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The Big Ones
1
Wishing our readers around the world a wonderful prosperous lunar new year – welcome to the year of the ox.
There has been a plateau in deal volumes in China over the past two years with other Asia-Pacific markets catching up, as adjunct professor Martin Haemmig noted at our last GCV Digital Forum at the end of January.
But China’s market has set the innovation bar higher in a host of fields, from ecommerce to artificial intelligence (AI) and electric vehicles. State-supported, mission-led innovation is a powerful aid to delivering a society’s vision – in China’s case leading the world in AI by 2030, Wired’s article notes.
The capital requirements, therefore, have scaled up to compete with the US and so fewer, larger deals makes sense.
A glance at the past week’s $100m-plus rounds, prepared by news editor Rob Lavine, shows China and the US still dominate the entrepreneurs gaining the funding to scale up to global champions.
China’s large, corporate-backed deals included:
Fenbi Education – $390m (IDG Capital, Huaxing Growth Capital, Hony Capital, Trustbridge Partners and unnamed others)
Pony.ai – $100m (Brunei Investment Agency and Citic Private Equity Funds Management)
Horizon Robotics – $350m (Sunny Optical Technology, BYD Auto, Great Wall Motors, Changjiang Automobile Electronic, Changzhou Xingyu Car Light, Dongfeng Asset, CMC-SDIC Capital, Shougang Fund and Shanghai AI Industry Fund)
Plus – $200m (Wanxiang International Investment, Guotai Junan International, Citic CPE and Full Truck Alliance/Manbang Group)
It was a powerful end to a year that saw the state tackle the power of a previous generation of entrepreneurial superstars, such as Alibaba and Tencent. And it remains a delicate balance to encourage innovation within restrictions.
The past 30 years have seen unprecedented numbers of people move out of poverty in China and the world through innovation and market forces. What the next year will bring will be further shocks and tensions – notably around Taiwan and geopolitics but remembering the sacrifices and accomplishments to get this far is important to build in the right direction.
Health, wealth, love, happiness and the time to enjoy it all.
2
AI quarterly report and monthly GCV published
“Artificial intelligence [AI] will change how business, governments and societies operate for decades to come.”
This was the theme at Tortoise Media’s AI discussion between editor James Harding and Mariana Mazzucato, academic and author of the new book, Moonshot.
There have been relatively few general purpose technologies since the first industrial age. The use of steam power and then electricity transformed society and business. In the first and second ages of industry with semiconductors, and then the internet created the conditions for data and information to be shared. AI will then write the software to capitalise on the opportunities and as the hardware improves so does the scale and speed.
As Jeff Herbst, vice president of business development at Nvidia and head of Nvidia GPU Ventures, in discussion with George Hoyem, managing partner at In-Q-Tel, shared at the GCV Digital Forum 2021 last month: “Modern AI is basically pattern recognition on data, whether it is images or voice.
“Fundamentally what is going on in the world right now is that the traditional model of how computers are programmed has been turned on its head.”
Herbst predicted the industries that would be most transformed by AI will be those that manage large amounts of data such as healthcare or retail.
Hoyem said that in the same way most technology uses the internet today, AI was also heading in a similar direction.
“It is going to creep into every vertical application and it starts with things that are highly parallelised and data sets like images, voice and even unstructured text.
“It is going to cover pretty much everything in about 10 years.”
This creates a question for governments for how best to steer or manage the progress. Mazzucato rightly argues for “goal-oriented, public private partnerships.
“What does it mean to have purpose at centre of public governance and system? Be bold on outcomes wanted and open on methods to get there.
“Have the ability to learn through trial and error and not outsourcing to consultants. Develop organisational capacity beyond administration but through dynamic procurement to bring policy redesign. Dynamic procurement to scale up not just VC.
“Going to the moon and back in a generation [the 1960s] gave immense spin-overs. [Our current] materials, software, traces back to those days. What does it mean today?
“It means targeting spill-overs rather than cost-benefit analysis.”
In the UK’s industrial strategy announced in 2017, Mazzucato and former universities minister David Willetts put AI and data as central to any challenge. She described it as “a fundamental input to transform”. The missions set out in the strategy focused on healthy ageing, the climate and the future of mobility to be safe, sustainability, have equal access and net-zero carbon emissions.
The European Union is going further with its green deal as part of its 2021 to 2027 Horizon Europe budget. Similarly, both China and the US are setting ambitious climate goals.
AI has already allowed Alphabet and other tech companies to reduced energy use and costs for data centres – as Callum Cyrus notes in his main feature.
