). Brainbee Solutions issued $52.5m worth of shares and paid the rest in cash. BabyOye was founded in 2010.

One Kings Lane, a US-based e-commerce company, was acquired by retail chain Bed Bath & Beyond for less than $30m. Founded in 2009, One Kings Lane sold furnishings through flash sales. The company had raised more than $225m from investors including media company Scripps Network, which participated in a $50m series D round in 2012.

Top 10 exits from consumer sector enterprises over the past year

Company Location Exit type Acquirer Size InvestorsJet US Acquisition Walmart $3,300m Alibaba | AlphabetVizio US Acquisition LeEco $2,000m AmTran Technology | Hon HaiBai Brands US Acquisition Dr Pepper Snapple Gp $1,700m Dr Pepper Snapple GroupLazada Germany Acquisition Alibaba $1,000m Kinnevik | Rocket Internet | Temasek | Tesco | VerlinvestDollar Shave Club

US Acquisition Comcast $1,000m Comcast | Dragoneer Investment Group | Forerunner Ventures | Technology Crossover Ventures | Unilever | VenRock

Mtime China Acquisition Dalian Wanda Group $280m Fidelity | Tiger Global ManagementShakey’s Pizza Asia

Philippines IPO - $80m Century Pacific Food Group | GIC

Jabong India Acquisition FlipKart $70m FlipKart | Global Fashion GroupBabyOye India Acquisition Brainbees Solutions $54m Mahindra GroupOne Kings Lane

US Acquisition Bed Bath & Beyond $30m Greylock Partners | Institutional Venture Partners | Kleiner Perkins Caufield & Byers | Scripps Networks Interactive | Tiger Global Management


April 2017 I 25


SECTOR FOCUS

Funds

Corporate venturers and corporate-backed VC firms that invest in the consumer sector secured an estimated $12.79bn via 53 funding initiatives tracked from March 2016 to February 2017. The dollar figure was more than 10 times the capital collected over the previous year – $1.21bn from more than 38 initiatives. Several notable corporate venturing units were launched over this period as well.

The Chinese government established a fund seeking to raise RMB100bn ($14.5bn), backed by several state-owned firms that will invest in the country’s internet sector, including e-commerce. The fund has so far raised $4.35bn in capital. Financial services firm Industrial and Commercial Bank of China is its largest limited partner, supplying $1.45bn. The fund’s other limited partners include telecoms companies China Mobile and China Unicom, insurance provider China Post Insurance and Citic Guoan Group, part of investment firm Citic Group.

Baidu launched $3bn investment vehicle Baidu Capital. The investment subsidiary is to focus on mid to late-stage start-ups in the broader internet sector, including e-commerce, and is expected to make individual commitments of between $50m and $100m.

IDG Capital Partners closed its latest fund at $1bn. IDG Capital Fund III was raised in partnership with US-based VC firm Breyer Capital and will target consumer products and technology, healthcare, energy, media and telecoms companies based in China or looking to enter the Chinese market.

Venture capital firm Sapphire Ventures raised $1bn in new capital, with the money coming from its sole limited partner, Germany-based enterprise software provider SAP. Founded as SAP Ventures by SAP in 1996, the firm spun out in 2011 and changed its name to Sapphire in late 2014. Sapphire targets enterprise and consumer technology developers, and invests in technology funds in Europe, the US and Israel. The $1bn will be split into a $300m early-stage fund and a $700m growth fund.

China-based local services platform Meituan-Dianping formed a RMB3bn ($435m) venture capital fund to 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. In addition to providing capital, Meituan-Dianping is set to secure finance from Tencent and agribusiness New Hope Group. The firm is seeking commitments from other investors.

US-based meat processor Tyson Foods launched its $150m venturing unit Tyson New Ventures. The unit will invest in businesses involving alternative proteins, food security and the internet.

US-based cereal producer Kellogg launched corporate venturing fund Eighteen94 Capital (1894). The fund was estab-lished in response to the pace of change in the food industry, according to Kellogg vice-president of investor relations Simon Burton. Kellogg said it was committing “approximately $100m” to 1894 for investments in startups, and portfolio companies would be able to work with the firm as well as its organic cereals subsidiary Kashi.

Singapore-based venture capital firm Golden Gate Ventures closed its second early-stage fund at $60m following com-mitments from investors including insurance company Hanwha Life Insurance. The fund, which was oversubscribed by $10m, also received capital from media conglomerate Hubert Burda Media and financial services firm Siam Commercial Bank, the latter through its corporate venturing division, Digital Ventures. Golden Gate Ventures targets startups in e-commerce, entertainment, fashion, fintech and payments, services, gaming, media and travel. This fund will seek out early-stage opportunities in Southeast Asia’s consumer sector.

France-based luxury goods producer LVMH established corporate venturing arm LVMH Luxury Ventures to invest in early-stage luxury consumer startups. The firm provided the vehicle with €50m of capital. It will be led by Julie Bercovy, LVMH’s deputy head of mergers and acquisitions and will back high-end fashion, cosmetics and accessories startups with an annual turnover of between €2m and €5m.

People

Rob Chumley and Raja Doddala, co-founders of 7-Ventures, the cor-porate venturing arm of US-based convenience retail chain 7-Eleven, left the unit. 7-Eleven formed 7-Ventures in 2013 to access disruptive models in retail services and delivery being created by startups such as PostMates and DoorDash. In addition to supplying equity funding, the company also offered the opportunity to use its outlets as a testing ground for new products.

Baidu hired Liu Wei as chief executive of its new Baidu Capital invest-ment unit. Baidu formed the unit last year and provided it with $3bn in capital. Liu was previously a partner at Legend Star, a venture capital subsidiary of conglomerate Legend Holdings. He joined Legend Star in 2011, and during his time at the unit its investments included speech recognition technology developer AI Speech and educational app developer Knowbox.

Baidu also appointed Wenjie “Jenny” Wu as managing partner of Baidu Capital. Wu was the first of three managing part-

Rob Chumley Raja Doddala


April 2017 I 26


SECTOR FOCUS

ners recruited for the fund. She was formerly chief financial officer and then chief strategy officer for Ctrip, the China-based online travel services platform.

In addition, Baidu hired Zhang Jinling from smartphone manufacturer Xiaomi as chief financial officer (CFO) of Baidu Capital. Zhang, who was a vice-president at Xiaomi, is taking a dual role at Baidu as CFO of both Baidu Capital and the corporate’s online food delivery subsidiary, Baidu Waimai, according to Chinese media reports. Zhang joined Xiaomi in 2013 to head its finance and investment activities.

Mary Kay James, a managing director at DuPont Ventures, the corporate venturing unit of the chemicals company, joined US-based meat processor Tyson Foods to run its new $150m fund, Tyson New Ventures. u

Interview: General Mills taps health and wellness brands

John Haugen, vice-president and general manager of 301 Inc, the brand elevator and corporate venturing arm set up by consumer foods manu-facturer General Mills in 2015, spoke to reporter Kaloyan Andonov

What trends have you observed in the food and beverage sector over the past few years?

What is happening in the marketplace is unparallelled in terms of rapid development and the expansion of emerging brands. A number of tailwinds are driving this new culture of health and wellness. We always seek to sepa-rate fad from trend, but the behaviours around plant-based snacking in par-ticular have been going on for a long time. What tells me that it will continue is there are more good products coming out every day. A few examples include Rhythm beet chips, D’s Naturals plant-based protein bars, and Tio Gazpacho. You are seeing more and more innovation into the category, which indicates continued growth.

How important is the strategic fit for the corporate parent versus the eventual financial returns?

While 301 Inc looks to partner businesses whose products could eventually complement our existing offerings, acquisition is just one of several potential exit opportunities for our portfolio companies. We seek to invest in emerg-ing food startups with a compelling product and strong brand that can be expandable.

We are looking for passionate and relentless founders, with demonstrated progress in market. Specifically, we are looking to make minority stake investments in startups in whole foods that are close to their original state, proactive nutrition, plant-based diets and omni-channel brands and services.

How much do you normally seek to commit to a startup?

Each partnership opportunity has its own unique characteristics. There is no set investment amount. We tend to focus

Consumer sector power rankings

Alib

aba

81.3

Median

Rak

uten

68.6

Median

Teng

elm

ann

40.8

Median

Coc

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Interview: General Mills taps health and wellness brands

John Haugen


April 2017 I 27


SECTOR FOCUS

more on company growth stages – such as having demonstrated in-market success, consumer loyalty and expansion into new categories, formats and channels – versus absolute size.

What is the ideal investment case for 301 Inc?

Our goal at 301 Inc is focused on building partnerships with emerging brands and then helping to accelerate their growth. We do that by providing investment capital and expertise to entrepreneurs who are working to create break-through innovation in the packaged food space.

These are the partners we have invested in, to date – plant-based snacking company Rhythm Superfoods, organic cot-tage cheese producer Good Culture, organic gazpacho producer Tio Gazpacho, non-dairy cheese manufacturer Kite Hill, plant-based food producer D’s Naturals, and organic probiotic food and beverage company Farmhouse Culture.

How does the corporate parent, General Mills, help these brands you partner?

If you look at General Mills’ portfolio, we operate in more than 20 categories across the grocery store. We are able to provide support in a number of areas, including operations or supply chain, distribution, technical and quality consist-ency, recipe development, and marketing and branding.

What is the most rewarding and the most challenging aspect of helping to elevate brands?

The most challenging aspect – when you look at change and activity in the marketplace, it is incredibly dynamic, but you need to keep pace. No success is overnight, but there is still the challenge of how quickly you can deploy resources to keep the momentum going. Combining investment capital with the resources of General Mills helps us achieve this.

The most rewarding – when we can combine the vision and passion of these entrepreneurs, not only with our team, so that we can help them meet consumer needs faster than ever, but also with each other. For example, we have helped make the connection between partners to consult each other about things like health insurance coverage and other business aspects unique to startups. u

Interview: Using machine learning to spot new brands

Ben Lee, managing director of funds at CircleUp, a US-based investment platform that connects early-stage con-sumer brands with investors, spoke to features editor Nicole Idar Lee

Before joining CircleUp, you were an associate at consumer-focused private equity firm JH Partners. What moti-vated your move to the startup world?

Being an associate at a private equity firm is a great opportunity to be exposed to a ton of companies and learn about what traits make great businesses. However, you are always one step removed from the reality of what it means to be running a business day to day, solving the unexpected challenges that come up for any operator. I wanted to be a part of building a business from the ground up, to face the unknown and help solve big problems.

I was drawn to CircleUp because it was solving a problem I had seen first hand. At my previous firm, like many other middle-market private equity firms, it was difficult to invest small amounts in early-stage companies, no matter how inter-esting the opportunity might be. Small investments simply did not provide enough upside and often took as much, if not more, work to execute and monitor than larger investments. It seemed like there should be some resource for these companies, but there was none, so CircleUp made complete sense in how it was leveraging technology to bring more resources to the early-stage ecosystem.

CircleUp’s team includes several private equity professionals, such as you and Asher Hochberg, who joined from Goldman Sachs. How does your expertise and experience as a private equity investor inform the work of evaluat-ing startups for CircleUp?

My background in private equity, as well as the backgrounds of others on our team in investment banking and other areas of finance, are certainly very formative of the work we do at CircleUp. It provides the basis for the disciplined approach to investing we take and gives us the ability to hone in on the key attributes that will help determine whether or not a company can be successful.

Not only was my private equity experience relevant, in terms of deal evaluations and investment theses, it exposed me to the problem that CircleUp was created to fix. The very early-stage market in consumer has very few financing options, other than raising capital from friends and family and bootstrapping until you hit $10m in revenue, when you are large enough for traditional private equity firms. CircleUp was built to fill this void, providing capital and resources to early-stage consumer brands.

There were adjustments and new challenges for me, as I moved into earlier-stage consumer investing, which is pretty much uncharted territory for the entire world of finance. But by far the biggest change is the immense personal reward of knowing we are helping entrepreneurs take their business to the next level and helping to bring products into the world that improve what people eat, drink and wear.

Interview: Using machine learning to spot new brands


April 2017 I 28


SECTOR FOCUS

The US consumer and retail sector receives less than 5% of early-stage funding, even though it makes up about 20% of the US economy. What explains this discrepancy, and how is CircleUp seeking to help bridge this gap?

This imbalance of market size and opportunity is central to CircleUp’s vision and value proposition to entrepreneurs. It is important to understand though that this imbalance, where early-stage consumer private equity is largely neglected, is not because of risk or concerns with financial outcomes. The asset class actually has relatively low volatility and great returns historically. The issue is the inefficiency that has plagued early-stage consumer, deterring investors from pursuing it.

In consumer, there is a geographic dispersion, meaning companies are as likely to be in Texas, Colorado or Idaho as they are in San Francisco or New York. There is no literal or figurative Silicon Valley in the consumer industry, meaning no central hub cycling the best new brands and entrepreneurs to the right networks, and to VCs. When there are millions of small consumer brands scattered throughout the nation, finding and diligencing the top ones is expensive, in terms of time spent and search costs. These high sourcing costs are not justifiable when you are making a small investment – $1m or less – for a small company.

A lot of CircleUp’s value for investors, and thus for entrepre-neurs and consumer product innovation at large, is drastically lowering these sourcing costs and opening up this asset class for much more efficient evaluations and investments. We use the model of an online platform connecting capital and brands. Our platform is built on our consumer business graph, Helio, which uses machine learning and a tremendous amount of data to spot fast-growth, early-stage consumer brands.

Today, Helio is collecting and analysing data on 1.2 million consumer brands, and is built to mimic the investor’s mind, assessing brand, distribution, team and revenue – all from afar, without us needing to contact the company. The result is an intelligent lens into an otherwise messy, far-reaching and opaque market, where we can spot great brands instantly and early when they pull ahead, and provide them with the capital and resources they need to thrive.

301 Inc, the investment arm of consumer foods manufac-turer General Mills, is a CircleUp partner. Tell us how this partnership came about. Is corporate venturing interest in consumer innovations growing?

We have been fortunate to have General Mills as a partner since very early in our company’s life, starting in 2012. The scope of the partnership has grown and evolved over time, but at the core of the partnership was their interest in innova-tive consumer products companies. This eventually grew to include a greater focus on investing through 301 Inc.

We are continuously impressed with General Mills’ dedica-tion to being an active source of capital and mentoring, fuel-

ling innovation among early-stage consumer companies. Several big consumer packaged goods (CPG) brands have launched venture arms, but General Mills 301 Inc is by far the most active. The partnership was a natural move for us both – us to provide emerging brands with strategic capital, and them to access a direct channel for some of the top industry deals, as well as industry insights.

Overall, CVC is growing in consumer innovation. In the past year, 10 of the biggest consumer and retail brands have invested in CircleUp companies. Big consumer brands are well aware they are in trouble, with eroding market share as people are losing interest in their mass-market products. All the while, better-quality authentic emerging products are surfacing left and right, and they have entered the mainstream.

Big consumer brands invest primarily for three reasons – to make a strong return, to inform their M&A pipeline, and to learn about trends that inform future deals. The partnership with CircleUp gives them great exposure to all three, with a highly-curated selection of some of the top brands across all consumer categories.

CircleUp raised $30m in a series C round in 2015 to grow its platform and invest in machine learning technology. What has changed since then?

A lot has progressed on this front over the past few years. We rolled out consumer business graph Helio, which collects and analyses data on the greater consumer brand universe to predict the likelihood of breakout success for early-stage businesses. Helio is based on hundreds of data sources – some public, some proprietary, billions of data points and many algorithms, with more being built. It is the foundation for all the work we do.

Ben Lee


April 2017 I 29


SECTOR FOCUS

Tell us how deals are sourced at CircleUp. Do brands approach you, or is it more the reverse?

Helio allows us effectively and efficiently to evaluate not just companies that apply to CircleUp, but the greater consumer brand universe at large. Helio begins with subcategory identification, understanding if a brand sells popcorn, shampoo or kombucha, then compares it only with like brands, understanding the specific nuances of the exact subcategory, like margins, distribution and channels. Helio predicts financial performance, both current revenue and revenue estimate, and assesses strength of brand, management team and distribution. The goal is to mimic the investor’s thought process, by considering these key metrics, but with more data and intelligence than a human could compute manually.

Helio can also be tailored to investment thesis. For example, you can look at beer brands doing $5m in revenue with great brand scores, but average distribution scores, theorising that capital could fuel distribution and then catapult growth. Or an investor can look at men’s personal care brands that are growing very fast, with an excellent team.

In terms of how we engage these companies to work together, it is a strong mix of applications, referrals and compa-nies we reach out to proactively based on Helio’s identification. In the case of reaching out proactively, entrepreneurs are very enthusiastic, because they have put their head down, worked hard and done a great job, and now are being rewarded quickly and early for pulling ahead.

What kinds of emerging companies are attracting investor attention? What key criteria are investors looking for, and what sectors within consumer products are the most appealing?

The trend to natural, organic and sustainable has taken hold across every consumer category, leading to higher-quality and fewer ingredients in products. At a more specific level, we have seen an explosion in plant-based foods, such as dairy and meat alternatives and better-for-you snacks, as well functional beverages, which tout positive health benefits coming from unique ingredients like probiotics and superfoods. We also see a surge in “upcycling”, which is reinventing food waste. Finally, healthy fats are in, with ingredients like avocado and coconut in different types of snacks and foods.

Every investor considers financials, brand, team and distribution. How they weight these areas may vary according to their investment thesis, but these are the core metrics.

Overall, we are seeing successful modern CPG businesses doing an excellent job of telling and selling a story, a story that is authentic and inspiring. Today, people want to feel connected to what they are buying and consuming. They do not want the makeup their parents wore, and do not want to feed their dogs the brands they grew up with. Even the act of selecting a household cleaner is now a form of self-expression.

Share a few recent capital raising success stories with our readers.

Supergoop is a skincare brand which brings sun protection factor to new kinds of products and makes it something that feels great to put on your skin. We presented Supergoop to institutional investors, and shortly afterwards they raised $3.25m, including an investment from CircleUp’s own fund.

Rebbl is a line of functional plant-based drinks that incorporate the power of super-herbs, and the brand donates 2.5% of sales to initiatives that help to eradicate human trafficking. The CEO is a co-founder of Plum Organics and former CEO of Clif Bar. Lead investors are Powerplant Ventures, led by the Zico coconut water founder, and Boulder Investment Group Reprise, with investment from CircleUp’s own fund.

Tio Gazpacho is a quickly-growing brand in the relatively new category of bottled soups, or more broadly, drinkable meals. We introduced them to General Mills 301 Inc, which is now is its lead investor.

Rhythm Superfoods is a leading plant-based snack company, whose products include kale chips, beet chips, and broc-coli bites. General Mills 301 Inc has been a lead investor in two investment rounds, which included investments from CircleUp’s fund.

What are CircleUp’s plans for further expansion?

The US consumer market is massive, with millions of emerging businesses across food, beverage, personal care, home goods, pet care and apparel. There is still a long runway for us to go within this market. However, we find international consumer markets very interesting for the same reason as the US consumer market – there are numerous innovative brands, which also face challenges with insufficient financing options. u

“Even the act of selecting a household cleaner is now a form of self‑expression”


April 2017 I 30


NEW TECHNOLOGIES

GCV’s chief operating officer Tim Lafferty and I co-chaired a dinner debate in London last month on whether fly-ing cars or autonomous vehicles would dominate the future of urban and interurban transport. The debate was inconclusive because nobody could agree on a particular urban location – a lot depends on whether you pick

Dubai or Naples.. But what was beyond doubt was the excitement over the prospect of flying cars.

