Techpoint Charlie
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Techpoint Charlie

STARTUP INVESTMENT TRENDS

Tech Giants are Funding the Future & What We Can Learn from It

We analyzed the top startups in Big Tech’s post-COVID push to gain share in Mobility, AI, and Emerging Markets

*Estimated Liquidity as of April 2020, per FactSet. Investment & Acquisition data from Crunchbase as of August 2020. Categorization & design by the author.

From high-risk startups to high-liquidity tech leaders in 20-ish years

The pandemic devastated the economy on a global scale, but you can’t deny that it had a positive effect for a handful of companies. Tech giants (Facebook, Amazon, Google, Microsoft, Apple, etc.) have outperformed traditional stock market listings across the board and recorded record revenues throughout the crisis. NYT reports that these five companies account for more than 20% of the S&P500’s total market value. According to Silicon Canals, in Q2, Facebook’s profit increased 98%, Amazon’s sales grew 40% YoY, Apple’s 11% sales increase netted them nearly $60bn revenue in Q2 alone, and Google parent Alphabet exceeded Wall Street estimates with a quarterly profit of $7bn — just to give you an idea of how spectacular their boom actually was.

It was not so long ago that these companies were just startups themselves, and the lists of most valuable companies looked very different than they do today. Every now and then, a startup comes along with an innovative solution that can go on to disrupt industries and make global corporations irrelevant. Business schools love to teach cautionary tales of large companies’ failure to innovate: Blockbuster passing on buying Netflix for $50 million in 2000 because it was a ‘very small niche business.’ Yahoo deciding against buying Google for $3bn in 2001, as well as Facebook for $1bn in 2006. There will always be new challengers, and they should be taken seriously. Even (or maybe especially) during times of crisis.

Startup trends through the lens of Big Tech’s capital bets

Today’s tech giants take newcomers more seriously since they were once in that position themselves, and their financial activity shows they’re always on the lookout for the next innovative business model, disruptive technology, or high-growth sector.

Not all large companies want to make strategic moves in times of uncertainty, but big tech does. During the pandemic, many corporations are deprioritizing innovation efforts and tightening their purse strings. According to TechCrunch & CB Insights research, Corporate Venture Capital (CVC) investment is down 30% YoY. Meanwhile, big tech investors appear to be on a strategic shopping spree, with the highest rate of deal-making since 2015, per Financial Times.

Categorization & design by the author

It’s a buyer’s market for the world’s biggest tech companies. Startup valuations have shrunk across the board, and FAGMIA (Facebook, Amazon, Google, Microsoft, Intel, Apple) are particularly well capitalized for positive M&A and investment activity, with a combined $484 billion in liquidity as of April 2020, per FactSet. It would be silly to assume anywhere close to full deployment of this liquidity into strategic investments & acquisitions, but it does show the massive financial power at their disposal.

If you had all the money in the world and you could buy anything –anything — you think has the potential to expand your business, grow your wealth, ensure your market dominance — what would you put your money into?

We looked at FAGMIA’s investment & acquisition activity since Q2’2020 to see what technologies & sectors they are placing their bets on:

Facebook, Amazon, Google, Microsoft, Intel, & Apple’s disclosed Investments & Acquisitions from April — August 2020. Categorization & design by the author.

Quick takes:

  • Since April 2020, 6 big tech investors funded a total of 143 startups and acquired 17.
  • Google was by far the most active of the big tech investors, funding a total of 61 startups (22 of which were in the HealthTech space)
  • I discerned a total 12 sector categories: Computing (12 deals), Customer Experience (16 deals), Cybersecurity (11 deals), Datastreams & Analytics (19 deals), Developer Tools (16 deals), IoT & Hardware (11 deals), Mobility (12 deals), Regional Expansion (14 deals), and Supply Chain Solutions (9 deals), HealthTech (29 deals), EdTech (4 deals), Consumer (6 deals)

In my analysis below, I’ll be focusing on three unique areas: 1. Mobility, 2. Software, data, & computing, and 3. Regional expansion.

Let’s dive in:

1. Big Tech’s Growing Role in Mobility

Categorization & design by the author.
  • Total # of deals: 12–9 investments, 3 acquisitions
  • Most active investors: Amazon, Intel, Google (3 deals each)
  • Sector subcategories: Electric, autonomous, shared, mapping, route planning, EVTOL, augmented displays, system integration

As most auto OEMs struggle during COVID, Amazon, Intel, Google bet on software-driven mobility ecosystem

Traditional automotive companies have suffered greatly during the pandemic (with the exception of Porsche), and it’s widely known that OEMs have struggled with the increasingly dominant role that software plays in manufacturing cars. The industry’s sluggishness to adapt to the changing engineering demands has created a huge gap that big tech companies — with their core competencies rooted in software and their eagerness to enter new markets— have been more than happy to fill.

Let’s see what they’ve been up to:

Categorization & design by the author.

Electric: Amazon recently participated in electric truck startup Rivian’s latest funding round in keeping with its $2bn Climate Pledge Fund, which plans to invest in companies supporting sustainability efforts. Additionally, it invested $25,000 in the pre-seed round of predictive battery analytics startup Energsoft, which is a competitor of MHP Partner TWAICE.