But, as Nvidia’s chart on the AI startup ecosystem shows, most entrepreneurs are targeting the global health system. Already, scientists are weaving human brain cells into microchips, as the blog Futurism notes.
David Saad, mathematician at Aston University, said: “We believe this project has the potential to break through current limitations of processing power and energy consumption to bring about a paradigm shift in machine learning technology.”
AI will only fix the problems set for it by the politicians if they are clear what societal challenges they want tackled.
As Pope Francis put it in November: “Artificial intelligence is at the heart of the epochal change we are experiencing… Future advances should be oriented towards respecting the dignity of the person and of creation.”
3
How do you get startups to go from zero to scale?
When you see hundreds if not thousands of ideas and startups, as Jeff Schumacher, founder of New Asset Exchange (NAX), has then you realise a good team and product-market fit takes you only so far.
The differentiator is volume, often using capital to spend on marketing. Schumacher’s latest startup, NAX, has taken this idea and developed a software platform to create corporate asset-backed products, ventures and securities.
Emerging with stealth with $65m in funding from a dozen corporate, institutional and family office investors, NAX has a development unit to take data and turn it into a security or venture with the software to trade it.
This model could, for example, turn an insurance company’s data around the 25 attributes needed to underwrite a work of art and allow banks to lend money against it in order to help fund its purchase.
The law of large numbers then works if there are lots of these credit notes to package them up and syndicate or tranche the bundles of debt into asset-backed securities, similar to car loans or house mortgages.
Take the idea on and NAX wants to apply the same model to indie games developers for securitising expected revenues. But its biggest target is climate change.
How can carbon be priced or corporations offset emissions? Schumacher, former founder of BCG Digital Ventures and Axon Advisory Partners, said: “Climate is hard to trade because it is opaque, compare and has no scale.
“The Paris Accord will not work because social investment funds are not enough. We need financial innovation and instruments to attract capital.”
There is increased attention on the topic this year as COP26 is being held in London and expected to update the Paris Accord with new emissions targets, carbon reporting, investor incentives and corporate governance standards.
As George Serafeim, professor at Harvard Business School, noted in September’s GCV Digital Forum, the creation of impact-weighted accounting standards will help push the main listed corporations to explaining and tackling their externalities.
Creating a financial market to help, say, a smelter plant minimise or offset their environmental impact would be useful.
GCV through its Global Energy Council and its sister publications, Global Impact Venturing and Global University Venturing, will be preparing its Symposium in the UK in early November around COP26 with special events planned to cover the golden triangle between London, Oxford and Cambridge and in Scotland and the north of England.
4
UK-based cryptocurrency exchange provider Blockchain.com, which raised a $120m strategic growth round.
These investors included Access Industries, an investment and industrial group founded by Leonard Blavatnik, GV (formerly known as Google Ventures and one of Alphabet’s corporate venturing units), venture capital firms Lakestar and Lightspeed Venture Partners, and Moore Strategic Ventures (Louis Bacon’s hedge fund’s venture unit), Kyle Bass (founder and principal of Hayman Capital Management hedge fund), Eldridge and Rovida Advisors.
When Blockchain.com set out to raise its series A round in late 2014, there were only a handful of venture-backed crypto companies and a bitcoin was worth hundreds of dollars.
Six years later and Bitcoin has crossed what Blockchain called the “monumental price target of $50,000” and the company provides 65 million wallets in 200-plus countries. More than a quarter (28%) of all Bitcoin transactions since 2012 have occurred via Blockchain.com, it added.
Peter Smith, Blockchain.com’s CEO and founder, said: “The current bull run is dominated by stories of Fortune 500 companies, investment funds, and institutions driving net inflows into crypto. The fact that the best macro investors in the world participated in our latest fundraise is further proof that institutions are taking a serious look at their crypto strategy.”
Jalak Jobanputra, founder of VC firm Future Perfect Ventures, which invested in Blockchain.com’s 2014 round, in her newsletter put part of the institutional moves down to bitcoin having decoupled from other assets over fears of inflation. She said: “The last couple of weeks have felt like we have moved decades forward in the sector, and this seems to be accelerating daily.”
Funds
Adjuvant stimulates $300m fund
Sesame Workshop, National Geographic Society and Kaiser Foundation Hospitals have all thrown their weight behind a $165m third fund raised by edtech-focused VC firm Reach Capital. The fund will specifically target educational technology producers that are looking to remove barriers, particularly those faced by ethnic minorities, disabled students and under-resourced communities. Reach’s existing portfolio already includes Outschool – also backed by Sesame Workshop – and Springboard – also backed by Telstra Ventures.