Seasoned corporate venturers, experienced lawyers and promising venture-backed startup executives all indulged in a common fascination. We might as well have all been wearing Batman pyjamas. We were a mostly male crowd, but, that said, the women there were equally thrilled. And why not? What could be more exciting than flying cars?

This is the first in a series of articles for a special report on venturing activity across the gamut of technologies and busi-ness models that are advancing “urban air mobility”, a phrase I first heard from Thomas d’Halluin, CEO of the US office of Airbus Ventures, the corporate venturing arm of the France-based aerospace company, who is interviewed below.

Flying cars versus

autonomous vehicles

Tom Whitehouse, contributing editor


April 2017 I 31


NEW TECHNOLOGIES

D’Halluin explained that flying cars were a lot closer than we think. He also believed they had a faster route to market than autonomous vehicles.

Differing views are provided below by Jon Lauckner, president of GM Ventures, the corporate venturing unit of car manufacturer General Motors (GM); Varun Jain, senior investment manager at Qualcomm Ven-tures, the corporate venturing vehicle for the mobile semiconductor maker; and Raj Singh, managing director at JetBlue Technology Ventures, the corpo-rate venturing subsidiary of the airline operator.

Each of these three venturing units is monitoring the autonomous vehicles and flying cars investment scene. GM’s $1bn acquisition of Cruise Automa-tion – which had been backed by Qualcomm Ven-tures – put GM in the driving seat of future vehicle autonomy and provided a good exit for Qualcomm Ventures. As the ven-turing unit of a leading independent airline, JetBlue Ventures is predict-ing and readying itself for what Singh calls a “dog fight involving commer-cial planes, connected autonomous vehicles and flying cars”.

If you are in the transport business, then your venture strategy could per-haps be described most simply as trying to back the right fighting dogs. It is going to be fascinating, because nearly every technological advance that is good for autonomous vehi-cles is also good for flying cars and drones, and vice versa – they pro-gress together as materials get lighter, batteries get stronger, light detection and ranging (lidar) improves and 5G goes mainstream.

Technology may not determine who wins this race. “Ground-based vehicles are much farther ahead from a regulatory stand-point than flying cars or drones,” said Lauckner. D’Halluin believed the key advantage for flying cars was that they operated in an underutilised environment. “Low-altitude space is actually quite free and available,” he said.

AirMap, a California-based air-space management platform, is one of the companies offering to organise low-altitude space safely. The company has developed a software platform that provides unmanned aerial vehicles with real-time airspace information and services, allowing them to fly safely at an altitude below 500 feet (150m). Its $23m series B round, which closed in February, was led by Microsoft Ventures, the corporate venturing arm of software provider Microsoft, with electronics and entertain-ment conglomerate Sony, Airbus Ventures and Qualcomm Ventures also involved. It is the latest in a growing number of deals that leverage satellite and internet technology, in which corporate VCs are increasingly active.

The debate over flying cars versus autonomous vehicles is set for takeoff. D’Halluin’s Paris-based colleague François Auque, chairman of Airbus Ventures who leads European venture investments, will lead this debate, which I will be moderating, at the GCV Symposium in London on May 23 with Qualcomm Ventures and others. Join us – and feel free to wear your Batman pyjamas. u

2011 2012 2013 2014 2015 2016

$1,293m

$1,168m

$103m$162m

$57m

$329m

6

10

7

33

2

Corporate-backed satellite and internet deals 2011-16

Number of dealsTotal capital raised

Source: GCV Analytics

Liberty GlobalSky

AlphabetO'Reilly Media

QualcommTencent

VirginAirbus

Bharti AirtelBloombergCoca-Cola

HearstNews Corporation

Wells Fargo (Norwest VP)SoftBank

33333

44

2222222

1

Top corporate investors in satellite and internet tech enterprises by deal count 2011-16


AirbusBharti AirtelCoca-ColaQualcomm

VirginSoftBank

SK TelecomO'Reilly MediaLiberty Global

SkyHearst

News CorporationFidelity

Qihoo360 Technology

$1,700m$1,700m$1,700m$1,700m$1,700m

$1,200m$265m

$240m$182m

$151m$106m$91m

$60m$25m

Top corporate investors in satellite and internet tech enterprises by total value 2011-16



April 2017 I 32


NEW TECHNOLOGIES

Interview: Airbus Ventures backs flying cars

Thomas d’Halluin, CEO of Airbus Ventures’ US office, shared with features editor Nicole Idar Lee a confident and well-argued view of the future of “urban air mobility”, which should include safe flying vehicles, and sooner than we think. Trained as an aerospace engineer, d’Halluin worked for Airbus in manufacturing, procurement, supply chain and finance roles throughout Europe and China before leading its venture practice in California’s Silicon Valley.

What do you mean by “urban air mobility”?

Urban air mobility is the phrase we use to frame a fast-emerging ecosystem, a system that is needed to directly address the challenges of megacities’ explosive growth and congestion. Urban Air Mobility includes not just the flying machines themselves, but the interactions between the flying machines, and between the ground and the flying space – all that encompasses the communications, air traf-fic management and energy infrastructure. It is also as much about the software as it is the hardware, and it touches a span of diverse industry verticals.

Define a flying car.

For me, a flying car is something that must be safer, cleaner and more conveni-ent than your ground-crawler, something that responsibly liberates your working and personal life, something that fulfils our earliest dreams of flight. It is a big ask, but we are in the midst of technological and manufacturing revolutions that finally make it possible.

I see a flying car as a vertical takeoff and landing (VTOL) electric aircraft. It has to take off and land vertically, like a helicopter, to cope with the urban dynamic; it has to be electric, offering both a cleaner and quieter solution; for conveni-ence and to ensure the most widespread adoption, it should not require a pilot’s licence and should free you to enjoy the ride and the extra time it affords – and therefore must be fully autonomous.

Do you believe autonomous flying cars will be a superior solution for urban mobility than ground-based autono-mous vehicles?

Superior is not quite the right word. I certainly believe that flying cars will play a major role in solving urban mobility prob-lems, not because they are necessarily superior, but because I think they have a faster and clearer route to market than autonomous ground vehicles – they can literally occupy a new and barely used volume of space, and thereby pioneer the positive change in urban dynamics that all autonomous vehicles bring.

Can you expand on this?

I will start with a simple observation. On the ground, the self-driving car is operating in an overutilised and very unpre-dictable environment in which it has to make many decisions very quickly. But an autonomous VTOL electric aircraft is operating in an underutilised environment, the sky. There will be birds to avoid and a few drones, but low-altitude space is actually quite free and available. Normally planes are flying at a much higher altitude. So this completely changes the perspective in terms of managing and organising traffic. We have the technology to do geofencing and air traffic man-agement to make flying cars a reality very soon.

How soon?

I believe flying cars will shake their way into society’s urban landscape and consciousness no later than autonomous ground vehicles, and for their safety advantages, flying cars are likely to arrive on the scene first. It will soon be as easy to order a flying car as an autonomous ground car currently in trials – I estimate roughly in a few years.

It seems counterintuitive that an autonomous flying vehicle is safer than one on the ground.

But you have to recognise how much autonomy, how much autonomous functionality, has already been deployed in the mainstream aviation industry. We are far ahead of the automotive industry. If you speak to pilots of real-world traditional airlines today, they will tell you that most of the flight has been fully autonomous for decades. It is only in takeoff and landing where human pilots are required – and not always, by the way.

By contrast, autonomous driving on the ground in real-world environments is very new indeed. I am not talking about autonomous driving in a controlled environment, like a park, like a Disneyland, where you can create safe corridors and routes. I am talking about the real world of congested modern cities, when, for example, a kid is chasing a ball across a street and an autonomous vehicle has to respond. A kid is not going to be running across the sky.

So the next time I step on to a commercial airline I should recognise I will be travelling in an autonomous or at least semi-autonomous vehicle?

Correct.

Thomas d’Halluin

Interview: Airbus Ventures backs flying cars

Thomas d’Halluin, CEO of Airbus Ventures’ US office, shared with contributing editor Tom Whitehouse a confident and well-argued view of the future of “urban air mobility”, which should include safe flying vehicles, and sooner than we think. Trained as an aerospace engineer, d’Halluin worked for Airbus in manufacturing, procurement, supply chain and finance roles throughout Europe and China before leading its venture practice in California’s Silicon Valley

“Flying cars will play a major role in solving urban mobility problems”


April 2017 I 33


NEW TECHNOLOGIES

And you believe that it is easier to create safe corridors and routes for autonomous vehicles in the sky than on the ground?

Yes, the artificial intelligence (AI) required for autonomous flying cars is easier to achieve than it is for ground-based autonomous vehicles. The AI component is the true brain of a vehicle, which when coupled with machine learning determines the speed at which decisions can be made. In a very crowded and unpredictable environment such as inner city streets, the capability of AI needs to be extremely high. I am not sure we are there yet. But in an underutilised environment like the sky, today’s AI is already able to cope.

What are the gaps that need to be filled for flying cars to get to market quickly and how is your investment strategy filling them?

I would not describe our investment strategy as filling gaps. We are looking to invest in businesses that advance the urban air mobility ecosystem. For example, our recent investment in AirMap will advance safety in low-altitude flying between drone, airport and aircraft. As well as investing, as with all our portfolio companies we will also support their interactions with the others under our wing, to discover new partnering and business opportunities.

We have also invested in a lidar technology business, which we will soon be disclosing. Lidar is a form of sensor, which enables greater vision for vehicles on the ground and in the air. It is this vision which enables vehicles to make the decisions they need to make to get us from A to B. Energy management and the battery question are also of critical importance to us. There is still room for progress and improvement there. Today we have the energy technology for a one to four-seater VTOL electric aircraft, but to scale to 50 to 100 seats, that is in a different league. Companies that will help us play in this league are of great interest to us and we are monitoring them very closely.

Your interests in sensors and batteries are shared by investors in autonomous vehicles.

I believe there is a mutually reinforcing relationship between both ecosystems because the underly-ing technologies are very similar. Flying cars and ground-based autonomous vehicles both require advances in AI, sensors, sense-and-avoid systems, batteries, electric propulsion and power manage-ment, as well as in energy density and so on.

Back to the debate “flying cars versus autonomous ground-based vehicles” – which will win the race to dominate urban mobility?

First, I look forward to the debate. Second, I do not believe that this is a winner-takes-all market. It is not one or the other. I think that flying cars have a faster and clearer route to market, but I believe there is a mutually reinforcing relationship between both ecosystems. Technology commercialised on the ground will be good for the air, and vice versa. In fact, I believe that eventually we will see a merging of autonomous vehicles on the ground and in the air. We need to be able to self-drive to an area where you can take off.

That is actually the ultimate model of urban mobility. My final thought is that flight has always fascinated and attracted the most audacious and ambitious pioneers, who dream and who turn their dreams into reality. They want to prove that what is theoretically possible is actually practically and physically possible. This is the story of aviation from the first days of the Wright brothers, and today’s new era of VTOL electric aircraft is no exception. u

Viewpoint: Let us roll before we can fly

Jon Lauckner, president of GM Ventures, Varun Jain, senior investment manager at Qualcomm Ventures and Raj Singh, managing director at JetBlue Technology Ventures, expect autonomous ground-based vehicles to succeed more quickly than flying cars. These are their thoughts on this debate.

What technology factors will be decisive for autonomous vehicles (AV) over flying cars?

Jain: Flying-car companies are still at a very early stage. Most of them are still figuring out the right kind of propulsion systems, batteries and safety technologies and so on. On the other hand, AV technology is much more mature on a relative basis.

Lauckner: Autonomous vehicles require more cameras, sensors, advanced software and algorithms and more process-ing power than current vehicles have today. The foundational technology for autonomous vehicles is already on the horizon and involves the step-by-step development and integration of a system that is at least as capable and reliable as human drivers.

Flying cars – or flying pods – will need, for many years, to intermingle on roads with vehicles of all types. As a result, a flying car requires the capabilities of both an aircraft and a car, including some level of crashworthiness protection when it is driving on roads, which drives significant compromises to be efficiently designed for either task.

Viewpoint: Let us roll before we can fly

Jon Lauckner, president of GM Ventures, Varun Jain, senior investment manager at Qualcomm Ventures and Raj Singh, managing director at JetBlue Technology Ventures, expect autonomous ground-based vehicles to succeed more quickly than flying cars. These are their thoughts on this debate.


April 2017 I 34


NEW TECHNOLOGIES

There are also other factors that we take for granted in ground-based vehicles that are much more critical for flying cars or drones. For example, overloading a vehicle with lug-gage is not an overwhelming concern for an automobile, whereas a flying car will require more stringent weight and centre of balance considerations.

Where will competition be most intense between flying cars and autonomous vehicles?

Singh: For the urban market, there is no doubt in my mind that AV will win over flying cars, but I am talking about connected AV. The city will have to know where everyone is and what people are doing so that autonomous vehicles can be run optimally. Otherwise, AV will not impact congestion.

It is in the market for short-haul flights where there is going to be a dog fight involving commercial planes, connected AV and flying cars, or “air taxis”. For example, I am talking about Los Angeles to Las Vegas, which is typically about a $250 flight. We believe it is this type of regional transportation that will be disrupted by both AV and flying cars or air taxis. And we are investing so that we can understand how it might impact strategy accordingly and it is an area we are watching very closely.

Who will win the dog fight? Urban air taxis will be faster than autonomous cars and maybe slightly faster than commercial flights, because if they are flying fewer than 20 people they will be exempt from US Transportation Security Administration regulations – over liquids on flights for example – which increase the overall door-to-door travel time. In the US, there are close to 5,000 small airports they could use so they will not have to build that infrastructure from scratch. But to win local consent, air taxis would have to reduce noise and pollution, which is difficult, but doable as engines get quieter.

What are the regulatory advantages that promote AV over flying cars?

Lauckner: Ground-based vehicles are much farther ahead from a regulatory standpoint than flying cars or drones. In the US, Federal Aviation Administration (FAA) regulations require a “pilot in command” for all private and commercial aircraft. Obtaining an FAA licence for a private aircraft requires extensive training and certification. So the flying-car market will be very small if extensive training is required for every potential “pilot”. The FAA currently requires drones to be less than 25kg, fly no higher than 122m and remain in the operator’s line of sight.

Until those regulations are changed, the market for autonomous drones that could carry people and cargo, other than small packages, is stalled. For ground-based vehicles, sev-eral US states have already adopted regulations that allow the development and testing – but not deployment – of AV on public roads with a backup “safety driver”.

Jain: I am an optimist and it is possible that we will eventually figure out all the technical challenges in enabling flying cars, but then there is also the issue of regulation. Having seen the slow movement of drone regulations, it could take a while to convince the regulators about the safety and reliability of flying cars.

As far as autonomous vehicles are concerned, we are seeing that several states in the US are already offering access to trials on public roads, and companies such as Cruise Automation [Disclaimer: Qualcom Ventures was an investor – it was acquired by GM last year], Waymo, Uber and others are able to accelerate their progress significantly because of the same.

Singh: There are lots of experimental autonomous vehicles on the road in California today and regulators are okay with this. But there are no experimental flying vehicles because the dangers of an accident are too great. I am not saying we will not see flying cars going mainstream. I think regulators are more open to this than we think and it will probably happen outside the US and Europe first, in maybe India, China or the Middle East, where governments will be more ambitious.

What are your final thoughts?

Singh: Ultimately, I believe the bar is much higher for flying vehicles than it is for AV. This is for the simple reason that lifting a pound of weight is always going to be harder than making it roll.

Jain: For reasons of regulation, technology and support infrastructure, I believe autonomous vehicles will come first and flying cars second.

Lauckner: Americans drove ground-based vehicles over 3.2 trillion miles in 2016. So, it is pretty clear that the bigger market in the near and medium term for autonomous technology is ground-based vehicles. At the same time, it is likely there will be new types of mobility enabled by air taxi services and, in some cases, unmanned flying vehicles or drones. But due to regulations, design challenges and practicality, flying cars are unlikely to address a significant portion of the mobility market for a long time. u

Varun Jain

Jon Lauckner

Raj Singh

“Until regulations change, the market for autonomous drones that could carry people and cargo, other than small packages, is stalled”


April 2017 I 35


INTERVIEW SPOTLIGHT ON UK INNOVATION

Why is Merck GHI turning its attention to the European digital health sector now – what is the investment outlook?

The European digital health landscape is at an exciting point in its trajectory, with more and more companies entering their growth phase with increasingly interesting partnerships and consolidation in the space. As a global company, we endeavoured to expand our investment reach through the MSD Global Health Innovation Fund to establish a presence in Europe.

Bill Taranto, president of Merck GHI, said in 2016 that while the fund has been active in Europe in the past, the current rate of innovation across the continent merits a deeper, more strategic focus. How have you sought to implement a more strategic focus in Merck GHI’s European investments?

Our investment thesis is two-pronged. First we aim to find complementary investment opportunities that can augment our North American portfolio companies, and we see many interesting companies and opportunities emerging in Europe. At the same time, we are looking into investing in a new area for the fund – the digital clinical trial management ecosystem.

Efficiency in clinical trial management, both from the perspective of cost and time, can be a valuable competitive asset for the pharmaceutical industry. Clinical trial delays can cost pharma companies up to $8m per day. Digital clinical trial management can enable tri-als that are smaller, shorter, less expensive and more powerful.

The clinical trial management ecosystem in Europe is undergoing change, resulting from demands for increased relevance and transparency of results, requiring bet-ter data quality and study efficiency from contract research organisations (CROs). Digital technology has the potential to help us meet these demands and create new disruptive opportunities. Clinical trial processes are not yet fully leveraging advances in technology and the increasing democratisation of clinical trials.

Is regulatory change also a factor?

Recent regulatory changes within the European Medicines Agency (EMA) requiring digitisation of clinical trials are also providing an environment ripe for growth of digi-tal health companies focused on clinical trial management. Companies that capital-ise on these trends and anticipate future changes by improving subject recruitment and retention, and making data capture, integration and analysis more accurate and robust, will present attractive investment opportunities.

You were a keynote speaker at the Health Tech Showcase, organised by the UK Department for International Trade and held at Silicon Valley Bank’s London office, in March. How important are such events for corporate venturers like Merck, and why?

These venues provide an excellent opportunity to interact with interested companies and likeminded investors in an intimate setting. The digital healthcare technology coming out of the UK is rich and worthy of interna-tional attention and events like these allow for a forum for the exchange of ideas to take place.

Based on the pipeline of potential portfolio companies you are seeing, how does the UK compare with other Euro-pean economies when it comes to nurturing digital healthcare startups? Is there anything more the UK govern-ment can do to foster such startups?

There are many strong digital health companies with UK roots. The ability to pilot programs within the National Health Service provides a fertile testing ground for demonstrating value and clinical efficacy. Perhaps, more could be done to transition companies and digital health initiatives from pilots to full implementation.

