On deals and dealmakers.
CORPORATE INNOVATION TOUR
This is the first of three stories in a series I’m calling “Corporate Innovation Tour.”
For the past few years, Fortune has been obsessed with the story of transformation. Every sector of the economy is going through a digital-driven shift of some sort, and we’ve chronicled that, from Marriott and Citigroup and BMW to L’Oreal and Microsoft.
Most Fortune 500 incumbents follow a pattern:
Stage 1: Dismiss the disruptive factors that could lead to their demise.
Stage 2: Wait for their stock price to start slipping. Witness Airbnb’s valuation creep above their own market cap and whine as Amazon trades at a P/E ratio of 187X.
Stage 3: Tout their internal innovation and bristle at the suggestion that they’re behind.
Stage 4: Panic and throw some money at vague innovation initiatives. Promote the heck out of those efforts, regardless of how effective they are.
Stage 5: Give up and make a crazy-sounding, headline-grabbing acquisition that looks like a Hail Mary.
Stage 6: Replace the CEO.
I’m most interested in the “make or break” moment that happens around Stage 4. There’s an intense desire from large corporations to associate themselves with startups and tech innovators. And of course, startups desperately want to work with big companies that can bring them legitimacy and potential customers. But those relationships don’t often work as planned.
500 Startups, the accelerator program and venture fund that bills itself as the most active startup investor in the world, has surveyed 100 corporate innovation programs, which range from pilots and partnerships to direct investments and acquisitions. The survey found that — surprise! — most of them aren’t very successful. A full 81% of those surveyed say that fewer than 25% of their startup pilots have resulted in commercial deals.
Why such a low success rate? The study blames corporations for being slow, disorganized, and too conservative. (That blame suggests that the corporations have more to gain from these relationships than the startups do.)
500 Startups found that corporations aren’t working with enough startups — only 9% do more than 50 startup pilots a year — which isn’t enough to yield a meaningful number of successful deals. They need a “portfolio” approach. It’s self-fulfilling with 50 or more pilots a year are generally viewed internally as more successful and get more resources to execute more pilots.
Likewise, corporations move too slowly – 20% of companies take more than six months to do a deal, which may as well be six decades in startup years. Companies that “fast-track” processes like short NDAs, short purchasing agreements, centralized points of contact, and simple inbound application processes are more successful.
Lastly, corporates that struggle don’t have “organizational alignment” to keep startup engagements on track, get them the right resources, and ensure all parties are moving in the same direction.
One thing this study is lacking is a giant chart which maps out which programs move fast, experiment a ton, and produce positive results, and which ones are merely shopping for ideas to steal. (I’ve heard countless horror stories of the latter, especially from the auto industry when I was closely covering the self-driving car startups last year.) This is especially important information for cash and time-strapped startups, as more legacy corporations open up Silicon Valley outposts, launch accelerator programs, and go on “innovation tours” down the peninsula.
You can find the full report here.
WHY should you leak information about M&A deals to Term Sheet? Because leaking deals to the press boosts deal values by an average of $21 million, according to a study by my new best friends at Intralinks. By that argument, leaking is practically your fiduciary duty! 📈 📈
THANKS for all the smart responses to yesterday’s column. (Even the somewhat far-fetched suggestions for Uber’s next CEO, like Barack Obama and Tim Cook. There was also one not-so-far-fetched suggestion: Arianna Huffington…) I’ll do a longer Open Mic column tomorrow.
THE LATEST FROM FORTUNE...
• Fortune Feature: How business is fighting back against the explosion in cybercrime.
• Justifying the $1 billion price tag for George Clooney’s tequila company.
• Liquor makers are marketing brands as experiences.
• Why Amazon’s Whole Foods deal is terrifying food makers.
• Everything you need to know about the chaos in the UK government.
• What Travis Kalanick’s resignation means for tech. (Aka, the magazine version of yesterday’s Term Sheet.)
• CEO pay reached a record high in 2016.
