03 August 2020 – Wu Snaps Up her Former Assets

There are occasional silver linings even for the blackest clouds. One was as the Covid-19 disease broke out this year competition for deals became a little lighter.

TDK Ventures, the corporate venturing unit of the Japan-based materials group, stepped toward this light. Nicolas Sauvage, head of TDK Ventures, said it had four deals in its pipeline about to or just closed.

First up for TDK is a bridge round for Origin, a US-based three-dimension (3D) printer of advanced materials from open sources founded by Chris Prucha, formerly a software engineer at Apple and co-founder at Notion, and Joel Ong, formerly a software engineer at Google X, and with prior venture capital backing by DCM, Floodgate and Haystack.

But just because competition has lessened it is usually for a reason. Getting comfortable the startup’s business and management can survive and thrive and there is a strong fit with the parent’s often-evolving strategic needs is usually hard.

Here Anil Achyuta, one of two investment directors at TDK’s $50m first fund, said Origin (its fifth deal overall) shone. “The pain point for 3D printing is 90% target prototype not mass manufacturing. Origin took a SaaS [software-as-a-service] approach to partner with material companies, such as DSM, Henkel and BASF and now TDK, so it could scale up and cut costs.

“Then, when Covid-19 hit there was a massive shortage of swabs in the US as they were all provided by one Italian company. Swabs are hard to make as there are a mix of soft and hard materials to get down the throat.

“Origin in four to six weeks went from a napkin sketch to proof of concept to Harvard study and FDA [US Federal Drug Agency] approval to mass manufacture. Origin is now producing 250,000 swabs per week and scaling up to one million per week.”

TDK with more than one factory around the world has had relatively little need to understand such 3D printing or distributive manufacturing before but again the Covid-19 crisis brought the need to understand or shorten supply chains to customers to senior management attention.

In turn, TDK’s manufacturing expertise and use of advanced materials for electronics is complementary for Origin’s open source strategy, although it will also look at other deals to potentially do metal 3D printing, such as Markforged or Modumetal.

Sauvage added Origin would not replace existing factories but bring new capabilities and systems to TDK and the wider industry, such as potentially replacing lead zirconate titanate (PZT) with polymers.

This was part of his king of the hills strategy – finding startups at the top of an interesting niche but which TDK can turn into a mountain of revenues.

For as the clouds eventually lift the view from the top is even better.

It is an unpleasant term and practice but the so-called brain rape of another company’s technology or ideas is part of the challenge of doing business.

It goes beyond startups finding their feet with investors or exploring strategic and merger deals and affects even the largest – for example trying to break into China, corporations have to commit to transfer of intellectual property.

It is clearly marked and expected corporations will try and reverse engineer another’s products or copy successful launches but bait-and-switch corporate venturing tactics is unsavoury and risks destruction of a unit’s only real asset: its reputation.

Bad money quickly pushes out good – as its cost of capital is underpriced and return expectations are often different – and so the Wall Street Journal’s longread on how “some companies regret sharing information with tech giant [Amazon] and its Alexa Fund; ‘we may have been naïve’” is an important article and follows on from Harvard Business Review’s earlier piece by former Prof Thales Teixeira.

Amazon clearly told the WSJ the company does not use confidential information that companies share with it to build competing products but with dozens of entrepreneurs, investors and deal advisers telling the journal they felt otherwise there is enough alleged smoke to cause concern in the wider community.

The timing of the piece is especially awkward for Amazon as a highly anticipated antitrust hearing including its top executives along with peers from Apple, Facebook and Google was held this week – Facebook bearing the brunt looking at the clippings.

A notice filed by the House Judiciary Committee set no new date for the hearing, “Examining the dominance of Amazon, Apple, Facebook and Google”.

As lawyer Dror Futter in a blog post following the WSJ article noted: “Assuming the accuracy of this article (and I am reasonably familiar with one of the cases discussed), this is the nightmare scenario of working with a strategic investor or potential investor.

“You would like to think that reputational risk would prevent this type of behaviour, but the reality is that the prospect of gaining an Amazon-level investor or strategic partner may cause many ventures to ‘take their chances’.

“The article also highlights that contractual protections are only as good as your ability to enforce, as several ventures acknowledged that they did not have the resources to fight Amazon for breach of their confidentiality agreement.

“Although there are no guarantees, ventures talking to strategics in their space should try to get a sense of the ‘walls’ that CVCs have put in place that govern sharing of information with their business units.”

Entrepreneurs have to ask the tough questions of all potential investors and find ways to fight back if they can – as Jim Clark did at web browser developer Netscape when software company Microsoft tried to browbeat it into submission and investment in the mid-1990s. Netscape still struggled (it lives on through Firefox) but Microsoft arguably allowed Apple and Google to survive as it dealt with antitrust actions in the wake of Clark’s lifting the lid.