My understanding is there is currently legislation under way to enhance policy to that effect. We applaud the UK for tak-ing a leadership role in propagating digital health; however, the scaling challenge is a universal one, which the UK and others need to find incentives or mechanisms to help scale solutions.

Having spent more than 20 years working in the healthcare field in the US and Europe, most recently as head of

Merck GHI eyes Europe’s clinical trial ecosystemFrancesca Wuttke joined Merck Global Health Innovation Fund (Merck GHI), the corporate venturing arm of US-based pharmaceutical firm Merck & Co, as managing director in May 2016. Tasked with identifying new opportunities in Europe, Wuttke, based in Barcelona, leads the fund’s European investments in digital healthcare technology. She spoke to features editor Nicole Idar Lee

Francesca Wuttke


April 2017 I 36


INTERVIEW

strategic market intelligence at Spain-based pharmaceutical company Almirall, what similarities and differences have you noticed across the two markets?

The most obvious difference is the financing gap in Europe compared to the US, but with European companies increas-ingly receiving international attention, that chasm is narrowing. The biggest difference is perhaps the disconnect between strong early companies making the leap to mid-sized companies with international reach.

Few EU-based companies have been successful doing so, except perhaps those that are family owned, which are a bit more patient and interested in having the company serve as an investment tool where the company growth is used to pass wealth on to future generations. Perhaps it is a lack of patient capital as the pharma timelines are long, and inves-tors new to the space may tire during that interval.

Tell us about the fund’s relationship with Merck, the parent company - how are strategic priorities determined, and how important are financial returns?

We are set up to operate like an independent fund, which allows us to operate at venture speed. Our investments need to be both financial and strategic.

A recent Merck GHI investment is in US-based healthcare data aggregation and analytics company Arcadia Healthcare Solutions, which raised $30m of growth capital. Why is data aggregation an attractive area? How much scope is there for further investments in this sector?

We are really excited about the population health space and our investment in Arcadia. With so much unmet need, population health offers the opportunity to close care gaps and improve outcomes.

Given that pharmaceutical companies typically have a longer time-to-market, what is the average amount of time Merck GHI invests for before exiting? How important is it to have an exit strategy from the start?

While we look to what the exit possibilities could be, the stage in which we will be investing in Europe is still quite early in the initial stage of revenue generation. As active investors we look to shepherd the companies in which we invest and help steer them to success and eventual acquisition or IPO. That being said, we typically invest for a 3-5 year timeframe, but as we don’t have a fund life to worry about we have a great deal of flexibility. u

See Gaule’s Question Time with Bill Maris, president of Merck GHI

DIT showcases UK startups to drive investment

Paul Morris is investment director at the UK Department for International Trade (DIT)’s venture capital unit, which connects innovative UK companies seeking investment with corporate venturers and venture capital funds around the world. Morris worked in corporate venturing for more than 20 years, having spent most of that time running chemicals company Dow Chemical’s venturing unit. He spoke to features editor Nicole Idar Lee about the Showcase program of pitching events run by DIT and Silicon Valley Bank (SVB), and the role CVCs play in the UK’s innovation economy

How was the Showcase formed, and how did the partnership with SVB materialise?

The idea was seeded over a glass of wine with Gerald Brady of SVB in California three years ago. Both SVB and the UK government’s VC unit work to support startups, and we decided to run an event designed to connect UK startups with potential investors.

Selecting and preparing the entrepreneurs and inviting the investors were joint tasks – SVB leads with the startups and the VCU invites the majority of the investors. The first Showcase was Digital Health, held on 1 December, 2014, hosted by publisher Reed Elsevier’s corporate venturing unit, now REV Venture Partners, in London. We had around 40 attendees, 10 companies pitching, a keynote speaker, and refreshments during the networking time.

Feedback was positive, investors engaged with the pitching companies and subsequently followed up with them, and we therefore started planning our second Showcase – Cybersecurity, held at BT Tower. More than 100 people attended, mostly investors, and the keynote was given by Mark Hughes, CEO of BT Security [the security division of telecoms company BT] and Conrad Prince, UK Cybersecurity Ambassador. These invitation-only events have gone from strength to strength since then.

What sectors have the Showcases featured?

Sectors that have been covered include internet of things (IoT), Fintech, Physical Sciences, Smart Retail, Enterprise Soft-

SPOTLIGHT ON UK INNOVATION

DIT showcases UK startups to drive investment

Paul Morris is investment director at the UK Department for International Trade (DIT)’s venture capital unit, which connects innovative UK companies seeking investment with corporate venturers and venture capital funds around the world. Morris worked in corporate venturing for more than 20 years, having spent most of that time running chemicals company Dow Chemical’s venturing unit. He spoke to features editor Nicole Idar Lee about the Showcase program of pitching events run by DIT and Silicon Valley Bank (SVB), and the role CVCs play in the UK’s innovation economy


April 2017 I 37


INTERVIEW

ware and Health Tech. During 2017 our Showcases will include Artificial Intelligence/Virtual Reality, Big Data/Analytics and Cybersecurity. SVB moved into their new offices in London last year, and that has now become the regular location for the Showcases.

How does the Showcase work, what is the order of events?

The basic formula that has proven very successful with investors has remained unchanged. A keynote speaker from the target industry helps set the scene. 10 startups, five early-stage and five growth-stage, give five-minute pitches with two minutes for Q&A. The events are held in the afternoon and last five hours, over half of which is dedicated to networking.

Feedback confirms the value of this networking time, not only for investors to meet the companies, but also for investors to engage with one another. A brochure is provided which contains one-page summaries of each company pitching. That brochure is also shared electronically with global investors who are interested in the sector and the UK.

DIT and SVB have now hosted eight Showcases. How have investors responded?

Startups that have pitched at the Showcases have collectively raised over $325m since the date of our first event. Typically the delegates at any one Showcase include investors from around 10 different countries. Our recent Health Tech Showcase set a new record with 15 different countries being represented, from across North America, Asia and Europe.

We are now usually at capacity for each event, with over 100 attendees. As the Showcases become more established, the quality of both companies pitching and investors attending continues to be of the highest level. We increasingly have to decline requests from service providers and others. The events are also supported by the British Venture Capital Associa-tion [the industry advocacy group].

What kind of a role can corporate venturers play in nurturing UK emerging enterprises?

Corporate venturers are increasingly important as providers of capital, participating in around 20% of all VC deals. But it is the additional strategic value that they bring that differentiates a CVC from other VC investors.

Most CVCs are aligned with global organisations. As such they are well positioned to support their portfolio companies in accessing export markets and opening doors to commercial partners. In addition, there may be a business relationship of real value between the startup and the cor-porate investor.

The UK has its own corporate venturers, which are complemented by an extremely strong presence of non-UK CVCs. Indeed, according to data from GCV Analyt-ics, 74% of all CVCs based in the UK are from abroad, the highest percentage of any developed VC market globally.

This means that there is a huge range of corporate venturers for UK startups to engage with, providing access to many markets around the world. Bring-ing foreign CVCs to the UK is a major priority for the VCU. Past successes include network equipment manufacturer Cisco’s $150m UK-dedicated fund.

What Showcase success stories can you share?

The collective raise of $325m is very encouraging. Cybersecurity company Darktrace, visual discovery application Blip-par and digital risk monitoring business Digital Shadows spring to mind among the companies that have pitched and raised significant sums.

The total funding raised by the pitching companies since inception exceeds $530m – this figure includes both funds raised before the companies pitched at our first six Showcases, and funds raised after they pitched. We have not yet added in the two most recent Showcases.

What other projects do you have in the pipeline to help British emerging enterprises find the capital that they need?

We are strengthening our team with 2 new specialists with wide experience and deep sector expertise in life sciences and in fintech, IoT and cybersecurity. That gives us greater capacity to identify and support potential high-growth UK startups.

On the investor side we are running a program of visits to key markets such as the USA, Singapore, Japan, India and Korea to identify and engage with CVCs and VCs who would like to invest in the UK. We work closely with DIT col-leagues in these key markets, not to forget China.

Significantly, we are working with five separate US CVCs who are looking to establish a base or fund in Europe. In each case the UK is their first preference. None of the events of the last 9 months have changed their opinion that for VC investments the UK is the clear leader in Europe, and the optimum location for their activities on this side of the pond. u

SPOTLIGHT ON UK INNOVATION

Paul Morris

“There is a huge range of corporate venturers for UK startups to engage with, providing access to many markets around the world”


April 2017 I 38


COMMENT

It is no secret that the largest, oldest consumer packaged goods (CPG) brands have not innovated at the pace they should have. New CircleUp data released here illustrates how big brands have fallen behind. Pepsi soda, KitKat bars, and Clorox cleaner are decades, near-centuries old, and still have largely unchanged formulas. Just imagine if giants in other

industries changed at a similarly slow rate – we might still be using clunky Newton computers and dial-up phones.

This is finally catching up to big CPG brands, which now find them-selves suddenly losing market share to fast-moving startups at an alarming rate. This is thanks to new market dynamics like cheaper marketing through online channels; sink-ing distribution costs through Amazon, startup-friendly retail-ers, and direct-to-consumer sales; and widespread consumer demand for more authentic, high-quality goods and services. Small brands are better set up to swiftly grow, and the Pepsis, Nestlés and Cloroxes of the world are struggling to maintain their foothold.

At the same time, the CPG private markets have been increas-ingly active. While the biggest public companies may be losing ground to smaller competitors, private CPG companies have raised over $8bn from investors since 2012, according to data from CB Insights.

Scramble for shareholder value

This shift is not going unnoticed by these billion-dollar industry incumbents. As people increasingly skip mass-produced pre-servative-loaded products, giant CPGs are opting for two strat-egies to create shareholder value – cost-cutting and product innovation.

Cost-cutting is a band-aid solution, providing temporary relief, but not addressing the root of the issue. It usually involves a merger between two big brands and consolidating operations. The problem is, after the consolidation is complete, the big, and now joined, businesses are still left with the same dilemma – people do not want to buy what they are selling.

The second strategy, product innovation, is smarter in intent, even if underwhelming in execution. CircleUp data shows the biggest CPGs invest an average of about six times more in mar-

(3%)

(2%)

(3%)

(7%)

(19%)

+3%

+1%

+3%

+11%

+19%

Share points lost by large brands

Restaurants ³

Health & beauty ²

Food & beverage ¹Yogurt 4

$7.1bn

Coffee 5

$25bn

Bath/shower $7.2bn

Skin care $13bn

Quick service $163bn

Growing market shift to emerging brands

Share points gained by emerging brands

Category & market size

Sources: 1,2 Euromonitor International (Sept 2014); 3 QSR Magazine, Wells Fargo Securities; 4 2013 Yogurt Market via Statista Yogurt Dossier; 5 Specialty Coffee Association of America (Dec 2014); 6 Boston Consulting Group and Information Resources, Inc. (April 2016)

Seismic shift in market share

$18bn in market share shifted away from large CPG companies to smaller players during 2011-2015 6

$7.5bn in market share was gained by the very small, emerging brands during 2011-2015 6

90%of the top 100 CPG brands lost market share in 2015, and 62 of the top 100 brands had declining sales 6

Average across the 100 biggest CPG brands

Source: Data from Mintel, with analysis of 66,856 new products from the top 100 CPG companies during 2011-15 (top defined as most products under brand).

Types of new product launches for big consumer packaged goods companies

Categories ranked by type of innovation from 2011-15

39%

33%

22%

5%2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

)se

hc

nu

al tc

ud

orp

no

des

ab(

eg

atn

ecr

ep

noit

avo

nnI

New product

New variety/range extension

New packaging

RelaunchNew formation

The product launch fallacy of big consumer packaged goodsBig consumer packaged goods companies need to step up M&A activity to stay relevant in the face of competition from smaller, younger brands

Ryan Caldbeck, CEO and co-founder, CircleUp


April 2017 I 39


COMMENT

keting and advertising than they do in R&D, with R&D accounting for a mere 2% or so of revenue investments. In tech, where prod-uct innovation is front and centre, the investment shares are nearly the opposite.

The product launch fallacy

Since R&D has historically been an afterthought for big CPGs, it is no surprise that even today, when facing severe external pressures, giant CPGs are not having the easiest time coming up with excit-ing new tricks. Innovation just is not in their DNA. In fact, new data from CircleUp and JooHo Yeo, Adam Ingber, and Jay Chia of the Cornell Venture Capital Club reveals a stark reality of what is actually “new” in new product launches.

On average, among the biggest CPGs, only 39% of launches are actual new products. The other 61% of the time, the product launch is just an incremental change, such as new packaging, a new range extension, formulation or variety, or a relaunch. Indeed, a brighter orange color for the Frosted Flakes tiger, or the addition of a blue M&M in your candy, are likely to be the “new” products the biggest CPGs are launching.

Shown another way, above is the breakdown of product launches organised by specific subcatego-ries. Carbonated soft drinks, breakfast cereals, bak-ery and soup are especially stagnant, void of sig-nificant new product innovation. Correspondingly, carbonated soft drinks, breakfast cereals, dairy and juice drinks all see a significantly high number of packaging launches, signifying an emphasis on finding new ways to market the same old formulas.

Get ready for consumer M&A

Where do big CPGs go from here? They know they need to be better, and to their credit, they are starting to take this seriously. We applaud Nestlé for its recent sugar reformulation, and McDonald’s for its shift to cage-free eggs. But the widespread demand for authentic high-quality products from small brands is too powerful for big CPGs’ rate of innovation to reverse the erosion of their market share.

That leaves a final, increasingly prevalent solution – M&A. Big CPGs are turning to small brands to bring in-house the innovation they are failing to produce themselves, by buying brands once they have shown some traction and proven themselves in the market. Over the past few years, we have seen General Mills acquire Epic Provisions, the meat bar brand in Texas, Pepsi acquire the natural Kombucha line KeVita, and Estée Lauder snatch up the millennial cult favourite Too Faced cosmetics. As PwC data shows, the volume of consumer and retail M&A has grown steadily over the past few years, with 2016 showing a sharp increase in small M&A deals, illustrated by a higher total number of deals done of lower dollar amounts.

We expect the volume of small M&A deals in 2017, and throughout the following five to 10 years, to climb steadily. Big CPGs have no other choice. In the consumer industry, the age-old saying will be: “Those who cannot do, buy.” u

This is an edited version of an article first published by CB Insights

New product often just means new packaging or varietiesBig CPG neglecting trust innovation

Categories ranked by new product percentage from 2011-15

Source: Mintel data analysed by CircleUp and Cornell Venture Capital Club, including 224,643 product launches from 18,510 companies during Jan 2011-Dec 2015, in North America.

49%

49%

41%

37%

37%

36%

31%

31%

30%

30%

28%

25%

19%

22%

26%

32%

29%

25%

38%

31%

37%

41%

20%

21%

23%

13%

19%

26%

31%

27%

28%

31%

23%

25%

45%

51%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sports & energy drinks

Deodorants

Baby food

Snacks

Juice drinks

Dishwashing products

Chocolate confectionery

Dairy

Soup

Bakery

Breakfast cereals

Carbonated soft drinks

Innovation percentage (based on product launches)

New productNew variety/range extension New packaging Relaunch

Newformation

Consumer and retail M&A Growth in the number of smaller deals

$69.8 $36.5 $62.3 $83.0 $24.1 $21.2 $36.2 $30.4

302 299

270 262

301

336 346

360

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Deal value ($bn)

Consumer and retail deal volume and value

2015 2016

Source: PwC and Thomson Reuters

Number of deals


April 2017 I 40


COMMENT

As I sit here in Silicon Valley, it is difficult to digest all of the world events and consider the implications for the innovation economy. When I talk to friends, colleagues and clients, we share feelings of uncertainty, but always gain confidence each time we meet an entrepreneur trying to solve a challenging problem or find a company

on the path to change an industry. Optimism may have dipped, but in tech it remains contagious.

Silicon Valley Bank recently released its eighth annual Startup Outlook report, which captures the views of technology and life sciences executives. We heard from nearly 1,000 respondents, primarily in the US, the UK and China. The survey was conducted in November last year, immediately after the US presidential election. Most respondents are startup executives of companies with fewer than 50 employees and less than $10m in annual revenue.

Not surprisingly, we do see signs of uncertainty that naturally come during times of change, whether in business or politi-cal direction. But these startup executives also tell us they are hiring, plan to raise venture capital, expect M&A to grow and see an expanded role for corporate venture.

HighlightsBusiness conditions• 57% of executives believe US business conditions will be stronger than 2016. Still, the number of respondents

who think conditions will improve year over year has declined by 25 percentage points since 2014.• Among UK respondents, one in five startups is planning to set up at least an outpost office in another

country in Europe because of Brexit, but a large majority intend to keep their headquarters in the UK. Following the Brexit vote, 48% of UK startups expect conditions in 2017 to improve over last year, down 10 percentage points from the same time last year.

• Startups in China were the most bullish on improving business conditions, with 74% expecting 2017 to be better, down from 85% a year earlier. Silicon Valley Bank opened a Beijing office in February 2017, and also has offices in Shanghai and Hong Kong.

Fundraising• No matter their location in the US, UK or China, more than 80% of startups say raising money is

“challenging” or “extremely challenging”, an increase over the previous year.• In the US, 51% of US startups say their next source of funds is most likely to be venture capital. This

is despite fewer early-stage fundings by VCs last year.• Highly relevant to this audience is that corporate investors are increasingly viewed as an important

capital source, cited by 11% of US respondents, surpassing private equity at 8%.

Exits• For the second year running, acquisition continues to be the dominant realistic long-term exit strat-

egy of US startups. Despite public interest and excitement around startup IPOs, many more startups are acquired than go public.

• Nearly nine out of 10 startups predict as many or more mergers and acquisitions in 2017. Fully half say they expect more acquisitions, an increase from 43% a year ago. We note that there is an increased appetite among acquirers outside the technology sector, creating additional opportunities for startups.

Hiring and diversity• 90% of US startups say that finding appropriate talent is difficult, down five percentage points from last year.

It is too soon to call it a trend, but it does appear that the very tight labour market has loosened a little.• 70% of US startups say they do not have women on their boards and 54% employ no women in executive

positions.

No progress in moving women into tech leadership

It is always a little soul-destroying to see that for all the work we think is being done to bring more women into tech leadership roles, the survey suggests that in the aggregate there has been little change.

Why don’t we see more progress? It may be that we thought growing visibility of the few high-profile women in top tech jobs and among VCs indicated more progress through the ranks. Not only have the ratios not changed much for women, but our survey also found that just one in four US startups has programs in place to increase the number of women in leadership roles. And that has not changed year over year.

We see so much evidence that companies supporting inclusion and diversity see tangible results to their bottom line. In 2017, it is more important than ever that we stamp out some of the unacceptable behaviours and move the needle to diversify tech ranks from the bottom to the top. u

2017 Startup OutlookOptimism may be tempered by uncertainty but opportunity is plentiful

Tracy Isacke, managing director, corporate venturing, Silicon Valley Bank

Startups in China were the most bullish on improving business conditions, with 74% expecting 2017 to be better


April 2017 I 41


COMMENT

We should not beat ourselves up about the state of Canadian innovation at the fundamental level – it is extremely healthy, and there is no shortage of it. Incubators, accelerators, university labs and startups from coast to coast are brimming with raw ideas. If Canada has an innovation problem, it is a relatively positive one – too little

Canadian innovation is finding its path to market.