Spain-based bank BBVA has committed a further $150m to financial sector-focused venture capital firm Propel Venture Partners and bringing its total commitment to more than $400m since 2016. BBVA has committed an initial $50m to an annual fund as the sole limited partner (LP). This will be followed by similar funds in 2022 and 2023, which will be open to outside investors.
Eurazeo is going in a different direction with its $97m Smart City II Venture Fund, focusing on early-stage startups in the energy, mobility, property technology and logistics industries. Limited partners for the fund’s first close include car manufacturer Stellantis, electric utilities EDF and Mainova, public transport operator RATP, energy producer Total, logistics company Duisport and real estate developer Sansiri. The predecessor vehicle, Smart City I, invested in approximately 25 companies across Europe, North America and Asia.
Masco puts finishing touch to $50m fund
SCB 10X, the corporate venturing unit of Thailand-based Siam Commercial Bank (SCB), has set up a $50m fund for early and growth-stage startups targeting blockchain, decentralised finance (DeFi) and digital assets.
Kraken Digital Asset Exchange, a US-based cryptocurrency service provider, has set up a corporate venturing unit.
Kraken Ventures will target early-stage companies and protocols across the crypto and financial technology ecosystem, including decentralized finance (DeFi), as well as enabling technologies, such as artificial intelligence, regulation tech and cybersecurity.
BIG goes local with Hyogo Kobe Fund
Costco Wholesale, a Nasdaq-listed retailer, has committed $1m to Fearless Fund, a US-based venture capital firm set up to invest in women of colour (WOC).
Costco’s investment marks a string of corporate interest in the fund, following recent investments from PayPal and Bank of America.
Savola Group, a Saudi Arabia-based food and retail conglomerate, has set up its corporate venturing unit and completed its first investment.
Its corporate venture capital fund will invest in disruptive technologies and opportunities in the food and retail space regionally and globally, according to news provider Wamda.
DexCom, a Nasdaq-listed supplier of continuous glucose monitoring for people with diabetes, has set up its corporate venturing unit under Steve Pacelli.
Dexcom Ventures will invest in glucose sensing technology and adjacent areas, such as data analytics, remote patient monitoring and population health.
LightShed Partners, a US-based boutique research firm founded by media analyst Rich Greenfield in 2019, has set up a corporate venturing fund.
LightShed Ventures is raising $75m to invest in seed and series A rounds across technology, media and telecom sectors, according to news provider Barron’s.
Ensemble Innovation Ventures (EIV), the holding company of US-based healthcare provider Delta Dental of Colorado, has set up a corporate venturing fund.
Ensemble Innovation Ventures Fund (EIVF) will target the health and wellness space and invest in early-stage venture companies primarily in its local region.
9Unicorns, an India-based incubator and startup fund set up by Venture Catalysts, has raised INR1bn ($14m) from local food provider Haldiram’s and other investors.
Haldiram’s had announced a partnership with Venture Catalysts in April 2019.
University
Venture capital firm Global Accelerated Ventures (GAV) has partnered with Oxford University Innovation (OUI), the research commercialisation unit of UK-based University of Oxford to set up a $25m special purpose investment vehicle (SPV) targeting conservation-focused startups.
The Oxford GAV Conservation Venture Studio will support and bring prototypes to market
Exits
It has barely been four years since JD.com spun off its warehousing and distribution services provider as JD Logistics, but the unit quickly went on to raise $2.5bn in 2018 from Tencent, China Life and others. That capital seemingly provided a decent runway and now JD Logistics is looking to build on its business growth thanks to a surge in online shopping during the pandemic by filing to go public in Hong Kong. Financial terms have not yet been set, but sources told DealStreetAsia the company is eyeing a $40bn valuation. That’s not a bad multiple on the $12.8bn it was reportedly valued for that 2018 round.
Also benefiting from a surge in online shopping is BigBasket, the India-based grocery delivery company that has now agreed to an acquisition by Tata Group in a deal that values it between $1.8bn and $2bn. Tata is buying a 60% stake in the business and existing shareholders, which include Alibaba with a near-30% stake, are set to exit almost entirely. Tata is not stopping there: the plan for BigBasket is said to be turning it into a public company as early as 2021.
