Given the reorganisations at Alphabet since it was formed in 2015 to act as an umbrella company for search engine Google (its alpha) and its diversified business interests (its bets), 2017 seemed a relatively relaxed year for its corporate venturing units, though they continued to be active.
The 2015 realignment involved the firm’s early-stage investment arm, Google Ventures, and its growth-stage unit, Google Capital, being rebranded as GV and CapitalG, respectively.
GCV speculated at the time of the 2015 reorganisation that Google, which still oversees Alphabet’s online advertising business as well as entities like Android, Chrome and YouTube, could seek to launch its own corporate venturing arm, and in effect that’s what happened when it founded an artificial intelligence-focused unit called Gradient Ventures run by Anna Patterson and another by Ilya Gelfenbeyn as head of Google Assistant Investments at Google. Google took on Gelfenbeyn when it bought his CVC-backed voice assistant startup API.AI (formerly known as Speaktoit) in late 2016.
Though regarded as a way to keep a star at the firm rather than leave to set up a venture unit, Gradient’s formation can be seen as part of a trend over the past year that also involved the likes of Microsoft, Salesforce and SenseTime launching their own AI investment funds.
By the end of 2017, Gradient had already made half a dozen investments and all been in relatively early-stage rounds.
Gradient Ventures actually launched in July with a plan to invest in 10 to 15 startups by the end of last year.
To achieve such an ambitious goal, the fund would need talented investors and so Patterson brought in Shabih Rizvi, a GCV Rising Stars 2018 winner. “He is incredibly responsive, thoughtful and resourceful. He can create a syndicate in an evening and figure out stealth company competitors. We could not have started Gradient without him,” Patterson said in her nomination.
Rizvi joined Gradient from venture capital firm Kleiner Perkins Caufield & Byers, (it was an investor in Google before its own initial public offering during the dot.com days so retains strong ties with its former portfolio company), where he spent three years investing in the likes of online phone directory TrueCaller, gamer-oriented livestreaming platform Mobcrush and payment services provider Veem. Prior to that he had a variety of roles at Google, including founding a startup outreach program for Google Play and working in the mobile apps lab team.
Gradient’s first investment was made in June when it led a $10.5m series A round for Algorithmia, the operator of an algorithm network for app developers. Since then it has added five further companies to its portfolio: image classification and anomaly detection software developer Cogniac, drone operation platform Cape, multi-sensor deep-learning awareness platform developer Aurima, augmented reality technology developer Ubiquity6 and coding automation technology startup PullRequest.
Gradient is investing directly from Google’s balance sheet and can commit up to $8m a time, and it has the flexibility to pursue follow-on investments when it wishes so expect to see it turning up more often in series B and C rounds from next year.
The fund also has an engineering rotational program in place with Google, pairing its top talent with Gradient’s portfolio companies. This has been key in helping Rizvi face one of the biggest challenges in launching a new fund.
“As has become increasingly true over the last several years entrepreneurs can turn to a lot of different sources for capital. It has been, and will continue to be, critical for us to help illuminate how we can help above and beyond capital,” he said for his Rising Stars profile.
Of her Google colleagues, some who attended the Global Corporate Venturing and Innovation (GCVI) Summit this year specifically to hear her speak and meet her for the first time, last year was also busy.
GV under David Krane was particularly active in 2017. Whereas in 2016, the unit’s largest deal was a $95m round for oncology therapy developer Carrick Biosciences, last year it participated in six $100m-plus rounds, including the $120m series C round closed by AI insurance platform Lemonade.
The largest of those deals was the $130m raised by another insurance innovator, Clover Health, in May 2017 at a $1.2bn valuation, but GV also led nine-figure rounds for immunotherapy developer Arcus Biosciences ($107m) and point-of-sale technology developer Toast ($101m), and backed a $101m round for agricultural data provider Farmer’s Business Network ($110m).
The largest cumulative investment by GV, which now has $2.4bn under management, over the course of 2017 was likely in 3D printing technology provider Desktop Metal. GV led the company’s $45m series C round in February before returning for its $115m series D in July.
The unit’s exits included upscale coffee chain Blue Bottle, for which Nestle paid $700m for a majority stake, and dark data platform Lattice, which was bought by Apple for $200m. Big data software provider Cloudera, Gram-negative infection therapy developer Spero Therapeutics and monoclonal antibody developer Arsanis respectively raised $225m, $194m and $136m from their initial public offerings.
CapitalG under David Lawee’s largest deal was when it led a $1.5bn round for ride hailing service Lyft that valued it at $11.5bn post-money, though it also took part in the $1bn series F round closed by accommodation booking platform Airbnb in March. Perhaps the biggest event for the unit was the $3.9bn IPO for Snapchat owner and portfolio company Snap the same month, the largest since Alibaba went public in 2014, though Snap’s stock has since fallen below the IPO price.
The year was however blighted for CapitalG by health intelligence software provider Outcome Health. It was among the participants in the $600m round Outcome closed in May at a pre-money valuation of $5bn, but by the time November rolled round the company was the subject of a fraud investigation and was being sued by investors including GV claiming it had falsified data and financial reports.
GV founder Bill Maris had a happy ending of sorts too in 2017, having left the unit in August in 2016. After months of speculation he closed the first fund for his new firm, Section 32, at $150m in May, and six months later it had scored its first exit as immunotherapy therapy developer Arsanis, also a GV portfolio company, went public in a $46m IPO.
Interestingly, Section 32 and GV are co-investors in several other companies including Kobalt, the music royalties collection service that raised $89m in series D funding this year, business meeting platform Dialpad and cancer diagnostics technology developer Freenome, and it will be interesting to see if the two seek to put together any kind of formal agreement in 2018.
But while Alphabet might have lost Maris, it still remains a piper able to hold on to others of its star talents in Patterson, Gelfenbeyn, Lawee and Krane.