From a corporate perspective, plugging into that universe presents extraordinary opportunity. To that end, the Business Development Bank of Canada’s BDC Capital division is launching a new program aimed at connecting innovators and large corporates – essentially a “concierge service”.

Corporates will be able to come to us and say, “We are interested in this and that – so what is out there?” And we can help as a matchmaker, connecting companies with accelerators, universities and startups.

BDC Capital is tasked in part with identifying and plugging holes in Canada’s venture capital ecosystem. Filling the gap between innovators and Canadian companies is one of our big projects.

Earlier this year, the federal government’s Advisory Council on Economic Growth praised Canada’s network of large firms, high-growth small and medium-sized enterprises and research infrastructure, which includes one of the healthiest concentrations of high-quality university research in the world. But it also identified a lack of collaboration with the corporate world as the main challenge.

As a former managing director of a Boston-based venture capital arm as well as a three-time startup founder, I am a serious innovation evangelist. When a company explores externally, the first thing they see is better leverage from their own internal R&D, and down the line it is simple – companies see new product opportunities sooner, and develop to get them to market faster.

It is especially critical for companies to move past the bias that keeps them looking within their own walls for new ideas. Once businesses start to see what is out there in the big wide world, they realise how much more there might be, and they can start developing those ideas internally as well.

That message was reflected in a recent report by Boston Consulting Group, which concluded that “corporate venturing does not supplant internal R&D, but complements and encourages it”.

Canadian corporates are used to hearing that they are less active than their global counterparts in domestic entrepreneurship and innovation. Corporate spending on R&D in Canada is equal to only 1.7% of GDP, compared with an Organisation for Economic Cooperation and Development average of 2.4%. There are approximately 1,600 corporate venture capital arms around the world. In Canada there are only 15, according to Global Corporate Venturing.

But those numbers also highlight the opportunity in an underexploited sector. Canada’s corporate sector is ripe for innovation, with a few culture changes. One thing holding companies back is that it is rare for a company to go out and find a ready-made solution for its particular need.

But that is not the point of going out to foster relationships with innovators. More important is the ability to scout for potential, to develop good ideas and to search for solutions that could meet needs in five years, 10 years and beyond.

Canada-based telecoms company Telus is a great example of that. They are doing an unbelievable number of things, internally and externally, where they have a whole internal venture capital fund and have identified e-health as an external focus. Their view is that the e-health space, the interaction of communications and healthcare, will be one of the biggest drivers of the future need for telecoms. So they will learn it, know it and be there first.

That may be the best takeaway of all: truly embracing innovation means engaging with the future, and with opportuni-ties you cannot even see coming yet, as much as it is about the here and now. By engaging as customers, partners and investors with the national innovation ecosystem, Canada’s corporate sector will reap more and better ideas, products and services, not just next quarter or next year, but for years to come. u

This is an edited version of an article that first appeared in Canadian newspaper Globe and Mail.

Embracing innovation means thinking about the future

Neal Hill, vice-president of market development, BDC Capital

It is especially critical for companies to move past the bias that keeps them looking within their own walls for new ideas


April 2017 I 42


COMMENT

When we started McRock Capital five years ago, we had a vision and a blank piece of paper. We believed in Al Pacino’s speech from the film Any Given Sunday, in that “life is just a game of inches”, and the inches we need to succeed are everywhere.

We fought for every inch to get McRock’s first venture capital fund launched, and our portfolio company entrepreneurs fight for every inch to change the world. The difficult part, however, is recognising the inches that will end up helping you the most. Looking back, we know there was one inch we fought for that turned into a mile – access to funding through the Venture Capital Action Plan (VCap).

VCap was announced by the federal government of Canada in 2013 and launched in 2014. It was intended to fill a market gap and attract capital to Canada’s venture capital fund managers from private investors such as pension funds, high-net-worth individuals, corporations and banks. Having a well-capitalised VC industry would, in turn, create a sustainable ecosystem for new and innovative businesses in Canada to access capital.

Today, everyone is talking about VCap and whether the government should continue the program, modify it, or abandon it entirely. Like any broad-reaching government initiative, there have been plenty of supporters but also some detractors. Concerns have been raised regarding the additional layer of man-agement fees resulting from the fund-of-funds structure, the slow speed that the Canadian economy may benefit from VCap, and whether the program is a prudent use of taxpayer dollars.

We recognise that, as direct beneficiaries of VCap, our objectivity on the subject could very reasonably be questioned. Since we are ana-lysts at heart, we set out to take an unbiased look at whether VCap has been successful so far and also find a clear way to illustrate that success.

The “innovation tree” shows how VCap impacted the Canadian VC industry as a whole and how all its beneficiaries interact together as one functional ecosystem. To begin, we want to highlight how successful VCap has been in attracting private capital – defined as any capi-tal not directly invested in VCap by the federal or provincial governments – into Canada’s VC ecosystem. Here are some of the key achieve-ments of VCap to date that you can find within the innovation tree:• Down in the roots of the tree, the four VCap

funds of funds raised a total of C$1.36bn ($1.02bn): C$906m from private capital and C$450m from the federal and provincial governments. For every C$1 of government funding across the four VCap funds of funds, C$2 of private capital was attracted to the VC ecosystem.

• Up in the branches of the tree, 20 Canadian VC funds to date have received funding from either a VCap fund of funds or direct investment from VCap. These 20 funds have raised a total of C$3.34bn – C$2.97bn from private capital and C$369m from the fed-eral and provincial governments through

Golden Venture Partners Fund II

Informat ion Venture Partners Fund II

Avrio Ventures III

Genesys Ventures III

Georgian Partners Growth Fund II

Georgian Partners Growth Fund III

iNovia Investment Fund 2015

XPV

Wat

er Fu

nd II

Version One Ventures Fund II

Vers

ion O

ne V

entu

res F

und

II

Relay V

enture

s Fu

nd II

I

Vanedge Capital II

Whitecap III

Novacap TMT IV

OpenText Enterprise Apps Fund

Persistence Capital Partners II

Real Investment Fund III

CTI Lif

e Scie

nces

Fund

II

Lumira Capital II

Federal Income Tax

Corporate Tax

CapitalGains

$50mhigh-performing

VC funds

Administrator

McRock iNFund $8m $62m $1.00 $8.06

Canadian venture capital innovation tree

$125

m

$100

m

$125m

$1 00m

$200m

$1 $2

Other FOF

$388m $112m

Funds of funds (FOFs)

VCap:

$3.34bnraised by

20 Canadian VCs

$604m is from the FOFs,which includes

$369mfrom the government

$1.00 $7.47

$250

m

$206

m

$250m

Government funding

Private capital

Seeding Canada’s VC innovation ecosystemWhitney Rockley and Scott MacDonald, founders and managing partners, McRock Capital


April 2017 I 43


COMMENT

their commitments to the funds of funds. For every C$1 of government funding across the 20 Canadian VCs, C$8.06 of private capital was attracted to the VC ecosystem.

• Looking at the tree as a whole, what began as C$500m in commitments from the federal and provincial governments resulted in an additional C$3.88bn of private capital being attracted to the VC ecosystem, or C$7.75 of private capital for every C$1 of government funding.

Zooming in on the McRock branch of the tree illustrates the benefit of VCap in attracting private capital on a VC fund level. McRock raised a C$70m VC fund of which C$25m came from VCap funds of funds. Within the fund-of-funds allo-cation of our fund, C$8m was from the government, and this support enabled McRock to attract an additional C$62m from other investors.

For every C$1 of government funding, McRock raised C$7.47 of private capital from a group of leading investors such as Cisco Systems, EDF and Caterpillar. The commitment from our three corporate investors alone exceeds our government commitment and provides these global corporations with direct access to Canadian dealflow and McRock’s portfolio companies.

Beyond the attraction of private capital into the Canadian VC ecosystem, the VCap program also fuels extensive job creation across the country. Through the VCap funds of funds and the 20 VCs, a total of 126 Canadian companies have received funding, resulting in thousands of new jobs being created. Further, only 15% of the VCap’s total commitment to the funds of funds has been invested to date, so we have barely scratched the surface of the potential that this program brings to the economy.

Canadian job creation is an important point because it ties directly into one of the concerns raised against VCap – that the cost of the program may be too high, partially due to the additional layer of management fees that the funds of funds represent. We believe that in order to understand the cost of VCap you must also examine the money that the federal government recovers in the form of income taxes.

First, let us look at how much the VCap pays in management fees compared with how much the fed-eral government recovers in income tax from the people who work at the funds of funds and VCs. We looked at the Canadian workforce of the VCap funds of funds and 20 VCs and, using some stand-ard VC industry assumptions, we estimate that the current employees of the fund managers will pay C$106m in federal income tax during the full fund lives.

Using the same assumptions, we estimate that VCap will pay only C$89m in total management fees during the full fund lives, including all fees paid directly to the four FOFs, directly to the four high-performing VCs, and indirectly to the 20 Canadian VCs. To sum up, the federal income tax paid by the VCap fund of funds and Canadian VC fund workforce offsets all management fees paid by the government across all levels of the program with a surplus of C$17m in government coffers.

Next, let us look at how much the federal government receives in income taxes from all of the portfo-lio companies that the VCap funds of funds and Canadian VCs invest in. Across all the funds, a total of C$453m has been invested in 126 unique Canadian companies. Applying some basic assumptions based on our experience of investing in tech, we estimate that these 126 companies represent C$63m in federal income tax based on their current employees.

Since only 15% of the capital has been called by the VCap funds of funds, we can expect that a few hun-dred additional companies will be started through the program during the next few years. Put simply, it is not unreasonable to think the entire C$500m VCap program could be recovered entirely through income tax paid by the new portfolio companies.

We can use the McRock branch of the innovation tree again to serve as an example of this last point. Using the C$8m that our VC fund received from the government, we looked at the government’s pro rata investment in each of our Canadian portfolio companies. We then compared that pro rata investment with the total amount our portfolio companies’ employees paid in federal income tax last year. We found that, in all our portfolio companies, the government’s pro rata investment in each was paid back through federal income tax in a single year.

Even with the success of VCap, there are hundreds of early-stage Canadian companies with incredible innovations that need access to capital to move forward. The capital needs of these companies are far greater than the Canadian VC ecosystem can currently support. VCap benefits Canada and its economy as a whole and we believe that these benefits far outweigh the costs. However, continuing support is required to create a strong sustainable Canadian VC ecosystem.

To sum it up, the Canadian economy is already seeing significant benefits from VCap only three years in. As VC-backed exits continue, the recirculation of capital and the success of the program will expand even further. We believe the VCap program was a brilliant move by the government and, more specifically, the late Jim Flaherty, our former finance minister. VCap provided the necessary nutrients to grow a Canadian VC innovation tree that is seeding an entire forest of unique high-growth companies. u

This is an edited version of an article first published on the PE Hub Network. Data sources: McRock Capital, Canadian Venture Capital and Private Equity Association, Government of Canada, PitchBook, PE Hub Canada, Teralys Capital, HarbourVest Partners, Kensington Capital.

Federal income tax paid by the VCap fund of funds and Canadian VC fund workforce offsets all management fees paid by the government


April 2017 I 44


COMMENT

Corporate ventur-ers make a use-ful contribution

to the venture market in the UK and Ireland. Con-sider 2016, a boom year for venture investment in technology companies. About £2.77bn ($3.49bn) was invested in 649 deals of over £500,000 by 538 investors.

Despite all the fears about Brexit, year-on-year invest-ment was up 7%, and the number of companies being backed rose by 22%. The chart on the right shows the extraordinary growth in the volume of companies being backed over the past six years.

In the third quarter, £210m was invested in online food delivery com-pany Deliveroo. This monster deal is the biggest single funding Ascendant has recorded since it started monitor-ing the UK and Irish venture markets in 1997, surpassing the £175m raised by fantasy sports business Fanduel in 2015.

The fourth quarter of 2016 was also exceptional, as we recorded the larg-est number of UK and Irish tech deals per month for 20 years in October, when 77 companies were financed. The previous high was Octo-ber 2000 – just before the internet bubble burst – when 67 companies were funded.

So how are CVCs contribut-ing to this growth? In 2016, 108 CVCs invested in 107 tech deals of £500,000 of more – 16% of all tech invest-ments in the UK and Ireland. This has crept up over the past few years in line with market growth, and is a larger percentage than deals involving US and European VCs.

CVCs do favour syndicated larger later-stage deals. The table above shows that CVCs participated in seven of the 10 largest deals in 2016. In fact, a deeper analysis of deal data indicates that on average, deals involving a CVC are typically twice the size of those involving only financial VCs. Corporate venturers do participate in smaller deals – many have

42 48 55 4864 59

4860 59

6955

7786 83 88 86

119115129

171

144152

162

191

2011 2012 2013 2014 2015 2016

Deals per month over £500,000

VC investments in UK/Irish tech companies

241 255

194214

193

231262

350

537

649

20 26 18 29 34 30 33 4077

107

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of deals per annum

Deals involving corporate venturersAll deals CVC deals

Top 10 dealsCompany Activities Amount (£m)

Deliveroo Developer of a managed delivery platform for high-end independent restaurants and chains, including Carluccio’s, GBK and Nando’s, in return for a commission on sales

210.1

Skyscanner Flight price comparison website 133.0Farfetch Collates content from more than 250 fashion boutiques worldwide 76.3Sirin Labs Developer of high-end mobile phones 50.7Darktrace Developer of network security software 49.4Starling Online bank 48.5Circle Internet Financial Provides mobile apps that enable online and in-person payments 42.3Nutmeg Online investment manager 42.0Student.com Online marketplace for student housing. 41.9Blippar Developer of an image-recognition platform and visual browser for mobile

targeting customer-brand interaction including augmented reality37.9

Participation by CVC

CVCs back tech investment in the UK and Ireland

Stuart McKnight, managing director, Ascendant Corporate Finance


April 2017 I 45


COMMENT

or support incubators in the UK and Ireland, such as Telefónica, Google and Cisco – but as the table above shows, their appetite does increase dramatically as deal sizes grow.

Looking at sectors in which corporate venturers are active, we have found that the areas that attract the most interest are highly correlated with those of most VCs investing in the market. In 2016, 42% of CVC deals involved internet and mobile service compa-nies, 38% software businesses and 8% cleantech firms. Fintech is often quoted as a big area for CVCs, but in fact 15% of all corporate venturing deals in 2016 were investments in fintech companies. This is in line with all other VCs.

Another way to assess CVC investment is to look at the appetite for risk. As part of its venture market research, Ascendant tags each deal it records with a relative risk value, which when aggre-gated allows the calculation of a risk appetite index. This allows us to measure how the appetite for risk varies from quarter to quarter and between different types of investor, sector and region.

While the calculation of the risk appetite index is proprietary, it effectively weighs investors’ willingness to commit capital to companies with varying development or market risks. The chart below highlights CVC risk appetite against the market, US investors and, for contrast, crowdfunding. The black line highlights the risk appetite of the UK and Irish market as a whole. It is interesting to note that this has been very steady over the past 24 months, when the UK has had both a general election and the Brexit referendum.

The chart clearly slows that businesses that have attracted investment from US investors or CVCs have found them more willing to invest greater sums in earlier-stage propositions than the market as a whole. Contrary to popular belief that CVCs have a stronger appetite for risk, the data suggests they are often closer to market norms than US investors.

In summary, the evidence suggests that CVCs are:• One of the most active groups in UK and Irish venture.• Active across all the primary market sectors in proportionate ways.• Committing more capital to later stage deals.• Have a positive appetite for risk above market norms, but not overly so.

We should applaud this contribution, as it adds not just additional capital but a great deal of market knowledge and technical expertise to investee businesses. Companies thinking of approaching CVCs as potential investors should be encouraged by the level of corporate venturing activity, but should be realistic about their chances of success. u

CVC investments in UK/Irish tech 2016Deal size (£m) <£1m £1m-<£2m £2m-<£5m £5m-<£10m £10m-<£20m £20m-<£50 >£50m

% deals with CVCs 10% 13% 19% 21% 42% 44% 50%

38%

42%

8%

12%

CVC investments in UK/Irish tech companies 2016

Software

Internet

Cleantech

Other

0

100

200

300

400

500

600

700

800

2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4

Risk

app

etite

inde

x

Venture investment in UK/Irish tech companiesRisk appetite by investor group

MarketCrowdfundersCVCsUS Investors


April 2017 I 46


COMMENT

There has been a lot of recent debate about the potential impact of chatbots on financial services. Is the hype warranted? Or is it just a passing fad? This could be a case where one needs to take the long-term view. In other words, the hype is possibly premature, but given some emerging trends at play, the opportunity could be signifi-

cant over time. There are several key factors worth evaluating.• Rapid adoption of social messenger apps.• Availability of open banking application program interfaces (APIs).• Development of robust user authentication tools.• Advances in machine learning technology.

Rapid adoption of social messenger apps

The use of social messenger apps on smart devices has exploded over the past few years. Time spent within such apps dwarfs that spent on other types of apps, as the richness of features and functionality continues to increase. What started as chat apps are now much, much more. In fact, usage on social messenger apps is outpacing traditional social networks, as consumers move away from public social broadcasting towards more private means of communication.

Ultimately, these apps are becoming platforms for the delivery of relevant and interactive content to, from and between users. This capitalises on an entire generation of millennials who have grown up almost exclusively on social media plat-forms, and are not as conditioned to using a plethora of standalone apps to consume disparate services – for example, mobile banking apps. In a way, social messenger apps have become the new operating system.

Availability of open banking APIs

One of the hurdles in democratising financial services has been the difficulty for third parties of obtaining access to con-sumer banking data from financial institutions. Select companies have already done some heavy lifting to gather basic

Fintech chatbots:

Jeff Allen, vice-president of strategic investments, Mastercard

Are they

worth the

hype?


April 2017 I 47


COMMENT

account information, for example Yodlee and Plaid. However, full control of accounts via third parties is still not generally available, though we are starting to see some regulatory intervention to facilitate such innovation – notably in Europe through PSD2 (the revised Payment Services Directive).

PSD2 obligates financial institutions to provide open APIs so that third parties can more readily access and leverage consumer account information, enabling developers to build new services on top of core banking infrastructure and data. There has been a recent trickle-down effect in the US, as a lobby group was recently formed called the Consumer Financial Data Rights coalition (CFDR) to promote a similar concept of open banking.

Development of robust user authentication tools

The ability to authenticate users to access their financial accounts through third -party applications is becoming both more secure and convenient. Third parties storing sensitive financial data are now using bank-grade security. For exam-ple, this is the basic premise when a consumer links financial accounts through Mint’s personal financial management service.

Furthermore, clunky redirects from third-party apps to separate websites for financial account authentication are getting replaced by fully native in-app experiences, and usernames and passwords are being replaced by biom-etrics. The net result from all of these progressions is an increase in consumer trust and interest in using third-party applications to conduct financial transactions.

Advances in machine-learning technology

Machine-learning technology – the driver behind artificial intelligence – is becoming sophisticated enough to address real-world consumer use cases. In a nutshell, machine learning – and in particular, a sub-segment of machine learning called deep learning – is a set of complex, interrelated algorithms that become more accurate in generating relevant responses as more data runs through them. It is experiential, just like the human brain.