• Money trumps morals in the fight against sexual harassment.
TPG’s David Trujillo to replace David Bonderman on Uber board. Bill Gurley will be replaced by Matt Cohler on Uber’s board. Trump, Russia and a shadowy business partnership. The teen iPhone fixers. Blockchain + journalism.
• Blockchain, a U.K.-based bitcoin and blockchain technology company, raised $40 million in Series B funding, according to Business Insider. Lakestar and GV led the round, and were joined by Nokota Management and Digital Currency Group. Existing investors Lightspeed Venture Partners, Mosaic Venture Partners, Prudence Holdings, Virgin, and Sir Richard Branson participated. Read more.
• Next Insurance, a Palo Alto, Calif.-based digital insurance service for businesses, raised $35 million in Series A funding. Investors include American Express Ventures and Munich Re/HSB Ventures. [This item has been updated to reflect the correct funding round.]
• Yello, a Chicago-based provider of recruitment software, raised $31 million in Series C funding. JMI Equity led the round, and was joined by First Analysis.
• Kalray, a France-based manycore microprocessor technology solutions provider, raized $26 million in funding. Investors include Safran, Pengpai, ACE Management, CEA Investissement, EUREKAP! Héléa Financière and INOCAP Gestion.
• Celtra, a Boston-based creative management platform for digital advertising, raised $15 million in funding. Unilever Ventures and WPP led the round.
• Pillow, a San Francisco-based short-term rental management startup, raised $13.5 million in new funding, according to TechCrunch. Mayfield led the round, and was joined by Sterling.VC, Peak Capital Partners, Expansion VC, Chris Anderson, Gary Vaynerchuk, Dennis Phelps and Veritas Investments. Read more.
• Unbxd, an India-based product discovery platform for e-commerce, raised $12.5 million in Series C funding. Eight Roads Ventures led the round, and was joined by IDG Ventures, Inventus Capital Partners and Nirvana Ventures.
• Soldo, a London-based multi-user spending account company, raised £9 million ($11 million) in Series A funding. Accel led the round, and was joined by Connect Ventures, InReach Ventures, U-Start and R204 Partners.
• Nuvolo, a Jersey City, N.J.-based cloud-based enterprise asset management company, raised $10 million in Series A funding. GE Ventures led the round, and was joined by New Enterprise Associates and ServiceNow Ventures.
• Cloudbeds, a San Diego, Calif.-based provider of hospitality management software, raised $9 million in Series B funding. PeakSpan Capital led the round, and was joined by Nashville Capital, Cultivation Capital, ClearVision Equity, and TTCER Partners.
• Deliver (formerly iCanDeliver), a Russia-based online freight service, raised $8 million in seed funding, according to TechCrunch. Investors include Inventure Partners, A&NN Group, and Amereus Group.
• ComparaGuru.com, a Mexico-based financial management platform for insurance and banking products, raised $7 million in Series A funding. QED Investors led the round, and was joined by Peter Thiel, Struck Capital, Nova Founders Capital and Seaya Ventures.
• MyTutor, a London-based edtech company, raised £3 million ($3.8 million) in Series A funding, according to TechCrunch. Mobeus Equity Partners led the round, and was joined by investors including Clive Cowdery and Thomas Hoegh. Read more.
• Fuzic, a Fishers, Ind.-based marketing technology startup, raised $3 million in seed funding. Investors include High Alpha, Allos Ventures and Hyde Park Venture Partners.
• Homee, a Tampa, Fla.-based on-demand property maintenance app, raised $2.8 million in seed funding. Florida Funders led the round.
• Iconovo, a Sweden-based developer of inhalers for drugs that treat conditions such as asthma and COPD, raised 2.3 million euros ($2.6 million) in funding. The investors were not named.
• Friction Free Shaving, a U.K.-based online retailer developing razors for women, raised £1.25 million ($1.6 million) from Athene Capital.