But prevention is better than cure and for the industry as a whole this is no time to hide its head in the sand if there are challenging practices out there. Sadly, too few CVCs are prepared to go through the development or have the support of C-suite and business units to operate as professionally as the managers would often like.

It has been great to see so many new and existing CVCs step up through the Covid-19 crisis and support portfolio companies and do new deals but there are no short cuts to long-term support to the entrepreneurs otherwise reputations can be broken in days.

Wu snaps up her former assets

New York-listed industrial conglomerate General Electric (GE) still limps on, but after $500bn in value destruction over little more than 20 years the “downfall of America’s industrial giant is a cautionary tale for all big firms,” according to this week’s Economist.

The rump is a little smaller again after GE agreed to sell its investments in 11 startups to 40 North Ventures, a venture affiliate of Standard Industries. It also reunites the portfolio companies, Aras, Carbon, Catalant, Desktop Metal, Enbala, Menlo Micro, Nexar, Proterra, Tamr, Upskill, and Volta, with Marianne Wu, former president of GE Ventures.

GE in November had agreed to sell 16 health care investments to an affiliate of Leerink Revelation Partners at the time Wu left. She then joined 40 North as co-managing director with Marc van den Berg.

Van den Berg said: “We are on the cusp of a modern industrial revolution, and venture capital is uniquely positioned to help catalyze that change.

“The addition of these 11 remarkable companies supports 40 North Ventures’ mission to bring disruptive change to established industries and to empower innovators eager to reimagine these sectors.”

Wu added: “I am looking forward to reuniting with these transformative companies, given the time I spent working with them at GE Ventures.”

She did not add comment to two Wall Street Journal reporters, Thomas Gryta and Ted Mann, on their book, Lights Out, that seeks to find out how “success theatre” blinded GE to achieving their strategic vision. The challenges GE and other traditional conglomerates have faced is in contrast to the private equity model they have tried to copy in part.

Blackstone, KKR, Carlyle, TPG and Apollo and other alternative asset managers sailed through the global financial crisis and have dry powder to invest more through the latest one.

Which structure Standard Industries is trying to emulate – GE or Blackstone – might foretell part of its future.

One of the more narrow-minded approaches to looking at innovation and growth is the argument we live on a planet with finite resources so we have to cut back and retreat to a prelapsarian age.

This is a defeatist argument to challenges, such as climate change, that, once recognised, can then be tackled. As Elon Musk once said of Mars, it is “a fixer-upper of a planet” (and perhaps undisclosed inspiration behind one of film Frozen’s songs released a year later?).

Certainly attention on the worlds beyond our atmosphere is increasing.

A year ago, investment bank Morgan Stanley’s report, Space: Investing in the Final Frontier, asked: “Will declining launch costs, advances in technology and rising public-sector interest position space exploration as the next trillion-dollar industry [by 2040, up from $350bn currently]?”

The report gave the analogy of how lifts transformed cities. In 1854, when Elisha Otis demonstrated the safety elevator, the public couldn’t foresee its impact on architecture and city design. But roughly 20 years later, every multistory building in New York, Boston and Chicago was constructed around a central elevator shaft.
Adam Jonas, equity analyst at Morgan Stanley, in the report said: “We think of reusable rockets as an elevator to low Earth orbit (LEO).

Exits

Our usual news editor Robert Lavine is on holiday this week, so filling in was Thierry Heles, the editor of Global University Venturing – hence him being a bit busy to join this week’s podcast. Our data analytics guru Kaloyan Andonov is also taking a well-deserved break, so there will be no GCV Analytics section in this newsletter for the next few weeks.

That doesn’t mean news has slowed down. First up is Nurix Therapeutics, a US-based oncology therapy developer backed by pharmaceutical firm Celgene, which priced its shares at $19 on Thursday to raise $209m when it went public on Friday. The company priced shares above its range and issued more shares than initially planned, and it will use the majority of proceeds for clinical trials of its two lead assets. Celgene’s parent Bristol-Myers Squibb holds a 4.4% stake in Nurix following the flotation. Nurix commercialises research from UC Berkeley and UC San Francisco.

iTeos Therapeutics took similar steps, upping the number of shares and – having priced its shares at $18 earlier last week – ended up settling for $19 a pop to bring in more than $201m in proceeds. 6 Dimensions Capital, the investment firm co-founded by pharmaceutical company WuXi AppTec, was not among the company’s notable shareholders despite having contributed to $74m series B and $125m series B2 rounds. iTeos was spun out of Université catholique de Louvain and Ludwig Institute for Cancer Research nine years ago and will use the cash for ongoing and planned trials of its cancer drugs.