Until recently, use cases for machine learning in fintech were typically found behind the scenes, for example fraud detection. The more transactions that run through the fraud system, the better the system becomes at identifying fraudulent behaviour. But the technology has advanced, and is start-ing to interact directly with consumers.

Increasingly, machine-learning technology will be able to process greater levels of conversational data rather than a predefined set of variables. For example, several types of institution are starting to deploy machine-learning tools to supplement customer service on websites and mobile apps.

So what does this all mean?

As social messaging apps continue to proliferate, banking APIs become more standardised and read-ily available, and authentication becomes more frictionless, we should see an increasing number of financial services offered through these messaging channels via chatbots. Machine learning therefore becomes the wildcard – a potentially key differentiator that can catapult one institution ahead of the pack, whether it is a bank, fintech startup or digital giant. The big question is, how fast can this technology progress so that truly free-flow conversational financial services can be offered instantaneously and flawlessly through messaging platforms?

Based on some recent announcements, there is potential, but we still have some way to go. For example, Trans-ferWise, a digital remittances provider, announced it now enabled consumers to send money through its chatbot on Facebook Messenger. While this is a good start, the features and functionality are limited to a predefined set of options. Several other firms – banks and non-banks – have also recently released chatbots via Facebook Messenger with a similar scale and scope.

To accelerate advances in this space, both financial and strategic investors are starting to take notice and put money to work. For example, Kasisto – a conversational artificial intelligence platform provider with a focus on financial services – recently raised a series A round led by Propel Venture Partners with participation from Mastercard and Commerce Ventures. Existing seed investors Two Sigma Ventures, DBS Bank, Partnership Fund for New York City, New York Angels and Harvard Business School Alumni Angels of New York also participated in the round.

So is the hype on chatbots justified? While it may be premature to jump on the bandwagon, it is not a stretch to view chatbots as more than a passing fad. It is just going to take time to mature as a new digital channel, the same way mobile apps themselves took time to overtake the web. Of course, primary benefactors – other than consumers – are messaging app providers themselves – Facebook, for example. Their last-mile relationships with consumers continue to strengthen as they offer an increasing number of services within their ecosystems across many aspects of our lives. u

This is an edited version of an article first published on LinkedIn

To accelerate advances in this space, both financial and strategic investors are starting to take notice and put money to work


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April 2017 I 49


GAULE’S QUESTION TIME

Give us a brief introduction to the Global Health Innovation Fund and to Merck. A lot has changed after our first interview five years ago.

I joined Merck – it will be actually seven years this April – to start their venture capital activities. They had not actually done any venture capital work prior to that. Before joining Merck I was at Johnson & Johnson for close to 20 years, and spending the majority of my career investing for them as well.

So today we are a $500m fund, we have over 35 portfolio companies. We have had about seven exits to date, and Merck has actually acquired two of our companies to date, so we think we are delivering what Merck asked us to on day one, which was to try to give Merck a number of options around this non-core area of healthcare.

Give us some examples of what “connected health” means to Merck and your fund.

One of the most important things that a venture fund needs to do is have a strategy – especially a corporate venture fund. The way we think of our strategy, and healthcare is uniquely positioned to have this type of strategy, in that what happens in healthcare versus other industries is really hard to scale, because of the local and regional nature by which healthcare is practised. So you have to build a strategy around how you are going to invest and how you are actually going to scale, and then bring that value back to your parent company.

So we created this thing called connected health. It operates on two fundamental investment theses. Our first thesis is that we believe data is the currency we are going to use in the future market. This means that we want all of our companies to touch data in some way. Because healthcare is based on value and outcomes, so data is what drives that value and outcome.

The second thesis – one of the big lessons I learned from all the years investing at J&J, in healthcare specifically – is point solutions do not work. A point solution is a very narrow company focused on a very narrow widget, if you will. And the problem with healthcare is that it is much broader than that. So we work in what we call an interconnected healthcare framework. We try to connect companies. When we look at a company, if we cannot connect it to another company within our portfolio or outside our portfolio, we do not do that investment. We are trying to make sure we can partner this company. Partnering can mean a lot of things, it can mean merging them or it can be a commercial agreement, or it can just be a handshake that we are going to try to work together and deliver an integrated solution to the market.

We think of data as commodity data. These are things like electronic medical records and data of patients’ healthcare. Everybody has access to the data – you can actually buy this data. The problem is it does not tell you a lot about a specific patient. So we are really interested in investing in what we call emerging informational tools. And they can be things like point-of-care diagnostic companies. It could be molecular diagnostic companies, it could be remote monitoring. It could be mobile and social. It is all this new data that is being generated by these companies. Our goal is to merge this new data with commodity data, and you create what is called a large patient data set, that is much deeper and allows us to know more about a patient.

What is really important for us is the next step, which is investing in the middle layer – health IT platforms. If you cannot aggregate data, integrate data and harmonise data, you cannot actually use the data you are collecting. So we want an infrastructure layer that allows us to do three main things. One is secure data in a private setting, so it would comply with confidentiality laws.

Two is to aggregate, integrate, harmonise that data. And the third is analyse that data. So we are interested in companies that can do all those things, because the problem is you cannot get to a solution if you just have disparate data and you do not have it infrastructurally.

We are very interested in clinical awareness and decision support tools and how we get them to work well in practising medicine. We are really interested in quality and performance improvements, or how you go into a hospital system and remove costs and create better efficiencies. That could be things like care coordination, it could be things like infection control. If I were very interested in the provider of patient engagement, how do you actually talk to the physician and talk to the patient and how do they talk together? So you can actually bring better quality information to all the right parties.

But all this works together, because if you just do investments in any one of these small buckets, that is a point evolution. If you do investments in these buckets and connect them to other buckets, that is the integrated healthcare framework that we work in.

Andrew Gaule, left, talks to Bill Taranto, president, Merck Global Health Innovation Fund

Connecting health issues and the companies tackling them

“If we cannot connect a company to another company within our portfolio or outside our portfolio, we do not do that investment”


April 2017 I 50



You have talked about your ecosystem structure. Talk it through and give us an example.

When we think in terms of the integrated healthcare system that we like to invest in, we created something called eco-system investing. We do not start with a company, we actually start with what we call a use case or a customer need. First we try to understand what is happening and whether we can solve that problem for the end user. So we start with something that, in healthcare it is called a use case, but it is really just solving a problem in healthcare.

The big thing about healthcare is that it is not really about solving a technology problem. It is really about solving a healthcare problem utilising technology. Technology is an enabler. So that is why we do not really start with the company first, we actually start with the problem.

Once we have identified the problem, we try to identify what we call an anchor tenant. The anchor tenant, like in a mall, is the store that draws everybody in. So it is a company that can solve typically anywhere from 50% to 60% of the use case or the problem. It never solves 100%. Those companies are not easily findable and really do not exist.

Then, much like how a mall is built, we put stores around it, so we invest around it to fill the gaps. That is how the eco-system is beginning to get built. So you can almost say that the anchor tenant is your sun, and the planets around it are the areas where you are trying to fill all the gaps of that particular need.

Over time we try to connect these companies and have them work together. They can work together in a number of different ways, leveraging their key strengths. The collaboration can include a vendor relationship, a joint venture or go-to-market agreement. It can be a platform collaboration. It can be a merger. But the idea is that, over time, by building this ecosystem, it allows us to build bigger scale, so should Merck want to partake in whatever that use case is solving, it is easier for them to do it by aggregating companies and bringing a much more integrated solution to the market. What that scale then does for Merck or any parent is it drives a better relationship with the customer you are trying to help, but it also drives for us revenue and earnings per share.

We call it roll-up. You might start with just a company or companies with handshakes or some kind of commer-cial agreement, but the whole idea over time is you figure out which companies work best together within that ecosystem, and it may not be all the ones you have invested in within that ecosystem, and you bring them together to deliver the best solution.

We have created an ecosystem around remote care monitoring in the cardiac space. We started with a venture investment – our anchor tenant – in a company called Preventice, but it actually started with a use case. The use case in this particular instance was the prevalence of AFib, or atrial fibrillation – a fluttering of the heart which can lead to things like a stroke or a heart attack. It was causing a 30-day readmit into the hospital program, where a patient gets discharged, but they end up back in the hos-pital because they cannot control the AFib.

We invested in Preventice, which was just the front end of the monitoring. They had a patch that looked like a bandaid that could monitor AFIb. Our partner was Mayo, and they would send readings to the Mayo cardiology lab and they would read them and then get back to the patient and manage the patient.

Preventice was just the patch. We did not have a back end. How do you handle a call centre? Who’s actually doing the readings? How do you clean the devices and get all of the different devices out of the patient? How do you handle reimbursing? All these things concern the solution after monitoring a patient. We identified a company called eCardio. What had them begin to work together in a commer-cial partnership – Preventice was providing the front end, the actual device, and eCardio was provid-ing the back end, the physical monitoring. We decided to roll them up and bring them together into an integrated solution, where we had the ability to offer both the front end and the back end in a single entity.

One of the pieces we were missing though was the care coordination component. How do you actually care for the patient if they are on this device? So we acquired a third company called C3 Nexus which is just a care coordination company around the 30-day readmit in the cardiovascular program. They have nurse programs, they contact the patient, walk the patient through how to use the device and how to manage the condition. By bringing those three pieces together, we are a better solution.

Merck is not a cardiovascular company, it is not one of our therapeutic specialities. So we deconsolidated our position and brought in Boston Scientific as our lead partner, it being both a device company and a cardiovascular company.

Are you able to share the financial benefits of using the approach you have described here?

In the case of the Preventice-eCardio deal, when we ended up deconsolidating our position, because we had created such value, we paid Merck back all the money we had previously invested. Corporates can add better value – they are one of the few entities that have the ability to do this aggregation of assets. Typically, private venture firms do not have the ability to do that, and certainly private equity firms do, but we have more expertise within our own industry and actually make a better partner to these companies than private equity, because we have skin in the game, we are in healthcare as a vendor.

But generally speaking for our fund, we are measured in a couple of different ways. From a financial perspective, Merck

“The idea is that, over time, by building this ecosystem, it allows us to build bigger scale”


April 2017 I 51



did not hire me to lose money – they would like us to provide a return and be evergreen. The important thing for us is that we do not ever have to go back for Merck to replenish the $500m. The idea is to be self-sufficient and Merck allows us to keep any gains on sales of assets, and then we just replenish the fund and keep moving forward and keep adapting our strategy.

From the strategic side, are we doing what Merck asked us to do? Are we giving them option on their M&A? Are we giv-ing them assets that they believe are viable? If we are not providing them those assets then we are not investing in the right way. Fortunately for us, they have acquired a number of our companies, so we continue to build value. As long as we have built a good investment and a good healthcare company, we can exit that, then reinvest in places that Merck might find more attractive over the next few years.

What do you do to relax?

I have two daughters and they keep me quite busy with their activities, but on a personal level I love to sail. Most people do not realise that I grew up in Miami, Florida, so always lived around the ocean and loved to sail and boat. And I like to play golf. And though I travel a lot with my job, I do like to travel with my family. u

Taranto will be on a panel Gaule is chairing at the GCV Symposium on May 23 in London – Making CVC truly strategic through innovative new value chains.

You can listen to this and other interviews on a podcast available at gaulesqt.podomatic.com

Andrew Gaule leads the GCV Academy, developing the capabilities and expertise of organisations leading open innovation, venturing and corporate venturing programs to drive strategic benefit. He also supports innovation programs and collaborations in “innovative new value chains” in global organisations.

To contact Andrew Gaule and for future interview ideas, email [email protected] or James Mawson, [email protected]

Special report: GCVI Summit raises $5,400 for charities

Andrew Gaule, leader, GCV Academy

We had fun and raised a lot of money for great causes at the Global Corporate Venturing & Innovation Summit in Sonoma, California, in January.

As it was Burns Night, which celebrates the birth of Scottish poet Robbie Burns, I felt it was appropriate to let the largely US audience know about the traditional rituals. With the help of three co-opted “Scots” – Brad McManus, investment director at Motorola Solutions Venture Capital, Matt McElhattan, investment director at Munich Re/HSB Ventures, and Jeff McRae, senior vice-president of corporate strategy and business development at Allstate Ventures – the hag-gis was piped in, the toast to the haggis was given, as was the toast to the lassies. Claudia Fan Munce, venture adviser at NEA and chairman of the GCV Leadership group, provided a reply on behalf of the lassies.

We then held a true-or-false quiz for the audience, and raised $2,700 from summit delegates. Thank you to Tracy Isacke, managing director of corpo-rate relationship management at Silicon Valley Bank, for helping to count, bank and donate the money. James Mawson, founder of GCV magazine’s publisher Mawsonia, matched the sum raised, enabling us to donate $5,400 to these three charities: • San Francisco Giants Community Fund• Hope4China Children charity – see the thank-you video here:

https://www.youtube.com/watch?v=QuCcc9FLAs&feature=youtu.be• Trevor Project, the charity nominated by the winner of the True or False Quiz.

You can see the fun and the ceremony on the GCV Academy YouTube Channel at https://youtu.be/QuCcc9FLAs

Special report: GCVI Summit raises $5,400 for charities


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https://youtu.be/QuCcc9FLAs

April 2017 I 52


UNIVERSITY CORNER

Last month, Touchstone Innovations – the commercialisation firm spun out of Imperial College London – partici-pated in a £60m ($73m) series C round launched by Cell Medica, a cellular immunotherapy developer that Touch-stone co-founded in 2007.

A $73m series C round may not be record-breaking, but in the spinout world, where sums tend to be significantly lower on average, that is a notable sum. And there is no question that immunotherapy, a treatment that harnesses the body’s own immune system to fight cancer, is big business – pharma companies Bristol Myers-Squibb and US-based Merck lead the pack for now, as both have two successful treatments on the market that rake in hundreds of millions of dollars – the former’s Opdivo and the latter’s Keytruda.

While many immunotherapy developers start by focusing on a single cancer indication, Cell Medica is more ambitious. The company will use its series C capital to commercialise not one but three technology platforms. Touchstone, which has taken part in every Cell Medica transaction to date, contributed £13.7m to the round, while Invesco Perpetual and Woodford Investment Management, through respective unspecified funds, also committed cash.

Immunotherapy, in essence, modifies a patient’s immune system to give it the ability to recognise and attack malignant cells. Cell Medica takes a two-pronged approach to this – the company both manufactures nat-urally occurring and gene-modified products. The company’s lead oncology candidate, Baltaleucel-T, is currently undergoing a phase 2 clinical trial for patients with advanced lymphomas associated with the Epstein Barr virus, one of the eight herpes viruses and the cause of glandular fever, though it is also asso-ciated with several kinds of cancer, such as Hodgkin’s lymphoma, and conditions associated with HIV.

The immunotherapy producer has signed collaboration agreements with University College London and Baylor College of Medicine to commercialise additional product candidates. Cell Medica is using technology known as Streptamer, a selection technique that labels or isolates antigen-specific T-cells – a natural part of the immune system that forms one of the pillars of several immunotherapies.

The technology is licensed from Juno Therapeutics, a joint venture involving Fred Hutchinson Can-cer Research Centre, Seattle Children’s Rese arch Institute and Memorial Sloan-Kettering Cancer Centre, which made countless headlines on Global University Venturing after a huge $120m series A round in 2013 that eventually closed at $176m in mid-2014 on the way to an IPO in late 2014 that priced its stock at $24 a share. By December 2015 the price had more than doubled to $54 a share.

The good news kept on coming until last year, when Juno hit a wall and five patients died in clinical trials. Development of that particular drug candidate was halted earlier this month. At the time of writ-ing, Juno Therapeutics was trading at about $20.69.

To be sure, immunotherapy’s lure can be treacherous. When Bristol Myers-Squibb decided to widen the potential usage of Opdivo last year, it launched a clinical trial that ultimately failed and wiped $21bn off of the company’s market value in August. That has not deterred early-stage businesses, however. In the past year alone, spinouts from institutions as varied as Albert Einstein College of Medicine, Pittsburgh University, Rockefeller University and University Medical Centre Utrecht have raised capital to develop their own take on immunotherapy.

The fact that Cell Medica is collaborating with Touchstone, once a darling of the university venturing world, is promising. What is more, with the series C money going towards the commercialisation of three technology plat-forms, Cell Medica is making sure it is not putting all its eggs in one basket. The company has also proven it does not particularly need jaw-dropping amounts, as its £50m series B round raised in 2014 lasted several years. That round was led by Touchstone, then known as Imperial Innovations, with participation from Invesco and Woodford.

Touchstone previously led a £17m series A round in 2012, while Invesco Perpetual and Cancer Prevention and Research Institute of Texas also took part. Wellcome Trust converted a previous loan into equity at the same time. In 2007, Touch-stone supplied an undisclosed amount of seed funding.

Gregg Sando, co-founder and chief executive of Cell Medica, said of the latest funding round: “With the strong support of our key shareholders, Cell Medica will implement the next phase of our development program, bringing a new gen-eration of cell-based immunotherapy products into phase 1 clinical trials as well as completing our phase 2 program for Baltaleucel-T. This funding enables us to continue our efforts to unlock the full potential of cellular immunotherapy for the benefit of cancer patients.” u

Touchstone highlights the allure of immunotherapy

Thierry Heles, editor, Global University Venturing


April 2017 I 53


GOVERNMENT HOUSE

China Investment Corporation (CIC), the country’s sovereign wealth fund, made headlines last month when it emerged as one of 40 investors in a $1bn series F round for US-based accommodation platform Airbnb. The news underscores CIC’s determination to diversify its portfolio by sector as well as geography.

Airbnb is already backed by another sovereign wealth fund – Singapore’s Temasek. CIC subscribed to roughly 10% in the latest funding round, supplying about $100m, Sky News reported.

The series F round valued Airbnb at $31bn, according to CNBC. Previous reports dating from last September named CapitalG – the growth capital arm of conglomerate Alphabet, and previously called Google Capital – as a co-lead inves-tor alongside growth equity firm Technology Crossover Ventures. At the time, Airbnb was targeting an $850m close and had secured an initial $555m.

Founded in 2008, Airbnb operates a platform for short-term property leasing or rental, ranging from a single guest room to cottages, flats and even castles. The company, which takes a 3% fee per reservation, claims more than 3 million listings – including about 1,400 castles – in more than 65,000 cities across 191 countries.

Airbnb’s offering includes local tourism services, through which users can sign up to experiences such as work-shops or guided walking tours provided by other suppliers.

CIC’s move is significant, if not entirely unexpected – the fund has been ramping up efforts to invest in US-based companies as well as make infrastructure investments in the country since November last year.

Qi Bin, who was appointed deputy general manager of CIC last August, announced in November that CIC was set to rebalance its mix of investments to involve public equity, alternative investments, includ-ing hedge funds, and boost its ability to make direct investments.

At the same time, Qi stated, CIC was aiming to move away from its focus on infrastructure investments. The foreign investments would be aimed at providing a boost to the domestic economy.

In 2015, CIC opened an office in New York, following the closure of its Toronto office earlier that month – at the time, the Canadian location was its only foreign office.

At home, CIC is busy supporting the government in reforming regulations that govern initial public offerings following the central government’s decision to halt flotations in 2015 and early 2016 to sit out market volatility.