Coupang, the Korean online retailer that ships products to customers nationwide within hours of purchase, is reportedly eyeing a $50bn market cap with a planned $1bn initial public offering that would provide an exit to SoftBank and its Vision Fund. The corporate and the fund have invested $2.5bn between themselves and that market cap would be a more than fivefold increase on the $9bn valuation that Coupang fetched in 2018. Coupang more than halved its net loss over the past two years, though it still stood at nearly $475m for 2020.
Cloopen Group – also known as Ronglian Cloud Communications and as Yuntongxun – has already completed its IPO and brought in $320m through a listing on the New York Stock Exchange that provided exits to New Oriental and Telstra Ventures (though neither owned more than 5% before the offering). It had priced its ADSs at just $16 but as of yesterday’s close they were already worth $29.65 so there is every expectation that underwriters will jump at the chance to buy the additional 3 million ADSs.
Adagene advances to IPO
Hearing loss treatment developer Decibel has already gone public, pricing its shares at $18 to raise more than $127m through a listing on the Nasdaq Global Select Market that provided exits to GV, SR One and Regeneron. It was more than the $75m in proceeds that Decibel had originally targeted but despite a brief climb to $24.39 a share on the first day of trading, they closed back down at only $18.03.
Amgen and Pfizer also celebrated exits as cancer immunotherapy developer NexImmune – a spinout of Johns Hopkins University – raised $110m in an upsized initial public offering on the Nasdaq Global Market. NexImmune’s shares closed at $25.33 on the first day of trading on Friday. Neither corporate owned more than 5% in NexImmune ahead of the offering.
Another week, another set of reverse mergers. Today it is AEye’s turn, the lidar system developer having agreed to combine with CF Finance Acquisition Corp III at a $2bn valuation. Existing shareholders Subaru-SBI Innovation Fund, Intel Capital and Hella Ventures joined GM Ventures and others for a $225m Pipe financing. AEye’s backers, which had supplied more than $60m in equity funding, also include Aisin, LG, SK Hynix and Airbus Ventures. The merger is expected to complete in the second quarter of the year.
Owlet grows into public company
Humacyte, a US-based developer of tissue-based medical technology backed by conglomerate Access Industries and healthcare company Fresenius Medical Care, is the latest company to jump on the reverse merger bandwagon. The business is set to merge with Alpha Healthcare Acquisition Corp to list on Nasdaq, and the deal will land it $175m in financing from Fresenius and Alexandria Venture Investments, among others. Alpha Healthcare already raised $100m when it went public, and Humacyte is looking at a $1.1bn market cap once the transaction closes. Fresenius took a 19% stake in 2018, while Access Industries made its investment in 2015 as part of a $150m series B.
Humio is choosing a more traditional exit by agreeing to a $400m acquisition by CrowdStrike that will primarily consist of cash but include some equity. It is a sizeable amount of change dropped by CrowdStrike, not least because Humio had only raised slightly more than $30m in equity financing – most recently completing a $20m series B round led by Dell Technologies Capital in March last year.
University
Talis takes in IPO proceeds
Deals
Xingsheng Youxuan, which allows neighbourhood communities to club together to purchase goods in bulk, has added $2bn to its coffers thanks to commitments from Tencent and China Evergrande Group, among others. The company said it now processes more than 8 million daily orders and is delivering to more than 30,000 towns across China. The latest cash injection comes just a couple of months after JD.com committed $700m and less than a year after Xingsheng secured $800m in its series C-plus from Tencent and others.
SpaceX meanwhile is showing no ambitions to go public just yet and the US-based spacecraft producer and launch services provider backed by Alphabet, has added $850m in fresh funding from unspecified investors at a reported valuation of $74bn. It is not the biggest round raised by SpaceX – for now that remains the $1.9bn transaction last summer – but it is notable for one because the company had allegedly lined up offers totalling $6bn within three days (yes, you read that right) and for another because existing shareholders took the opportunity to sell $750m worth of stock. No word on their identity either, however.
University
Axiom Space lifts off with $130m
Kakao Mobility hails Carlyle for $200m
Locus Robotics is one of two companies to have raised $150m (see Standard Cognition below, too) and the warehouse automation technology producer’s series E round featured returning backer Prologis Ventures (though it is unclear when the corporate first invested). Zebra Ventures did not participate this time, having previously contributed to the $40m series D and $26m series C rounds.
Standard Cognition checks out $150m series C
Mainstay Medical puts away $108m
TigerGraph charts course to $105m
University
LegalForce powers up with series C
“Funky Chunk” Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 3.0