Hefei Jianghang Aircraft Equipment, a China-based aircraft equipment manufacturer backed by aerospace conglomerate Aviation Industry Corporation, has only ever quietly raised funding from investors including Aviation Industry Corporation, but has made a splash with a $148m IPO on Shanghai’s Star Market. Aviation Industry Corporation retains a majority stake in the business, holding 41% and 14.2% through separate vehicles.

CureVac files for IPO

Li Auto charges onto public markets

Cerevel Therapeutics, co-founded by Pfizer, is set to undertake a reverse merger with Nasdaq-listed Arya II in a deal that will give Cerevel a market cap of $1.3bn.

Sun Asterisk rises to public markets

Funds

Money Forward goes ahead with corporate venturing – The accounting platform operator’s investment subsidiary has unveiled Hirac Fund’s $11.7m initial close with multiple corporate LPs on its way to a $29m ceiling.

Deals

Most businesses might be looking at an acquisition or initial public offering after 10 years, but it looks like TransferWise has no such ambitions (yet). The international remittance service – backed by Virgin and Mitsui – has undertaken another secondary transaction, this time involving $319m and boosting its valuation to $5bn. That is a significant increase on the $3.5bn the company fetched last time around, in a $292m secondary transaction in May 2019, and more than three times as much as its $1.6bn valuation for its $280m series E round in 2017. Notably, TransferWise has been profitable for three years so its need to access public markets for capital is less pressing than for some other startups.

The travel industry is undoubtedly one of the sectors that has been hit hardest by the pandemic and Traveloka, an Indonesia-based online travel booking platform backed by JD.com and Expedia, is no exception. But the good news is the company has managed to raise $250m – albeit, reportedly, at a down valuation – led by an unnamed backer said to be Qatar Investment Authority. With restrictions in some of Traveloka’s key markets, most notably Vietnam, easing, it looks like the company is as good a shape as it can be considering the circumstances.

On the other end of the spectrum, a sector that has done well amid lockdowns is healthcare. Ro, a US-based online healthcare services provider backed by publisher Forbes, has seemingly trebled its valuation from $500m to $1.5bn through a $200m round led by General Catalyst. The money will enable the telehealth company to hire more full-time doctors and nurses.

Pharmapacks operates an e-commerce business that allows emerging brands to sell through its own portal and third-parties such as Amazon and eBay, and it seems the boom in online deliveries during lockdowns has put the company in a favourable place with investors: JPMorgan Chase and GPI Capital have put $150m into the company, following a $32.5m series A round from Reckitt Benckiser, McKesson Ventures, Sealed Air and Emerson Group two years ago.

Financial services have seen a mixed response from investors over the past few months – some valuations are up, others are down – and while it’s unclear where cloud banking software provider Thought Machine stands in that regard, the fact that it has added $42m in a series B extension from investors including its client SEB to bring the round to $125mcertainly bodes well. The initial $83m series B tranche four months ago had featured another client and bank: Lloyds.

There is yet to be any sign of a summer slowdown as companies continue to raise nine-figure rounds (see also corporate-backed Thrive Earlier Detection on GUV below) and a first one is Sema4’s $121m series C round that turned the health information company into a unicorn. The company was spun off from Mount Sinai Health System, which previously also invested in the company, and collected the money following an expansion of its offering to include Covid-19 screening.

Praxis Precision works out $110m series C1 – Novo Holdings returned for a $110m series C1 round for Praxis Precision Medicines, four months after the gene therapy developer emerged from stealth with $100m in funding.

Another corporate spinoff that has raised big bucks is Line Man, the Thailand-based on-demand delivery and ride hailing subsidiary of internet company Line, which has collected $110m from BRV Capital Management, the growth equity affiliate of venture capital firm BlueRun Ventures. The round was revealed at the same time as Line Man said it was merging with Wognai Media, a restaurant review and discovery portal that operates across nine cities in Thailand. Line Man hasn’t revealed details of earlier financing but said in its press release that the $110m investment was the largest yet for any overseas Line division.

Heal, a US-based telemedicine and in-home primary care provider, has inked a strategic partnership with Humana to help it expand into additional US markets and netted a $100m investment from the corporate. The round substantially increased Heal’s funding, which previously had raised some $67m altogether. No word on a valuation, but with telemedicine being one area that has done very well during the pandemic, the likelihood is Heal’s shareholders won’t have any complaints.

Ceros, a US-based digital content creation platform backed by CNF Investments (the investment firm affiliated with construction firm Clark Enterprises), raised $100m in funding led by Sumeru Equity Partner. The round included some of Ceros’ management and existing shareholders, though none were named. The round is by far the largest yet for Ceros, which has now raised just over $130m altogether.

University

Thrive prospers with $257m round

Forge Biologics computes $40m series A

Bright Peak ascends to $35m series A


“Funky Chunk” Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 3.0

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