Corporate Venture Capital in 2016: The Trends, Part One

Although the political earthquakes and celebrity deaths understandably got more media traction, 2016 will perhaps be marked as the point where the future so long described in sci-fi finally took a big step towards fruition. Driverless cars, widespread artificial intelligence, virtual and augmented reality received considerable funding as their developers closed big corporate-backed rounds, but that was only part of what characterised the year.

Changes at the Top

One of the key features from a corporate venturing viewpoint was a number of significant changes at the top of several of the most prominent investors. Arvind Sodhani, president of Intel Capital since 2005, stepped down at the start of the year giving Wendell Brooks the chance to take full control of the unit, and he was followed by VPs Lisa Lambert and Marcos Battisti who both left in June. Brooks responded by promoting four new MDs and expanding their roles to include M&A and business development.

At GV meanwhile, co-founder and CEO Bill Maris left the unit in August to spend more time with his family and pursue other projects, and was replaced by general partner David Krane as head. The move came weeks after another general partner, Rich Miner, shifted to a venture partner role to focus on an edtech project.

In Japan, SoftBank president Nikesh Arora, who was largely responsible for the corporate’s VC strategy, left in June, while Lisa Suennen and Dinesh Moorjani took managing director positions at GE Ventures and Comcast Ventures respectively. Jim Lussier departed from Dell, where he ran the $300m Strategic Innovation Venture Fund, and Mike Chuisano, COO of Johnson & Johnson Innovation – JJDC, announced recently that he would leave in the new year after 36 years at its parent company.

Mega Funds

Several venture capital firms have closed billion-dollar funds over the past couple of years but 2016 saw corporates join in, as several raised large-sized funds. The biggest, though it is yet to close, is SoftBank’s Vision Fund. When SoftBank revealed its intentions for the $100bn fund in October some were sceptical, and few anticipated the announcement a few weeks ago that it would likely be oversubscribed. However, with SoftBank putting in $25bn, Apple $1bn and several sovereign wealth funds lining up huge contributions, Vision Fund looks set to be a reality next year.

Elsewhere, China-based internet company Baidu put aside $3bn in October for a dedicated fund called Baidu Capital that will invest between $50m and $100m a time in growth-stage tech companies in a bid to close the gap with rivals Alibaba and Tencent, both of which have been more active in corporate venturing in the past few years. Wenjie ‘Jenny’ Wu was appointed as its first managing partner last month.

Samsung announced a $1.1bn fund called Next47 in June to invest in futuristic technologies such as decentralised electrification, artificial intelligence, autonomous machines, networked mobility and blockchain-based data transfer. The corporate lured Lak Ananth from Hewlett Packard Pathfinder in November to run the fund, and it is expected to be a substantial force next year. BMW also joined in, beginning work on raising a $530m fund for its BMW iVentures subsidiary.

IPOs slow to a crawl

Late-stage investors looking for an exit had to pin their hopes on an M&A deal for much of the year, as initial public offerings ground to a halt. It took until the $94m IPO by gene editing technology developer Editas Medicine in February for anyone to go public in the US, and ultimately only 123 companies filed for an IPO in the US in 2016, down about 47% from 2015.

Much of the early running in CVC-backed offerings came from the healthcare sector, with Hutchison China MediTech and Intellia Therapeutics both raising nine-figure sums. By the time software providers joined the fray, the IPO market seemed primed again. Twilio raised $150m in June and has since seen its share price more than double, while another Salesforce Ventures portfolio company, Apptio ($96m), and Nutanix ($238m) have also seen sharp rises in share price post-flotation.

However, the biggest IPOs were achieved by Asia-based companies. Naver spinout Line raised $1.14bn, floating simultaneously on the Tokyo Stock Exchange and New York Stock Exchange, achieving an $8.6bn market cap in the process. Chinese ride hailing company UCar meanwhile went public in its home country with a $4.5bn market cap, while photo retouching platform Meitu raised $629m in an offering that gave exits to Sina Weibo, Foxconn and IDG Capital.

New entrants

The biggest entry would go to Baidu’s $3bn fund but it’s yet to make any investments and its parent company has some experience, which means the biggest splash probably goes to Microsoft, which began once again making direct investments through its Microsoft Ventures unit in May, since racking up 19 deals. It also formed a specialised fund for artificial intelligence earlier this month, and pledged to increase its investment rate in 2017.

Ford Motor Company got back in the game with investments in Pivotal Software, Velodyne Lidar, Zoomcar and Civil Maps, while other notable entrants, in terms of name recognition at least, included Tinder (Swipe Ventures), Caterpillar owner Holt Cat (Holt Ventures), Sodexo (the $53m Sodexo Ventures), and HTC, which followed a $100m accelerator called Vive X in April with a $1.45bn joint investment initiative with China’s Shenzhen Municipal Government in November.

Tune back in tomorrow when we get more precise with the sectors that attracted corporate investment over the course of the year.