There are, by some accounts, about 800 companies awaiting approval for an IPO, and while the sovereign wealth fund did not say as much, it would be reasonable for CIC to enter the US with a view to securing more exits.

Of course, a $1bn series F round pushes a flotation or acquisition for Airbnb further into the future, but the money should also mean the company will have some runway to fight off legal setbacks as jurisdictions such as New York curb users’ ability to sub-let properties – a law that last month led to two landlords being found guilty of 17 violations and fined $1,000 for each.

The same is true for many other major tourism locations, such as Paris, where authorities have been known to raid properties following listings that contravene housing regulations limiting home rentals to a total of 120 days a year.

These troubles may also explain why Airbnb has reportedly hired consultancy McKinsey & Co to look into the long-term rental market, according to reports in the Sydney Morning Herald.

Airbnb, which has now obtained $3.4bn in total funding, purportedly achieved profitability in the second quarter of last year and is on track for a positive full-year ebitda (earnings before interest, tax, depreciation and amortisation) this year.

Temasek previously helped push a series E round in 2015 to a $1.5bn close at a $24bn valuation.

The company’s existing shareholders include General Atlantic, Hillhouse Capital, Tiger Global Management, Kleiner Per-kins Caufield & Byers, GGV Capital, China Broadband Capital, Horizon Ventures, Wellington Management, Baillie Gifford, T Rowe Price and Fidelity Investment, which participated in the series E round alongside Temasek.

The consortium is rounded out by TPG, Dragoneer Investment Group, DST Global, Founders Fund, Firstmark Capital, Sequoia Capital, CrunchFund, Andreessen Horowitz, General Catalyst Partners, Y Combinator and SV Angel. u

Airbnb booking takes CIC beyond infrastructure

Thierry Heles, editor, Global Government Venturing

There are, by some accounts, about 800 companies awaiting approval for an IPO


April 2017 I 54


INNOVATIVE REGION

Since becoming Aus-tralia’s prime minis-ter in 2015, Malcolm

Turnbull has highlighted a number of areas in which his country is lagging behind the rest of the world – particularly regional com-petitors such as Singapore and Hong Kong – when it comes to incentivising and commercialising innovation.

GCV Analytics data shows that Australia reported 12 corporate-backed deals in 2016, up from 8 in 2015. Compared with Canada, the UK and Israel, however, Australia still has some way to go. Canada had 48 corporate-backed deals in 2016, up from 45 in 2015; Israel had 52 such deals in 2016, up from 32 in 2015; and the UK recorded 85 in 2016, up from 70 in 2015.

Historical data shows the total number of deals since 2011 is 42, with investments in the IT, services and media sec-tors dominating in recent years.

Turning to fund launches, Australia-based insurance firm Insurance Australia Group (IAG) formed a corporate venturing fund in February last year to operate through its IAG Ventures innovation unit. IAG Ventures was created in 2014 and interacts with startups to create new insurance models that operate as joint ventures, but the new fund will seek to make strategic investments. It will prioritise growth-stage companies as opposed to early-stage startups, and will aim to fund businesses that could help create new delivery models for insurance, including big data and telematics technology developers.

Australia-based financial services firm AMP on the other hand shut down its venturing vehicle AMP New Ventures in January after a strategic review. Paul Sainsbury, AMP’s chief customer officer, told staff in an email seen by Australian Financial Review that a review conducted by AMP had concluded the firm would prioritise investment that was core to business performance.

The move followed several months of strife for AMP, which wrote down the value of its life insurance unit by A$668m ($500) last October. Several senior executives left the company the following month, while Sainsbury came on board to head its customer and wealth solutions activities.

Australia-based telecoms company Telstra was the most active corporate investor with 13 deals, surpassing both Singa-

Australia bolsters triple helix collaborationMoves to strengthen corporate, government and university innovation links

Chris Torney, reporter

Number of corporate-backed deals by sector 2011-16

2011 2012 2013 2014 2015 2016

5 5

3

3

2

2

2

2

2

2

2

22

1

1

1

1

111

1

65

10

8

12Australia

2011 2012 2013 2014 2015 2016

10

12

5

5

8

8

7

7

7

76

4

44

4

117

10

23

4548Canada

2011 2012 2013 2014 2015 2016

15

15

15

18

10

24

10

12 22 12

11

9

8

8 9

7

7

4338

26

81

70

85UK

2011 2012 2013 2014 2015 2016

10

20

30

9

97

7

4

9

1613

23

32

52Israel

ConsumerFinancialHealthIndustrialITMediaServicesTelecoms

2011 2012 2013 2014 2015 2016

$189m

$78m

$47m$33m$27m

$5m1

65

10

8

12

ConsumerFinancial

HealthIndustrial

ITMedia

ServicesTelecoms

Corporate deals in Australian enterprises 2011-16



April 2017 I 55


INNOVATIVE REGION

pore-based telecoms business Singtel’s venturing fund Innov8 and Australia-based financial services firm Westpac, which each had three deals. The bubble graph shows Telstra’s investments from 2011 to date, with most of the deals in the IT sector.

Government initiatives

Turnbull’s government is not the first to commit extra resources to strengthening the innovation ecosystem, but it does appear to have approached these issues with gusto. The measures the Liberal-National coalition has introduced over the past 18 months include improved tax incentives for early-stage investment, increased funding for collaboration between business and universities, and the establishment of new national accelerator and venture-funding programs.

However, the fact that Australia slipped from 17th to 19th position in the 2016 Global Innovation Index – a ranking of innovation capabilities in 128 economies – suggests Turn-bull and the rest of the coalition face a considerable chal-lenge in making the nation’s relatively risk-averse invest-ment culture more dynamic.

Paul Cheever, an investment consultant and former head of the Australian Institute for Innovation, a state-backed think-tank set up in 2010 which closed last August after coming to the end of its funding, said: “Over the past cou-ple of years there has been a huge rise in the number of accelerators and incubators, and now both the state and the federal government have started to get behind them with some money. But one of the flaws we have in the whole dis-cussion – and this is driven by the marketplace – is that everyone says: ‘We need money.’ ”

Cheever said that while capital was required to commercialise and innovate, “from a system point of view it is capability that really counts – so I am a bit concerned that generally, the federal government does not really understand capability”.

He added: “For example, I think that the technology transfer offices within our universities have some really great people when you put them together. But our planning tends to be more around how to put money out, rather than how to bring people together and how to mobilise capability.”

Tax policies

Tax incentives for venture capital investors are nothing new in Australia, but the Early Stage Venture Capital Limited Partnerships (ESVCLP) and Venture Capital Limited Partnerships (VCLP) regimes, which were introduced in 2002, have

Nexmo

InstartLogic

Ooyala$35m

VArmour$41mTelesign

$49m

Qiniu$100m

D

Ooyala$43m

KonySolutions

Fred IT

Elastica$30mCohereBox

$250mE and beyond

Investments by Telstra 2011-17

HealthIndustrial

ITMedia

ServicesTelecoms

TelstraSingtel (Innov8)Westpac Bank

Cultivation CapitalGilbert & Tobin

Global Brain CorpIntel

Jefferies GroupNine Entertainment

Qualcomm

1333

2111111

Top 10 corporate investors in Australian enterprises 2011-16

ConsumerFinancialHealth

IndustrialITMedia

ServicesTelecoms

Top 10 corporate-backed deals in Australian enterprises

Company Sector Round Round size InvestorsMesoblast Health Stake purchase $150m Teva Pharmaceutical Industries | undisclosed strategicTemando Consumer B $38m NeopostFred IT IT Stake purchase $25m TelstraAdNear IT B $19m Canaan Partners | Global Brain Corporation | Sequoia

Capital | TelstraUno Financial services A $17m Westpac Bank | undisclosed investorsStyleTread Consumer B $13m Nine Entertainment | Starfish VenturesBrandscreen Media B $11m Macquarie Clean Technology Fund | Singtel (Innov8) |

Southern Cross Venture PartnersPromisePay Financial services A $10m Andrew Walsh | Carsales.com | Cultivation Capital |

Mark Harbottle | ReinventureHealthEngine Health – $10m TelstraOpenAgent Services – $9m Breakthrough Labs | Qualgro | Reinventure


April 2017 I 56


INNOVATIVE REGION

both been updated by the Turnbull government.

Under the ESVCLP scheme, new early-stage venture capital funds with between A$10m and A$200m benefit from flow-through tax treatment, a tax offset for investments made by limited partners and an income and capital gains tax exemption on disposal.

The fund upper limit was raised to A$200m from its previous A$100m in July 2016, and a 10% non-refundable carry-forward tax offset on contributions was introduced. At the same time, the government removed the divestiture require-ment that had been enforced when the value of an investee exceeded A$250m.

The VCLP regime is similar, although there is no requirement to focus on early-stage investment and there is no upper limit on fund size.

Australia also introduced new incentives for direct investment in innovative early-stage companies in July 2016. Eligible investments benefit from a 20% non-refundable carry-forward tax offset on investment, capped at A$200,000 a year, as well as a 10-year capital gains tax exemption for investments held for at least 12 months.

Companies seeking investment can self-assess as “innovative” against a range of criteria set out by tax authorities or by receiving a determination from the Australian Tax Office. The incentives are based on the UK government’s Seed Enter-prise Investment Scheme (SEIS), which was launched in 2012 to promote small and early-stage businesses and entre-preneurship in the UK. SEIS raised more than the equivalent of A$500m for almost 2,900 companies in its first two years.

Research and development

Australian businesses can claim a tax offset for research and development activities under the R&D tax incen-tive. Firms with annual turnover of less than A$20m can claim a 43.5% refundable tax offset. Larger companies benefit from a 38.5% non-refundable tax offset.

When Turnbull took office in 2015, he identified partnerships between business and researchers as a key area for improvement. At the time, he said: “One of the things we do not do well at all is the collaboration between primary research, typically in universities, and business. We are actually the second worst in the Organisation for Economic Cooperation and Development, so it is a very important priority to make a change to that.”

At the end of 2015, the coalition launched the National Innovation and Science Agenda (Nisa), a frame-work for Australian innovation policy consisting of initiatives worth A$1.1bn over four years.

Focusing on four key pillars – culture and capital, collaboration, talent and skills, and government as an exemplar – Nisa is intended to incentivise investment in early-stage innovative businesses and increase engagement among businesses, universities and the research sector. To this latter end, the Nisa has implemented the following policies.• Investment of A$1.5bn over the next 10 years to fund the National Collaborative Research Infra-

structure Strategy, which drives collaboration involving 35,000 researchers, government and industry to deliver practical outcomes.

• Fast-tracking of collaborations under the Australian Research Council Linkage Projects scheme, which provides project funding of A$50,000 to A$300,000 a year for two to five years.

• An Innovation Connections program to help small and medium-sized businesses team up with researchers, with matched grants available.

• The expansion of the On program, Australia’s national science and technology accelerator, run by the Commonwealth Scientific and Industrial Research Organisation (CSIRO), an Australian government cor-porate entity that carries out scientific research.

These new measures complement the industry growth centres set up by Turnbull’s predecessor Tony Abbott in 2014. The not-for-profit growth centres also promote collaboration between business and researchers, but are organised into six sectors – advanced manufacturing, cybersecurity, food and agribusiness, pharmaceuticals, mining, and oil and gas. As well as aiming to create more productive partnerships between researchers and industry, the growth centres are intended to identify and remove unnecessary red tape, improve access to international markets and boost workforce skill levels.

Government venture investment

Australia’s Innovation Investment Fund was scrapped in 2014 following years of criticism for underperformance and a general lack of impact. In an influential report published shortly before the fund was closed down, the Commission of Audit said: “This body provides direct subsidies to Australia’s venture capital industry. In the same way other industry-specific assistance is recommended for abolition to avoid distorting resource decisions across the economy, so should this assistance to the venture capital sector.”

Under the Turnbull government, however, a new fund – with similar tax incentives – has been set up as part of CSIRO.

The A$200m CSIRO Innovation Fund was launched last December to bring to market early-stage innovations from CSIRO, universities and other publicly-funded research organisations.

“One of the things we do not do well at all is the collaboration between primary research, typically in universities, and business”


April 2017 I 57


INNOVATIVE REGION

The fund is being run by veteran venture capitalist Bill Bartee, formerly of investment firm Blackbird Ventures. The fund, which operates as an ESVCLP, will benefit from A$70m of government money over its initial 10 years plus A$30m in revenue from CSIRO’s wireless LAN program. A further A$100m will be sought from private investors.

Also in December, Australia set up a A$500m Biomedical Translation Fund, which will benefit from A$250m of govern-ment funding matched by the private sector. The fund will promote the growth of Australian biomedical innovations and is being run by three private sector fund managers – Brandon Capital Partners, OneVentures Management and BioSci-ence Managers.

Cheever said Australia’s federal-backed funds could benefit from having a broader governance structure, higher levels of stakeholder engagement and a less bureaucratic approach. “I get the feeling that with organisations like Nesta in the UK, say, they have a lot more engagement and freedom of movement,” he explained.

Nesta is a foundation that supports practical projects promoting innovation benefiting the public, targeting areas such as skills, entrepreneurship and cities.

Cheever added: “This is the freedom for the CEO of a growth centre which has decent federal funding for operations to go out and make things happen. So, for example, at certain times, he needs to be able to go back to the federal depart-ment and say: ‘We need to put money in here – this is the inflection point.’ ”

As for government venturing abroad, the Future Fund, the sovereign wealth fund of Australia, has made several invest-ments in US-based startups recently. The Future Fund led a $45m series C round for Bitglass, a data protection technol-ogy producer, in January this year. Singtel Innov8, the corporate venturing subsidiary of telecoms firm Singtel, Norwest Venture Partners, New Enterprise Associates and other unnamed backers returned for the round.

The Future Fund also contributed to a $41m series D round raised by Fugue, a US-based developer of software to manage cloud infrastructure, which featured Maryland Venture Fund, an early-stage vehicle owned by the US state of Maryland. u

Nicole Idar Lee contributed to this report.

University venturing in Australia

Thierry Heles, editor, Global University Venturing

Among the initiatives seeking to accelerate cooperation between universities and business is the Australian Technol-ogy Network of Universities (ATN). Consisting of five institutions – Queensland University of Technology, Sydney

University of Technology, RMIT University, South Australia University and Curtin University – the network was founded in 1975 as the Directors of Central Institutes of Technology, and renamed the ATN in 1999.

The ATN, which put in place a standardised approach to intellectual property in April 2016, aims to boost Australia’s cur-rent ranking by the Organisation for Economic Cooperation and Development of 29th out of 30 for university-industry collaboration.

Another noteworthy initiative is Uniseed, the venture fund backed by four Australian universities and research institute CSIRO, which announced a A$20m ($15m) fund in March 2017, just over a year after unveiling a A$50m fund in Decem-ber 2015.

Melbourne, Sydney, New South Wales (UNSW) and Queensland universities are each set to provide A$5m to the fund, which will make follow-on investments in existing portfolio companies, over the next 10 years. The new follow-on fund will enable Uniseed to double-down on promising spinouts and avoid a dilution of its shares.

Top 10 university-backed Australian enterprises

Company Affiliated institution Sector Round Round size BackersSpinifex Pharmaceuticals

University of Queensland Health Exit $200m Novartis

Fibrotech University of Melbourne Health Exit $75m Global biotech ShireLithicon AS Australian National University Energy Exit $68m FEI CompanyVaxxas University of Queensland Health B $20m OneVenturesHatchtech University of Melbourne Health – $11.9m OneVentures, University of Melbourne,

Queensland Biotechnology Fund, UniseedSmart Sparrow University of New South Wales IT B $10m Yellow Brick Capital, OneVentures, Uniseed.PolyActiva Bionic Ear Institute Health B $9.5m Medical Research Commercialisation FundSaluda Medical National ICT Australia Health – $5m New South Wales GovernmentAuspherix University of Technology Sydney Health A $2m Medical Research Commercialisation FundNexgen Plants University of Queensland Industrial – $1.86m Uniseed, Yuuwa Capital

University venturing in Australia


April 2017 I 58


INNOVATIVE REGION

The vehicle follows the establishment of Uniseed’s third fund, a A$50m commercialisation initiative that has invested A$4m so far. Four additional spinouts received cash from that pool of money, though only one has been named so far – Exonate, a UK-based biotech developer spun out of Nottingham University that is also exploiting research conducted at UNSW.

A further example of university-corporate collaboration is EduGrowth, a non-profit platform founded by Deakin Univer-sity, La Trobe University, Monash University, Charles Sturt University and Griffith University as well as education company Navitas. In February, EduGrowth launched an edtech accelerator and welcomed its first cohort of five edtech busi-nesses, which will each receive A$50,000 in funding in return for a 6% equity stake. The money comes from a dedicated fund, backed by EduGrowth’s founders, which currently stands at more than A$1m and has a target size of A$3m.

The five businesses include Become, which hopes to develop an app to teach primary school pupils how to explore career options, and Life is Yellow, a mobile game for the iPad that uses fantastic creatures to teach children arithmetic.

Craftsposure offers an online platform to help users turn their hobbies into a professional career, while Jifox is aimed at senior school students, and will offer access to past exam questions and provide the solutions through video content. Finally, Prevyou is developing online tools for students to learn soft skills for the workplace.

There is also the M2 Venture Catalyst fund, a biomedical research enterprise launched by Monash and Melbourne universities in June 2016 with A$80m in financial firepower. M2 is jointly owned by the two universities, but run by an independent board chaired by John Brumby, former premier of Victoria and a fellow at both universities.

Funding for the venture came from the universities, which provided a combined A$50. The state of Victoria contributed A$10m, while further capital is being sought from trusts and charities. The enter-prise will support companies, increase investment and exports and create specialised jobs. In total it is expected to generate about A$360m.

In terms of exits, Curtin University realised its investment in spinout ePat Technologies, which uses facial recognition software to detect pain, when the company floated on the Australian Stock Exchange through a backdoor listing with exploration company MinQuest last October.

But Australia still has plenty of catching up to do in the government venturing space. In 2014, the availability of venture capital had been deteriorating steadily since 2006, and research institutes and universities were almost entirely lacking VC investments.

The funds mentioned above should boost spinout activity in the country, but universities are con-cerned that the funds might be a smokescreen for deeper cuts elsewhere.

Vicki Thomson, chief executive of Group of Eight – a coalition of research-intensive higher education institutions that includes Western Australia, Monash, New South Wales, Melbourne, Queensland, Ade-laide, Sydney and Australian National universities – wrote in April 2016: “In Australia, universities deal with two major parties who have cut our funding. Since 2012 almost A$1bn has been removed by both major par-ties from research funding programs. A further A$262m over three years was removed from the Sustainable Research Excellence fund in last year’s federal budget. A further 20% cut to university funding remains in the government’s forward estimates and it will be extremely challenging to equitably fund these cuts from changes to student fees and payment terms alone.”

With Australia currently ranking 27th out of 32 countries for public investment in tertiary education, the only way to go is up. u

Profile: Reinventure pioneers fintech venturing model


Australia-based venture capital firm Reinventure is attempting to apply the “most functional” corporate venturing model to its relationship with its sponsor, financial services firm Westpac, according to co-founders Simon Cant and

Danny Gilligan.

Reinventure was founded in late 2013 using a model in which it works with a single corporate limited partner with a view to investing independently in startups operating in adjacent or potentially disruptive sectors, and it found a suitable backer in Westpac.

