2015 round up: Alphabet

The key factors in Google’s corporate venturing activities in 2014 were a shift in investment to life sciences and healthcare and the launch of a European fund that would look to geographically diversify its portfolio, but the fortunes of those initiatives diverged drastically in 2015 in the face of a company-wide shake up that leaves the nature of its unts less certain as we enter 2016.

Perhaps the biggest news this year was Google’s restructuring into a more diversified holding company called Alphabet, with the firm’s internet divisions like Android and YouTube incorporated into a more slimmed down Google, and corporate units Google Ventures, rebranded as GV last week, and Google Capital separated, an indicator of their increasing distance from the core Google business.

For the second year in a row life sciences and health made up the largest part of GV’s activities, with 31% of its investment going to the sector. It led health insurance platform Collective Health’s $81m series C round in October and backed a $120m round for genome editing company Editas Medicine, while portfolio companies One Medical, Impossible Foods and 23andme all raised substantial follow-on rounds, the latter doing so at a valuation of more than $1bn.

Consumer technology was responsible for 24% of the unit’s investment, with perhaps the largest GV-backed round being e-commerce platform Jet.com’s $350m series C last month, which could rise above $500m in the upcoming weeks. Other notable investments included travel club Secret Escapes, which closed a $60m round in July, and blogging platform Medium, which raised $57m in September.

Ride hailing platform Uber meanwhile continued to go from strength to strength and at the time of writing is reportedly raising funding at a valuation of up to $70bn. Although GV does not seem to still be investing at this point, it retains a board seat at Uber. If reports in February suggesting it has plans to enter the ride sharing business itself at some point, combining it with navigation and self-driving car technology, are true, the strategic value of the Uber investment could end up being massive.

The enterprise sector received 23% of the investment, most notably workplace messaging platform Slack, which received $160m in April at a $2.6bn valuation, though GV also led a $60m round for music publishing platform Kobalt. A total of 13% went to artificial intelligence and data, including data storage technology developer Cohesity, which raised $55m in June.

Google Capital meanwhile continued to make later stage investments, particularly in the IT sector where its portfolio companies include cybersecurity companies Zscaler and CrowdStrike, and healthcare, where it funded health insurance provider Oscar and healthcare discovery platform Practo. Despite that, the largest round in which it invested was the $275m series E closed by fantasy sports platform FanDuel in July.

Look beyond sector divisions however, and you get to a more interesting point about Alphabet’s corporate venturing investment and its geographical limits. GV opened a London office in July 2014 and committed $125m, but the fund has only invested sporadically since then, though it did help university venturing fund Oxford Sciences Innovation raise £320m ($485m) in June.

As a result, GV will bring the European fund back into the fold in 2016, unifying its funds in the process. A report in the Financial Times last week stated that although the London office had no problem scouting out targets, it encountered difficulties getting GV chief executive Bill Maris to sign off on deals, particularly as European companies were less likely to have the data required for the algorithm GV uses to analyse the value of prospective investments.

It is possible the move could pave the way for a more diversified, less European focus for GV in its international investments, but if Maris, who is based in California, will have to sign off on each investment, is that likely? Onlookers have also pointed to Maris’ biomedical background as a big impetus in GV’s shift to healthcare, and it is perhaps worth questioning if a corporate venturing unit as large as GV can be effectively controlled by a single person, regardless of the algorithm they use.

Looking forward to 2016, GV has some $800m of capital yet to be allocated, which means it could be in line for a big year. An interesting titbit thrown up in the past month is that the unit is now moving away from seed-stage investments, which could in time lead it to begin encroaching on Google Capital’s ground, and it will be interesting to see how big a part Google Capital plays in the next year considering the scale of Alphabet’s corporate restructuring.

One point we brought up a few months back was that the separation of Google from the corporate venturing units could herald the launch of a third, online-centric investment entity.

Although Alphabet has not revealed plans to make such a move, there does seem to be an increasing separation between its investments in consumer-focused companies, which have secured it some of its biggest exits, and the more far reaching investments in life sciences and satellite technology, not to mention its internal R&D activities.

Perhaps in the long term, it would make sense for its investments to be more definitively divided along those strategic lines, rather than between early and growth stage.