Autonomous: The ecommerce giant spent an estimated $1.2bn to acquire autonomous driving startup Zoox. Although Amazon claims to be behind the company’s robotaxi vision, it most likely bought the technology to use it in package delivery. In May, Google doubled down on its own AD spinout & Zoox rival, Waymo, with a $750m extension to its $2.25bn financing round in March.

Shared: Although the pandemic has led to massive losses for US-based Uber & Lyft, Microsoft is betting on the long-term recovery of the on-demand taxi industry by investing in Singaporean ride hailing giant Grab. Despite the COVID-related drop in usage of micromobility services, Google participated in another funding round to help shared scooter startup Lime’s takeover of Uber’s Jump bikes. In May, Intel announced its $900m acquisition of Israeli multimodal MaaS platform Moovit in a bid to bolster Mobileye’s ADAS solutions to become a full-stack mobility provider, per Intel CEO Bob Swan.

Startup spotlight: Axonne

  • What it does: Low-compute system integration for connected & autonomous vehicles
  • Big tech investor: Intel
  • Why we love it: the more connected cars become, the more data they need to process. Axonne helps manage these enormous data workloads, enabling data streams to be processed more efficiently with fewer power demands on the vehicle. The Intel-backed startup integrates systems in the connected car, such as autonomous driving sensors and displays with compute cluster as well as proprietary mixed-signal circuits, algorithms and digital signal processing to help with demanding applications, enabling drivers to get safety, reliability, security and electric vehicle-friendly power efficiency.

2. Software is Eating the World, and Big Tech Investments are Feeding It

Categorization & design by the author.

Google, Microsoft, & Amazon want to enable developers with powerful tools

Categorization & design by the author.
  • Total # of deals: 16–15 investments, 1 acquisition
  • Most active investors: Google (7 deals), Microsoft (6 deals), Amazon (3 deals)
  • Sector subcategories: Crowdsourcing platforms, Code marketplaces, Data training & modeling, Automated testing, Database tech

Developers (and technical skills in general) are in high demand and short supply. As software becomes more essential and increasingly complex, many companies have developed unique tools to make software engineering faster, cheaper, more productive, intuitive, and collaborative. Our dependence on software — especially for companies working remotely — is only set to increase, and big tech is well-prepared to capitalize on this trend. Since the outbreak of the coronavirus, Amazon, Microsoft, Google, and Intel have all invested in tools that are hoping to ease the hiring needs of companies and the workloads of their developers.

Writing code from scratch can be tedious and leaves a lot of room for human error. That’s why tech giants have been investing in companies like RapidAPI, a marketplace for developers to search for and connect to thousands of public APIs and manage their integrations, and one of the many dev tools backed by Microsoft. Amazon has also been busy funding the optimization of software development. Among their most recent investments are two startups who help AI teams develop reliable AI models more efficiently: Comet.ml, whose machine learning platform is set to do to ML what GitHub did for code; and DefinedCrowd, who built a crowd-as-a-service intelligent data platform to accelerate data training and modeling. Google-backed mabl integrates automated end-to-end testing into the entire development lifecycle.

Startup Spotlight: Pachyderm

  • What it does: enterprise-grade, open source platform that enables explainable, repeatable, and scalable data science
  • Big tech investor: Microsoft
  • Why we love it: Pachyderm allows their Fortune 500 clients to quickly comply with emerging AI legal standards and ensures that Machine Learning Operations (MLOps) teams can always recreate data science experiments perfectly every time. Since launching in 2014, Pachyderm’s data science platform has become a critical tool within the machine learning software stack by providing AI development teams with a reliable, single source of truth for their machine learning pipelines. About a week ago, the company announced their Series B round led by Microsoft’s M12 investment arm.

Data is the new gold: Google, Intel, Apple buy into AI/ML, Big Data Analytics startups

Categorization & design by the author.
  • Total # of deals: 19–17 investments, 2 acquisitions
  • Most active investors: Google (7 deals) & Intel (6 deals)
  • Sector subcategories: Automated monitoring platforms, AI/ML, predictive analytics, NLP & voice tech, Data governance & visualization

One of the consequences of digitalization is that we have more data than we know what to with. Since the lockdown, even more so. Businesses now produce exabytes of data on everything from their performance, to their processes, products, and productivity that it becomes a Sisyphean feat to continuously derive any meaningful insights from it. FAGMIA have identified a growing need for software companies who will take raw data, clean it, sort it, model it, process it, automate it, cluster it, visualize it, and package it for clients in a neat, digestible format.

Startup Spotlight: Inductiv

  • What it does: automated cleaning of AI training data
  • Big tech acquirer: Apple
  • Why we love it: AI & Machine Learning models are only as good as the quality of the data they’re trained on. Inductiv developed technology that uses artificial intelligence to automate the task of identifying and correcting errors in data. Founded in 2019 and based in Waterloo, Canada, the automated data cleaning tech company was acquiredon May 27, 2020 for an undisclosed amount. The Cupertino giant had also bought another AI startup just a month prior, Ireland-based speech recognition startup Voysis. Although in typical Apple fashion, the iPhone maker declined to comment on the motivation or plans for either acquisition, experts have guessed Inductiv & Voysis could be put to the task of improving Siri.