Gilligan said: “Simon and I have both worked in industries, both with venture capital and corporates, around innovation and navigating disruption, and also with startups.

“We have basically seen every kind of sin a corporate VC has committed, and we felt slightly frustrated that corporate VC was not more functional. We felt there was a very big opportunity, particularly for markets outside the US, for corporate

Profile: Reinventure pioneers fintech venturing model


April 2017 I 59


INNOVATIVE REGION

VC to take more of a leadership position in developing new business models in those markets. So we sat down and designed what we thought would be the most functional corporate venture mode, structure and strategy based on all that experience, and then we proposed that model to a handful of companies, one of which was Westpac.

“They very fortunately had a visionary CEO who got the proposition we were talking about, which was quite a chal-lenging proposition to pitch to him at the time, back in 2013 before fintech was really a word, to say: ‘You are going to be disrupted and all your natural instincts for how you want to respond to that will not work. And as part of a portfolio

of responses to disruption you should have an arm’s-length venture capital fund that invests in minority stakes in the companies trying to disrupt you – and you should actively help those companies.’ ”

Reinventure was structured as an independent firm because, as Gilligan and Cant explained, corporates often find it difficult to bring themselves to fund and encourage technologies that would disrupt their core business, and an independent fund removes that obstacle. Westpac provided Reinventure with an initial A$50m ($38m) before the firm closed a A$50m second fund last August that Gilligan and Cant said was 99% funded by the bank.

In both cases, a specific amount was required to place Westpac’s venturing money firmly in the patient capital bracket, as opposed to the yield capital that banks generally deal in, allowing it to be allocated without the need for direct returns, and without the risk that investments could be affected by unforeseen difficulties for its parent. For an example of how this can be a factor, look to Australia-based financial services firm AMP, which shuttered its CVC vehicle AMP New Ventures in January following a strategic review.

Cant said: “It also meant that, by being established as an entirely independ-ent fund, we could pursue things that were well outside Westpac’s current thinking about what was and was not strategic. There are a whole lot of things about the fund’s structure that were specifically designed for us to invest in what would either be disruptive to banking or to adjacencies and therefore may prove to be useful options to the bank in a five to 10-year timeframe.”

The adjacencies in question include data, which Cant and Gilligan pointed out had many of the same properties as money, and real estate technology.

“We have sort of broken up the banking industry into the three layers,” Cant said. “There are those things that sit on the edge of banking, or the cus-tomer interface as it were. So there are a whole bunch of platforms and banking is becoming embedded in those platforms. We call that ‘banking on the edge’ or ‘embedded banking’. We have made a bunch of investments in that layer.

“The next layer is the things you might think of as more classic fintech, so lending and payments and so on, and then there is a whole bunch of layers that sit within the stack that are not necessarily unique to banking, although banking is probably one of the major industries that dominate, for example data. There are few industries that would have the kind of rich data that banking has.

“But there are other layers within that stack as well, such as security, the payments communications network – the sort of network bitcoin is looking to disrupt – so we make investments in all three of those layers.”

Fintech has so far been seen as a technology restricted to two or three major centres, particularly in Western Europe, but Reinventure believes Aus-tralia also has the potential to be a player, not least because of the position of banks like Westpac, which were not only better positioned than US and

European banks to recover from the 2008 crash, but also have access to the fifth-largest retirement savings pool in the world due to Australia’s mandatory superannuation scheme.

Gilligan said: “The VC industry in Australia has gone through a rebirth in the past few years, after a very long drought in terms of active VC funds. I think there has been more VC capital raised in the past 18 months than in the five years before. Almost A$2bn of funds have been raised or announced here in the past three years or so.

“Marketplaces are something Australia seems to do particularly well. Agricultural technology and some biotech also have strong characteristics domestically. We believe, and have invested heavily, in helping create support for a vibrant fintech ecosystem because we think Australia’s financial services sector is one of the most innovative, profitable and large-scale in the world.” u

Danny Gilligan

Simon Cant


April 2017 I 60


ANALYSIS

This is our data snapshot based on last month’s investment activity. The charts and tables have been generated by our data platform GCV Analytics.

Deal numbers surge in March


The number of corporate-backed deals in March soared to 212 funding rounds, up from

159 at the same time last year. Invest-ment value rose compared with last year’s levels, by 55%, to over $7.73bn from $4.98bn. Two companies raised funding rounds above the $1bn mark.

Both the deal count and total capital invested in corporate-backed rounds were higher in March than they were in the first and second months of this year – there were 189 rounds reported in January and 162 rounds in February. There was also a significant surge in investment value compared with the previous two months of the first quarter – from $5.94bn in January and $5.44bn in February, a 30% and a 42% increase, respectively.

The US feaured the largest number of ventur-ing deals with corporate backing, hosting 95 rounds – slightly less than half the dealflow – while India was second at 18 rounds, China third with 17, and the UK fourth with 15.

The leading corporate investors by number of deals were diversified conglomerate Alphabet, technology research and media group Interna-tional Data Group (IDG) and pharmaceutical company Leo Pharma.

Alphabet topped the ranking in total deal value, along with telecoms firm SoftBank and internet company Tencent.

Deals

The most active corporate investors came from the IT, financial services, media, consumer and health sectors. GCV Analytics data shows that emerging businesses in the IT, financial, services, health and media sectors secured the highest number of deals involving corporate venturers. The top deals by round size were not concen-trated in any particular sector. They ranged from trans-port and services through fintech and media to health companies.

SoftBank announced it was to invest $1bn in Singapore-based ride-hailing service Grab as part of a $1.5bn funding round. Launched in 2012 and originally known as Grab Taxi, Grab runs a diversified transport-on-demand platform that incorporates taxis, carpooling and motorcycles. The company has focused primarily on Southeast Asia and has already expanded into its seventh country, Burma.

US-based short-term accommodation marketplace Airbnb closed a $1bn series F round that, according to reports in September, included Alphabet. Airbnb did not officially disclose the identity of any of the investors in the round, which numbered 40 according to a regulatory filing that valued the company at $31bn. Airbnb runs an online and mobile plat-form for people to lease or rent properties over short periods.

Grail, a US-based oncology diagnostics spinout of genomics technology producer Illumina, achieved a first close of

18

17 11

95

1015

37

5211

6 5

1

42

2 Total: 212

ConsumerEnergyFinancialHealthIndustrial

ITMediaServicesTelecomsTransport

Global view of deals March 2017

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec Jan

Feb

Mar

$4,984m

$4,862m

$10,155m199

167 159

$11,070m$13,614m

$6,246m

147

115

167

$6,670m

$7,911m

$3,519m

179

148

203

$4,838m

$4,294m

$5,399m

192177

161

$5,943m

$5,442m

$7,737m

189

162

212

Unknown


HealthIndustrialIT


TransportUtilities

Deals by sector Jan 2016-Mar 2017


March 2016 March 2017

$4,984m159

$7,737m212


HealthIndustrialIT


Transport

Deals in March 2017 vs March 2016Number of dealsTotal value


April 2017 I 61


ANALYSIS

its series B round at $900m with the back-ing of several corpo-rates – Johnson & Johnson Innovation, an investment unit of the US-based pharmaceu-tical company, through its subsidiary Johnson & Johnson UK Treas-ury; pharmaceutical firms Bristol-Myers Squibb, Celgene and Merck & Co, medical technology producer Varian Medical Systems, pharmaceuticals supplier McKesson’s corporate venturing unit McKesson Ventures, e-commerce company Amazon and Tencent. The round was led by VC firm Arch Venture Partners.

Established early last year, Grail is working on a blood test for early-stage detection of cancer that combines Illumina’s high-intensity sequenc-ing technology with data obtained through computer science and population-scale clinical studies.

China-based bicycle-hire service Ofo closed a $450m series D round from a consortium that included ride-sharing app provider Didi Chux-ing. The round, which valued Ofo at more than $1bn, was led by investment firm DST. Founded in 2014, Ofo operates an app that enables users to book bikes and unlock them through a code on their smartphones. The bicycles are tagged with GPS technology.

SoftBank invested $300m in US-based co-working space provider WeWork, as the Wall Street Journal reported. The capital, which was provided at a $17bn valuation, will form part of a round that could reach $3bn. Founded in 2010, WeWork operates a network of workspaces stretching across cities in 15 countries that feature super-fast internet, print-ing and scanning facilities, common spaces, meeting rooms and free refreshments.

India-based online retail service Paytm E-Commerce is set to raise $200m in a funding round led by e-commerce group Alibaba. The latter was reportedly committing $177m of the total, while investment fund Saif Partners was supplying the remaining $23m, which values Paytm E-Commerce at $1bn. The round was first reported a month ago, when it was val-

By number of deals

AlphabetInternational Data Group

Leo PharmaMicrosoft

QualcommGeneral Electric

IntelLegend Holdings

PayPalSalesforce

108

555

44444 By total value

SoftBankAlphabetTencent

Johnson & JohnsonAmazonCelgene

McKesson CorpMerck & Co

Didi ChuxingAlibaba

$1,806m$1,244m

$1,187m$930m$900m$900m$900m$900m

$450m$218m

ConsumerFinancialHealthIndustrial

ITMediaServicesTransport

Top investors March 2017

38

33 3330

27

1816

12

41

Number of deals by sector March 2017

IT

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Asia

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4

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Deals heatmap

Top 10 investments March 2017

Company Location Sector Round Size InvestorsGrab Singapore Transport E and beyond $1,500m SoftBank | undisclosed strategic investorsAirbnb US Services E and beyond $1,000m Alphabet | China Investment Corporation | Technology

Crossover Ventures | undisclosed strategic investorsGrail US Health B $900m Amazon | Arch Venture Partners | Bristol-Myers Squibb |

Celgene | Johnson & Johnson | McKesson Corporation | Merck & Co | Tencent | Varian Medical Systems

Ofo China Transport D $450m Citic | Coatue | Didi Chuxing | DST System | Matrix PartnersWeWork US Services Stake purchase $300m SoftBankPaytm India Financial

services– $200m Alibaba | SAIF

Haodaifu Online

China Health D $200m Tencent | undisclosed investors

Picnic Netherlands Services – $108m De Hoge Dennen | Finci | Hoyberg | NPM Capital | SHV HoldingsAtom Bank UK Financial

services– $102m BBVA | Toscafund Asset Management | Woodford Investment

Management | undisclosed investorsiFlix Malaysia Media – $90m Catcha Group | Evolution Media Capital | Liberty Global | Sky |

Zain Group | undisclosed strategic investors


April 2017 I 62


ANALYSIS

ued at between $180m to $200m. Paytm E-Commerce oversees Paytm’s e-commerce functions.

China-based healthcare access app developer Haodaifu Online raised $200m in a series D round led by Tencent. Founded in 2006, Haodaifu operates a platform for people to search for hospitals and doctors, book appointments, locate and share information, and receive online consultations. There are more than 10 million patients registered with the platform, which has signed up about 490,000 doctors in 7,500 Chinese hospitals or clinics.

Netherlands-based online grocer Picnic raised €100m ($108m) in a round led by NPM Capital, the private equity arm of trading group SHV Holdings. The round also featured private equity firm De Hoge Dennen as well as Hoyberg, which acts as the investment office of the Hoyer family. Launched in September 2015 after a stealth period of roughly three years, Picnic sells groceries online, sourcing them from predominantly local retailers and delivering them to customers at set times using electric vehicles.

Financial services firm BBVA led an £83m ($102m) funding round for UK-based mobile banking service Atom Bank which valued the company at $320m. Fund manager Woodford Investment Management and hedge fund sponsor Toscafund Asset Management also took part in the round along with undisclosed additional investors. Atom launched its digital banking platform in April last year after about two years of preparation. It offers customers a fixed savings account and has branched out into mortgages and business loans.

Malaysia-based online streaming subscription service iFlix closed a round of more than $90m featuring media groups Liberty Global and Sky, and telecoms company Zain. Evolution Media Capital, the investment banking entity co-founded by talent agency Creative Artists Agency, also invested in the round, as did Malaysia-based internet company Catcha Group and an undisclosed privately-held investment management firm. Founded in 2015, iFlix operates a subscription-based video-streaming service that operates in nine markets, mostly in Southeast Asia.

Exits

GCV Analytics tracked 21 exits in March involving corporate venturers as either acquirers or exiting inves-tors. This figure represents a consid-erable increase compared with the 13 reported during the same month a year ago. The transactions – most of which took place in the US and Europe – included 15 acquisitions, five IPOs and one business closure.

The number of exits represents an increase over the 14 exits tracked in January and the 19 reported in Feb-ruary this year. Total estimated exited capital in March amounted to over $5.2bn, almost seven times the estimated $753m in February.

US-based visual media platform Snap closed its long awaited IPO at $3.91bn, after its underwriters took up the option to buy an extra 30 million shares. Snap issued 145 million shares at $17 each, and added 55 million shares divested by existing backers to raise an initial $3.4bn through a listing on the New York Stock Exchange. This gave exits to investors including Alibaba and internet companies Tencent and Yahoo.

NBCUniversal subsequently revealed it had invested $500m in Snap through the offering. Snap is best known for the Snapchat platform, but its IPO filing indicates its long-term plans involve expanding into an all-purpose visual media company that will also delve into hardware.

E-commerce and cloud computing group Amazon agreed to acquire United Arab Emirates-based online marketplace Souq.com for $650m, providing media and e-commerce firm Naspers with an exit. Founded in 2005, Souq operates the largest online marketplace in the Middle East by customer size, linking to about 75,000 businesses and offering some 2 million consumer items for sale.

Medical device manufacturer Boston Scientific agreed to purchase Switzerland-based heart valve replacement technol-ogy provider Symetis in a $435m all-cash deal, giving an exit to pharmaceutical firm Novartis. Founded in 2001, Symetis develops and manufactures percutaneous heart valve replacement products to treat severe cardiac valve conditions.

US-based integration software producer MuleSoft floated in a $221m IPO on the New York Stock Exchange. The com-pany issued 13 million shares at $17 each, above the $12 to $14 range it set earlier. The flotation allowed other backers like cloud service Salesforce, via its corporate venturing unit Salesforce Ventures, technology supplier Cisco and enter-prise software producer ServiceNow to exit. Founded in 2006, MuleSoft has developed a software integration platform that helps businesses merge their various applications into a single network.

US-based data analytics software provider Alteryx raised $126m when it went public on the New York Stock Exchange,

$1,660m

$1,343m

$6,934m

1619

13

$850m$264m

$11,598m

20

13

18

$3,302m

$3,885m

$255m

21

17

10

$4,251m

$6,004m

$1,166m

29

15

26

$1,053m$753m

$5,205m14

1921

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Dec Jan

Feb

Mar


HealthIndustrialIT


TransportUtilities

Exits by sector Jan 2016-Mar 2017



April 2017 I 63


ANALYSIS

providing an exit to media and data firm Thomson Reuters. Alteryx issued 9 million shares at $14 each, the top of its intended range. Founded in 1997, Alteryx has built a self-service data analytics platform that companies can use to pre-pare, organise and manage data to yield clearer insights into their businesses. Alteryx had more than 2,300 corporate customers in more than 50 countries at the end of last year.

Netherlands-based renewable chemicals producer Avantium secured €103m in an IPO on the Euronext Amsterdam and Brussels exchanges, providing exits to several corporate backers. Previous corporate backers of the company which exited include beverage producer Coca-Cola, food and beverage manufacturer Danone, diversified conglomerate Swire Pacific, plastics manufacturer Alpla and pharmaceutical firm Pfizer. Avantium develops techniques and processes to convert biological materials into new materials. Its products include PEF, a recyclable plastic made from plant-based industrial sugars used in packaging.

Conglomerate Access Industries exited Israel-based cybersecurity software developer LightCyber through a $105m acquisition by cybersecurity technology provider Palo Alto Networks. LightCyber has built automated behavioural ana-lytics software that uses machine learning to detect and identify cyberattacks by seeking out behavioural anomalies in a client’s network.

Otsuka Pharmaceutical, the drug production arm of diversified conglomerate Otsuka Holdings, agreed to acquire Neu-rovance, an attention-deficit hyperactivity disorder (ADHD) treatment developer, giving an exit to pharmaceutical firm Novartis. Spun out of biopharmaceutical company Euthymics Bioscience in 2011, Neurovance is developing a triple reuptake inhibitor to combat ADHD.

Legend Capital, a corporate venturing fund backed by conglomerate Legend Holdings, exited China-based graphite film producer Tanyuan Tech in a RMB409m ($59m) IPO. The company issued 52 million shares on the Shanghai Stock Exchange at RMB7.87 each. Founded in 2010, Tanyuan produces graphite film with high potential for thermal conductivity and heat dissipation, meaning it can be used to release heat generated by smartphones.

Chemicals supplier Nippon Shokubai agreed to acquire US-based chemicals producer Sirrus for an undisclosed sum, allowing car maker General Motors and diversified conglomerate Mitsui to exit. Founded in 2009 as Bioformix, Sirrus makes monomers and derivatives that enhance performance and cut energy consumption in advanced manufacturing and assembly processes. u

Note: Monthly data can fluctuate as additional data are reported after GCV goes to press

Top 10 exits March 2017

Company Location Sector Size Exit type Acquirer InvestorsSnapchat US Media $3,900m IPO - Alibaba | Benchmark | Coatue | Fidelity | General Atlantic

| General Catalyst | Geodesic Capital | GIC | GSV Capital | Institutional Venture Partners | Kleiner Perkins Caufield & Byers | Lightspeed Venture Partners | Meritech Capital | NBC Universal | Sequoia Capital | SV Angel | T Rowe Price

Souq.com United Arab Emirates

Consumer $650m Acquisition Amazon Baillie Gifford | International Finance Corporation | Jabbar Internet Group | Naspers | Standard Chartered | Tiger Global Management

Symetis Switzerland Health $435m Acquisition Boston Scientific

Aravis | Banexi Ventures Partners | BioMed | Endeavour Vision | NBGI Ventures | Novartis | Swisscom | Truffle Capital

Mulesoft US IT $221m IPO – Adage Capital Management | Bay Partners | Brookside Capital | Cisco Systems | Hummer-Winblad | Lightspeed Venture Partners | Meritech Capital | Morgenthaler Ventures | New Enterprise Associates | Salesforce | Sands Capital | Sapphire Ventures

Alteryx US IT $126m IPO – Iconiq Capital | Insight Venture Partners | Meritech Capital | Sapphire Ventures | Thomson Reuters | Toba Capital

Avantium Netherlands Industrial $109m IPO – Aescap | AlpInvest | Alpla | Aster Capital | Capricorn Investment Group | Coca-Cola | Danone | De Hoge Dennen | DFJ Esprit | Eastman Chemical | ING Corporate Investments | Navitas Capital | Pfizer | Singapore Economic Development Board | Sofinnova Partners | Swire Pacific

LightCyber Israel IT $105m Acquisition Palo Alto Networks

Access Industries | Amplify Partners | Battery Ventures | Claltech | Glilot Capital Partners | Shlomo Kramer

Neurovance US Health $100m Acquisition Otsuka America

GBS Venture Partners | H&Q Healthcare Investors | JPMorgan Chase | Novartis | State of Wisconsin Investment Board | Venture Investors | angel investors

Tanyuan Tech

China Industrial $59m IPO – GSR Ventures | Legend Holdings | undisclosed investors

Sirrus US Industrial – Acquisition Nippon Shokubai

Arsenal Venture Partners | Braemar | General Motors | Mitsui


April 2017 I 64


QUARTERLY REPORT

In the first quarter of 2017, GCV Analytics tracked 563 funding rounds involving corpo-rate venturers, a 7% increase over the 525

rounds recorded in Q1 2016. However, the esti-mated total investment slipped to $19.12bn, down 4% from $20.01bn last year.

