Silicon Valley software-as-a-service firm Paradata, which has set the modest goal of becoming the Google of supply chain management tech, became the first portfolio company of SAP.io, a VC firm backed by German tech titan SAP (SAP - Get Report) , in March.
SAP.iO joined Richmond Global and PivotNorth invested $10 million in Paradata. The new fund, announced in March, looks for startups that benefit from SAP's data and technology, and is meant to dovetail with an older VC effort from the Walldorf, Germany, enterprise software developer.
"SAP has been driving the digitization of industries for 40 years," SAP.iO Managing Director Ram Jambunathan said in an email.
SAP.io targets early-stage innovators while Sapphire Ventures, an SAP affiliate that dates to 1996 and became an independent firm in 2011, focuses on later-stage companies. While Saphire Ventures is independent, CEO and Managing Director Nino Marakovic noted in an email that SAP is the largest limited partner and has contributed $2.4 billion to the VC outfit.
While big-name tech companies have a history of VC investments, last year was uneven for corporate venture funding. Investments dropped sharply in the fourth quarter of 2016, although for a year as a whole corporates were steadier than independent VC shops. The biggest are tech stalwarts like Intel Corp. (INTC) and Alphabet Inc.'s (GOOGL) Google, though retailers like Wal-Mart Stores (WMT - Get Report) and General Mills (GIS - Get Report) are getting more creative with investments.
Corporate VCs have a slightly more complicated proposition than their counterparts that are not linked to a large technology parent. Unlike a traditional venture capitalist who worries primarily about making money, corporate VCs have a split mission of obtaining strategic vantage point for their parent while also making a profit. The corporate shops have a reason to invest—market intelligence that can feed their larger business—even if the outlook for exits darkens.
"For larger tech companies it would appear that a key aspect of venture investment is having an ear to the ground," Alex Paci, tech industry analyst at CB Insights said in an email. "Having an early-stage investment vehicle is helpful to investing in the growth of transformative new businesses, but more consequentially, such investment efforts are also likely helpful in becoming aware of the startups to begin with, and can likely lend to a company's strategic health as startups may compete with a company's business down the line."
Corporate VCs invested $24.9 billion lat year, out of a total of $77.2 billion in total VC spending. Corporate activity dropped 21% in the fourth quarter, compared to a 7% decline in overall VC investment. The 299 corporate venture investments during the fourth quarter were the lowest total in 11 quarters. For the remainder of the year, corporate VC spending was steadier than VC spending as a whole, Paci noted. VCs of all stripes had reasons to pause last year. Google's VC arm noted the dearth of IPOs and falling valuations, which could have made corporate and non-corporate VCs think twice about putting more money in play, in a post on Medium.com last June.
Internet investments attracted 45% of corporate VC dollars last year, with mobile and telecom accounting for 18%. Healthcare investment amounted to 13% of corporate VC spending, while software grabbed 7%.
The biggest spenders are Intel Capital and GV, the former Google Ventures, according to CB Insights.
Intel Capital invested $455 million last year in 87 deals—34 of them in new companies. Of Intel Capital's 25 exits, all but two were via M&A such as the sale of cloud computing company Joyent to Samsung Electronics Co. Ltd. for an undisclosed sum. Intel Capital had invested in Joyent since 2009. There were also IPOs, such as the listing of Intel Capital-backed China Digital Video (Beijing) Ltd. on the Hong Kong Stock Exchange.
GV did not provide data on its 2016 investments. The firm has invested in more than 300 companies since its formation in 2009, and CB Insights said it made more than 40 investments last year. With $2.4 billion under management, GV invests in areas ranging from life science and healthcare to robotics, agriculture and cybersecurity.
General Mills made five investments last year through its 301 INC venture arm, CB Insights analyst Paci noted. The firm has been active this year, investing $3 million in Boulder, Colo., granola maker Purely Elizabeth in March.
An improved IPO market helps the financial side of the corporate VC equation. IPO proceeds approached $9.9 billion in the first quarter, about 15 times the take from the first quarter of 2016. VC-backed companies took in close to $4.1 billion. Technology was the largest sector, thanks to the Snap (SNAP - Get Report) offering, with a total of $4 billion in IPOs.
A lively IPO market could increase the competition for VC investments, however. Corporate VCs could have to work harder, and spend more, to keep their ear to the ground.
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Editors' pick: Originally published April 12.
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