Intel, Google, & Microsoft take lead in powerful computing technologies

Categorization & design by the author.
  • Total # of deals: 12–10 investments, 2 acquisitions
  • Most active investors: Intel (5 deals) & Google (4 deals)
  • Sector subcategories: Quantum, cloud, edge, AI chips, semiconductors

With more connected devices generating more and more data for AI models and analytics tools to process, computing can easily eat up a lot of time, energy, and costs. Lots of startups are coming up with innovative ways of accelerating data processing and reducing its resource demands, whether its edge-, cloud-, or quantum technology.

Google & Amazon are both betting on the commercial applications of quantum computing with their recent participation in the $62m Series B round of IonQ, whose quantum machines can run at room temperature, unlike those of their competitors. Microsoft has also been active in the quantum space. In April, the company’s investment arm participated in the $215m Series C financing of PsiQuantum, a company developing a quantum computer that uses photons as qubits., which is a fundamentally different approach from the other players in the field.

Startup Spotlight: MemVerge

  • What it does: memory-converged infrastructure system (MCI)
  • Big tech investor: Intel
  • Why we love it: In the history of computing, “memory” and “storage” have always been two different concepts. MemVerge, aims to combine the two concepts and make every application run in-memory, so they can handle more data workloads. The storage startup is delivering the world’s first Memory-Converged Infrastructure system, built with proprietary Distributed Memory Objects (DMO) technology. DMO technology provides a logical convergence layer that harnesses Intel’s Optane DC persistent memory to let data-centric workloads run flawlessly at memory speed.

3. Global Tech’s Fight for New Markets Through Startup Investments

Categorization & design by the author.

World domination, starting with India

Categorization & design by the author.
  • Total # of deals: 14 investments
  • Most active investors: Facebook (4 deals), Intel (4 deals) & Amazon (3 deals)
  • Sector subcategories: Logistics platforms, Telecoms & mobile networking, EdTech, FinTech

Data rules the world. Big tech companies know that their power comes not from the size of their bank accounts, but from the size of their user base. Politics aside, China’s Great Firewall has made it impossibly difficult for US-based tech giants to penetrate the Chinese market. Instead, with strong support from the government, China’s tech has burst onto the global scene, producing homegrown juggernauts to rival those in Silicon Valley. Alibaba, Tencent, Xiaomi, Huawei, Baidu, and ByteDance (to name a few) are all similarly flush with cash, acquisitive, and gaining ground in new markets. These companies have grown too big and too powerful for American Internet companies to challenge them on their home turf, so they’re looking to new horizons.

One way of growing a company’s presence in a new territory is to get stakes in local companies with a large existing user base. Of all of the Western tech giants eyeing new markets, Facebook and Amazon are by far the most active investors during COVID. Facebook wrote big checks to Indian telecoms & digital media giant Jio (more on that below) and Indonesia’s on-demand delivery provider, Gojek, as well as two investments in the EdTech space, Gradely.ng in Nigeria and MYEO in Myanmar.

All eyes on India: Amazon made a total of 3 investments in the Indian FinTech space, likely to increase access to online banking services and thus enable more Indian customers and businesses to use their Ecommerce platform and challenge local ecommerce giant Flipkart (who’s backed by Microsoft). In July, Google CEO Sundar Pichai announced a $10bn India Digitization Fund, which could be seen as a response to reports of Chinese tech giants’ increasing their South Asian foothold by quietly funding several Indian startups.

Microsoft also announced regional investment plans for the near future, albeit closer to home. The company pledged $1.5bn & $1bn to invest in the digital transformation of Italy and Poland, respectively.

Startup spotlight: Reliance Jio

  • What it does: telecom operator, digital media streaming, mobile tech
  • Big tech investors: Facebook, Google, Intel
  • Why we love it: In April, Facebook invested $5.7bn for a 10% stake in India’s largest telecom operator, Reliance Jio. This investment is reportedly the largest corporate minority financing ever made by a tech company globally, as well as the largest foreign direct investment in technology in India’s history. In July, Google and Intel added $4.5bn and $250m, respectively, to Jio’s coffers. The telecommunications & digital media giant with over 400 million subscribers plans to put the money toward providing access to low-cost digital services to underserved communities all over South Asia. Bernstein analysts estimate that by 2025, Jio will control half of the Indian market. That’s an impressively large user base that will strengthen US-based tech giants’ global reach over Chinese rivals.

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What’s Next?

With all of the political drama surrounding FAGMIA, and the increased pressure from regulators & consumers starkly at odds with tech giants’ aggressive strategic market share grab — it’s hard to tell what the future holds for today’s most valuable companies. But it’s certainly interesting to see the innovations in which they see the most opportunity.

The world is watching closely, and I’m bringing the popcorn.

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