The US hosted almost half these funding rounds (272), while China came in second with 50 deals, India third with 38, and the UK fourth with 36.

Comparing this quarter with the final quarter of 2016, the number of deals was incremental, ris-ing from 530 rounds in Q4 2016, but investment jumped by 31%, from $14.53bn.

Emerging enterprises in the health, IT and finan-cial services sectors proved the most attractive for corporate venturers, accounting for at least 80 deals each. The top funding rounds by size, however, were raised mostly by companies from other sectors. The most active corporate inves-tors, in turn, came from the financial services, IT, media and health sectors.

The leading investors by number of deals were diversified internet conglomerate Alphabet, research and media company International Data Group (IDG), chip and semiconductor manufac-turers Qualcomm and Intel and software provider Microsoft. The list of corporate venturers involved in the largest deals by size was topped by inter-net company Tencent, Alphabet, telecoms com-pany SoftBank and IDG.

Deals

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

China-based video-streaming platform iQiyi raised $1.53bn from investors including internet group Baidu and IDG Capital, the local venture capital affiliate of IDG. Baidu contributed $300m to the round, which also featured venture capital firm Sequoia Capital and hedge fund manager Hillhouse Capital, among others. Launched as Qiyi in 2010, iQiyi operates an online video platform that offers both a free and a premium subscription-based streaming service.

SoftBank announced its $1bn commitment to Singapore-based ride-hailing service Grab as part of a $1.5bn funding round. Founded in 2012 as Grab Taxi, Grab operates a diversified transport-on-demand platform combining taxi, car-pooling and motorcycle options. Grab’s business operations have so far been concentrated in seven countries across Southeast Asia.

The following is a snapshot of the data we have collected on investment activity over the past three months. To verify reported deals, we contact about 300 corporate investors each quarter – these comprise roughly 18% of the global CVCs we cover, but account for most of the deals that are made public.

Deal count ticks up in Q1


522

3841

4569

7281

9298

TelecomsEnergy

TransportIndustrial

ConsumerMedia

ServicesFinancial

ITHealth

Number of deals by sector Q1 2017

272

13

3812

50 2314

223813

2

1

6

11

52

5

1

3 27 Total: 563

ConsumerEnergyFinancialHealthIndustrial

ITMediaServicesTelecomsTransport

Global view of deals Q1 2017

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

$20,001m$18,100m

$30,930m

$14,530m

525

429

530 530

$19,122m

563

UnknownConsumerEnergyFinancial

HealthIndustrialIT


Transport

Deals by sector Q1 2016-Q1 2017



April 2017 I 65


QUARTERLY REPORT

US-based short-term accommoda-tion marketplace Airbnb raised a $1bn series F round which reportedly fea-tured Alphabet. Airbnb did not reveal the identity of any of its investors in the round, which valued the company at $31bn, according to media reports. Airbnb operates an online and mobile platform that enables people to rent out properties for short periods of time.

India-based e-commerce company Flipkart closed a $1bn funding round featuring Microsoft, e-commerce firm eBay and Tencent. The funding was raised at a valuation of about $10bn, a steep drop from the $15.5bn valuation at which Flipkart closed its last round in 2015. Founded in 2007, Flipkart operates a diversified e-commerce marketplace that sells a variety of consumer goods. The company is fighting a rearguard action against domestic competitors like Snapdeal and Paytm E-Commerce as well

Top 15 investments Q1 2017

Company Location Sector Round Size InvestorsiQiyi China Media – $1,530m Baidu | Boyu Capital | Hillhouse Capital Management |

International Data Group | Run Liang Tai Fund | Sequoia Capital

Grab Singapore Transport E and beyond $1,500m SoftBank | undisclosed strategic investors

Airbnb US Services E and beyond $1,000m Alphabet | China Investment Corporation | Technology Crossover Ventures | undisclosed strategic investors

FlipKart India Consumer E and beyond $1,000m Alphabet | eBay | Microsoft | PayPal | TencentGrail US Health B $900m Amazon | Arch Venture Partners | Bristol-Myers Squibb |

Celgene | Johnson & Johnson | McKesson Corporation | Merck & Co | Tencent | Varian Medical Systems

Premia Holdings

Bermuda Financial services

– $510m Arch Capital Group | Kelso & Company | undisclosed strategic investors

Uxin China Transport – $500m China Vision Capital | Focus Media | Hillhouse Capital Management | Huasheng Capital | Jeneration Capital | KKR | Tiger Global Management | TPG | Warburg Pincus

Ofo China Transport D $450m Citic | Coatue | Didi Chuxing | DST System | Matrix PartnersInstacart US Consumer D $400m Andreessen Horowitz | FundersClub | Initialized Capital | Khosla

Ventures | Kleiner Perkins Caufield & Byers | Sequoia Capital | Thrive Capital | Valiant Capital | Wellcome Trust | Y Combinator

Lianjia China Services Stake purchase $375m Sunac China HoldingsHive Box China Services A $360m CDH Investments | China Development Bank | Eastern Bell

Venture Capital | Yiyao Capital | undisclosed strategic investorsOla India Transport E and beyond $330m SoftBank | undisclosed investorsWeWork US Services Stake purchase $300m SoftBankEasy Life Financial Services

China Financial services

B $273m CapitaLand | Chongqing Aviation Investment and Tourism Development Fund | H Capital | Jining Cultural Tourism Development Fund | Pacific Crest Securities | Shandong Bihai Tourism Development Fund

Mobike China Transport D $215m Ctrip.com | Hillhouse Capital Management | Huazhu Hotels Group | Sequoia Capital | Tencent | TPG | Warburg Pincus

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Australia and NewZealand

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Deals heatmap

By number of deals

AlphabetInternational Data Group

QualcommIntel

MicrosoftSwisscom

TencentGeneral Electric

AlexandriaGoldman Sachs

1915

13111111

109

88 By total value

TencentAlphabetSoftBank

International Data GpBaidu

MicrosoftPayPal

Johnson & JohnsoneBay

Celgene

$2,698m$2,414m

$2,152m$1,739m

$1,654m$1,183m

$1,048m$1,001m$1,000m$938m

ConsumerEnergy

FinancialHealth

IndustrialIT

MediaServices

TelecomsTransport

Top investors Q1 2017


April 2017 I 66


QUARTERLY REPORT

as foreign players such as Amazon.

US-based oncology diagnostics com-pany Grail raised a first close of a series B round at $900m with the backing of several corporates. Among the cor-porate investors were pharmaceutical companies Johnson & Johnson, Bristol-Myers Squibb, Celgene and Merck & Co, medical technology producer Var-ian Medical Systems, pharmaceuticals supplier McKesson, e-commerce com-pany Amazon and Tencent. Founded in 2016, Grail has developed a blood test for early-stage detection of cancer.

Exits

GCV Analytics tracked 53 exits during the first quarter of 2017, including 48 acquisitions, eight IPOs, one merger and two business closures. The major-ity of these transactions took place in the US and Europe.

Exiting corporates this quarter include technology and internet companies such as Intel, IDG, Alibaba, Salesforce, SoftBank as well as financial services

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

$9,937m$11,421m

$7,441m

$12,712m

4851

70

48 $7,511m

54


HealthIndustrialIT


Transport

Exits by sector Q1 2016-Q1 2017


IntelAlibabaFidelity

SalesforceSoftBank

Wells Fargo (NVP)Beenos

International Data GroupPfizer

Verizon

633333

2222

ConsumerHealthIndustrialIT


Top exiting investors Q1 2017

Top 10 exits Q1 2017

Company Location Sector Size Exit type Acquirer InvestorsSnapchat US Media $3,900m IPO – Alibaba | Benchmark | Coatue | Fidelity | General

Atlantic | General Catalyst | Geodesic Capital | GIC | GSV Capital | Institutional Venture Partners | Kleiner Perkins Caufield & Byers | Lightspeed Venture Partners | Meritech Capital | NBC Universal | Sequoia Capital | SV Angel | T Rowe Price

SimpliVity Corporation

US IT $650m Acquisition Hewlett Packard Enterprise

Accel | Charles River Ventures | DFJ | Kleiner Perkins Caufield & Byers | Meritech Capital | Swisscom | Waypoint Capital

Souq.com United Arab Emirates

Consumer $650m Acquisition Amazon Baillie Gifford | International Finance Corporation | Jabbar Internet Group | Naspers | Standard Chartered | Tiger Global Management

Symetis Switzerland Health $435m Acquisition Boston Scientific

Aravis | Banexi Ventures Partners | BioMed | Endeavour Vision | NBGI Ventures | Novartis | Swisscom | Truffle Capital

Mulesoft US IT $221m IPO – Adage Capital Management | Bay Partners | Brookside Capital | Cisco Systems | Hummer-Winblad | Lightspeed Venture Partners | Meritech Capital | Morgenthaler Ventures | New Enterprise Associates | Salesforce | Sands Capital | Sapphire Ventures

G–bits Network Technology

China Media $138m IPO – International Data Group | Ping An Insurance

Alteryx US IT $126m IPO – Iconiq Capital | Insight Venture Partners | Meritech Capital | Sapphire Ventures | Thomson Reuters | Toba Capital

Avantium Netherlands Industrial $109m IPO – Aescap | AlpInvest | Alpla | Aster Capital | Capricorn Investment Group | Coca–Cola | Danone | De Hoge Dennen | DFJ Esprit | Eastman Chemical | ING Corporate Investments | Navitas Capital | Pfizer | Singapore Economic Development Board | Sofinnova Partners | Swire Pacific Limited

Delta ID US IT $106m Acquisition Fingerprint Cards

Intel

LightCyber Israel IT $105m Acquisition Palo Alto Networks

Access Industries | Amplify Partners | Battery Ventures | Claltech | Glilot Capital Partners | Shlomo Kramer


April 2017 I 67


QUARTERLY REPORT

firms Fidelity and Wells Fargo. All reported at least three exits each.

The total exited capital in the first quarter was $7.51bn, a 25% drop from the $9.94bn posted in the same quarter last year. But the Q1 figure represents a slight increase from the $7.44bn recorded in the last quarter of 2016.

US-based visual media platform Snap floated on the New York Stock Exchange, raising $3.91bn after its underwriters exercised their option to buy an extra 30 million shares. Snap initially issued 145 million shares at $17 each. Snap’s exist-ing backers then divested an additional 55 million shares. The flotation gave exits to Alibaba and internet companies Tencent and Yahoo. Media group NBCUniversal later announced it had invested $500m in Snap via the offering.

Enterprise software provider Hewlett Packard Enterprise (HPE) agreed to acquire US-based data management software producer Simplivity in a $650m cash deal, providing telecoms firm Swisscom with an exit. Simplivity has developed a platform that uses hyperconvergence – the consolidation of virtual and physical IT components into a single platform with centralised management – to help businesses simplify their data centre infrastructure while making it more secure. HPE intends to combine Simplivity’s software with its own technology.

Amazon agreed to buy United Arab Emirates-based online marketplace Souq.com for $650m. The transaction provided media and e-commerce firm Naspers with an exit. Souq currently operates the largest online marketplace in the Middle East by customer size, with more than 45 million users a month as of June 2016, according to the National newspaper.

Medical device manufacturer Boston Scientific agreed to acquire Switzerland-based heart valve replacement provider Symetis in a $435m all-cash deal. This gave an exit to pharmaceutical firm Novartis. Founded in 2001, Symetis develops and produces percutaneous heart valve replacement products.

US-based integration software producer MuleSoft closed a $221m IPO on the New York Stock Exchange. MuleSoft issued 13 million shares at $17 each, exceeding the $12 to $14 range it had set earlier. The IPO provided exits for backers such as Salesforce Ventures, the venturing unit of cloud service Salesforce, technology supplier Cisco and enterprise software producer ServiceNow. Founded in 2006, MuleSoft has built a software platform that helps businesses merge their various applications into a single network.

Funding initiatives

Corporate venturers sup-ported a total of 83 fundraising initiatives in Q1 2017, up from 72 initiatives reported at the same time last year. The estimated total capital raised, $20.90bn, was more than five times last year’s Q1 figure of $3.92bn. The initiatives include 37 announced, open and closed VC funds, 22 new corporate venturing units, 14 corporate-backed accelerators and three corporate-backed incubators, among others.

While the number of initiatives recorded in the fourth quarter of 2016 was slightly lower at 79, the investment level was five times higher in Q4, at over $109.34bn. But this astronomical figure is largely due to the inclusion of the $100bn SoftBank Vision Fund, a technology investment vehicle that the telecoms and internet group announced last October. If this fund were excluded from the analysis, the total investment for Q4 2016 would have been just $9.34bn, or less than half the total capital raised in the first quarter of this year.

China’s premier Li Keqiang launched Sino-CEE Financial Holdings, an asset manager that will run a €10bn ($11bn) invest-ment fund, at the fifth meeting of the heads of government of Central and Eastern European countries in Riga, Latvia, in January. The fund will initially focus on businesses in Central and Eastern Europe. Sectors targeted by the fund include high-tech manufacturing, consumer goods and infrastructure projects. Backed by the government, Sino-CEE Financial Holdings is also being supported by insurance provider China Life Insurance and conglomerate Fosun, though the details of their involvement remains unclear at the moment.

The Chinese government also established a RMB100bn ($14.5bn) fund to invest in the country’s internet sector. The China Internet Investment Fund had raised $4.35bn at the time of the announcement in January 2017. It will be overseen by state agencies the Cyberspace Administration of China and the Ministry of Finance, with the intention of boosting the nation’s online and internet businesses. Limited partners in the fund include financial services firm Industrial and Commercial Bank of China, which supplied $1.45bn, telecoms companies China Mobile and China Unicom, insurance provider China Post Insurance and Citic Guoan Group, part of investment firm Citic Group Corporation.

Germany-based e-commerce and online services holding company Rocket Internet closed its dedicated venture capi-

Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

72

95 9079 83

$3,919m

$19,841m$6,425m

$109,340m

$20,895

Funding initiatives Q1 2017

Ac

Amount raised

Number of initiatives

celeratorCVC unitIncubatorOtherVC fund


April 2017 I 68


QUARTERLY REPORT

tal fund, Rocket Internet Capital Partners (RICP), at its hard cap of $1bn. Rocket Internet, which provided approximately $140m for the fund, claimed it was the largest internet-focused fund in Europe. It will target online companies in sec-tors including marketplaces, e-commerce, financial technology, software and travel services. The fund’s close follows a series of setbacks for Rocket Internet in 2016, when the company’s share price and the valuation of several of its global e-commerce businesses dropped significantly.

Property firm San Sheng Hong Ye contributed to China-based Suzhou Hongtu Big Data Venture Capital Fund, an initia-tive with an overall capital target of RMB5bn. The fund – formed jointly by private equity firm Shenzhen Capital Group and the municipal government of the Chinese city Suzhou – plans to raise an initial RMB500m. Suzhou Hongtu Big Data Venture Capital Fund will look to identify opportunities in areas including big data trading platforms, software-as-a-service, semiconductors, sensors and digital technologies. It is also hoping to partner industry funds and financial institutions to incubate big data technologies.

China-based electronics contract manufacturer Foxconn paid $600m for a 54.5% stake in investment fund SoftBank Asia Capital, previously wholly-owned by SoftBank. Foxconn said it hoped to merge SoftBank’s investment expertise with its own global presence as well as advanced manufacturing and technology services knowhow. The two corporates had previously partnered when Foxconn committed cash to the $100bn SoftBank Vision Fund.

US-based venture capital firm Pivotal BioVenture Partners closed its first fund at $300m, securing the capital from China-based property developer Nan Fung Group. Pivotal BioVenture Partners Fund I will make early-stage investments in biotechnology developers, and is focusing on those looking to advance innovative technology to the clinical stage with a view to creating transformative therapeutics.

Legend Capital, the venture capital firm formed and sponsored by China-based conglomerate Legend Holdings, raised $243m for its latest fund, according to a regulatory filing. LC Fund VII raised the capital from 23 limited partners accord-ing to the filing, and is targeting a final close of $375m. Legend Capital was formed by its parent company in 2001. It has since invested in more than 300 companies and exited about 90 through public listings and acquisitions.

China-based local services platform Meituan-Dianping formed a RMB3bn venture capital fund to invest in the consumer internet sector. Meituan-Dianping intends to raise an initial RMB1.5bn for the fund. In addition to providing capital itself, it is set to secure finance from Tencent and agribusiness New Hope Group. The firm also plans to secure commitments from other external investors. The fund will invest in companies operating in the retail, entertainment, food and bever-age, hotel and tourism sectors to build an ecosystem around Meituan-Dianping’s offering.

US-based social media company Facebook announced that a group of investors, including several university entities, may invest up to $170m as part of its Telecoms Infrastructure Project. The initiative does not constitute a new fund, but it allows Facebook to obtain non-binding and in-principle commitments from partners to back telecoms infrastructure startups over the next three to five years.

Partners in the project include Oxford Sciences Innovation, the university venturing fund of Oxford University, Touch-stone Innovations, the commercialisation firm spun out of Imperial College London, and IP Group, a commercialisation firm supported by several universities.

Germany-based industrial and consumer product manufacturer Henkel formed corporate venturing subsidiary Henkel Ventures, and plans to invest up to €150m via the unit. Henkel has so far invested €25m in its corporate venturing activi-ties, supplying capital to barrier technology manufacturer Vitriflex and coating material producer DropWise as well as funds raised by VC firms Emerald Technology Ventures and Pangaea Ventures. Henkel Ventures will seek to invest at an early stage, preferably at series A, and will provide portfolio companies with access to its brands and global network. u

Note: Quarterly data can fluctuate as additional data are reported after GCV goes to press

Top 10 funding initiatives Q1 2017

Name Corporate backers Target sector Location Capital raised

Sino-CEE Financial Holdings China Life Insurance, Fosun Group IT, industrial, consumer China $11bnChina Internet Investment Fund Industrial and Commercial Bank of

China, China Mobile, China Unicom, China Post Insurance, Citic Group

IT, media, consumer China $4.5bn

Rocket Internet Capital Partners Rocket Internet, undisclosed startegic investors

Financial services, IT, services

Germany $1bn

Suzhou Hongtu Big Data Venture Capital Fund San Sheng Hong Ye IT China $732mSoftbank Asia Capital Foxconn, Softbank Industrial, IT Japan $600mPivotal BioVenture Partners I Nan Fung Group Health US $300mLC Fund VII Legend Holdings, undisclosed

strategic investorsUnspecified/sector-agnostic

China $243m

Unnamed Meituan-Dianping Fund Meituan–Dianping, Tencent, New Hope Group

Services, consumer, media

China $217.5m

Telecoms Infrastructure Project Facebook Telecoms US $170mHenkel Ventures Henkel Consumer Germany $163m


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