• Silvernest, a Boulder, Colo.-based online roommate-matching service for boomers and empty nesters, raised a $1.3 million in seed funding. Investors include Halogen Ventures, 1843 Capital, Rockies Venture Club, Investor’s Circle and 500 Startups.
• CleanCapital, a New York City-based online marketplace for clean energy investing, raised Series A funding of an undisclosed amount. Investors include Ron Suber, Jon Barlow, and Bradley Pattelli.
HEALTH AND LIFE SCIENCES DEALS
• Avitide, a Lebanon, N.H.-based biotechnology company, raised Series E funding of an undisclosed amount. Sands Capital Ventures led the round, and was joined by Mithril Capital Management, Polaris Partners, NeoMed Management, OrbiMed Advisors and Borealis Ventures.
PRIVATE EQUITY DEALS
• Excellere Partners made an investment of an undisclosed amount in Consolidated Services Group, a Hamilton, N.J-based provider of medical claims management solutions.
• Global Environment Fund acquired and recapitalized GRO-WELL Brands, a Phoenix, Ariz.-based maker of lawn and garden products. Financial terms weren’t disclosed.
• Tech Air, which is owned by CI Capital Partners, acquired Angelus Welding Inc, a Los Angeles-based provider of welding and industrial supplies. Financial terms weren’t disclosed.
• True Wind Capital Management agreed to acquire ARI Network Services (Nasdaq:ARIS), a Milwaukee, Wisc.-based provider of SaaS, software tools and marketing services, for about $140 million.
• CK Infrastructure (SEHK:1038) will bid to buy Ista, a Germany-based metering and energy management group, according to Reuters. Ista could be valued at more than 4.5 billion euros ($5 billion). Read more.
• Blackstone has formed a bidding consortium that could pay $4 billion to buy half of Platform Specialty Products (NYSE:PAH), according to The New York Post. Pershing Square holds a 14.5% stake in the chemicals giant and is PSP’s biggest shareholder. Read more.
• Adobe (Nasdaq:ADBE) acquired all of Mettle’s SkyBox technologies and plug-ins for building transitions, titles and effects in VR applications and 360-degree videos, according to TechCrunch. Financial terms weren’t disclosed. Read more.
• Rodale, an Emmaus, Penn.-based publisher that focuses on health and wellness brands, is exploring strategic alternatives, including a potential sale of the company.
• Glispa Global Group acquired RelevanTech, an Israel-based carrier distribution network. Financial terms weren’t disclosed.
• China Tower Group, a Chinese mobile phone tower operator, has reportedly picked China International Capital and Goldman Sachs to lead its Hong Kong IPO, Reuters reports citing those with knowledge of the matter. The IPO could be worth up to $10 billion.
• Altice USA, the Bethpage, N.Y.-based subsidy of Dutch cable provider Altice, priced its IPO at $30 a share with 63.9 million shares offered.. That’s within its previously quoted range $27 to $31, though a larger size offering than previously quoted. The company raised $1.9 billion in its IPO. In 2016, Altice USA reported revenue of $6 billion on loss of $832 million. J.P. Morgan, Morgan Stanley, Citigroup, and Goldman Sachs are lead underwriters in the deal. The company plans to list on the NYSE as “ATUS.”
• Federal Street Acquisition, a Boston, Mass.-based SPAC formed to acquire a health care business, said Wednesday that it plans to raise $400 million in an IPO of 40 million shares. The company will list on the Nasdaq under “FSACU. Citigroup and Bank of America Merrill Lynch are lead underwriters in the deal. The SPAC is backed by FS Sponsor.
• Vencore Holding, a Chantilly, Va.-based IT services provider for the U.S. government, filed an for an IPO to raise $250 million. Goldman Sachs and Wells Fargo are lead underwriters in the deal. In 2016, the company reported income of $1 million on revenue of $1.2 billion. The company is backed by Veritas Capital. The company plans to list under “VCNR” on the NYSE.
• Kinderhook Industries sold Dispensing Dynamics International, a City of Industry, Calif.-based provider of dispenser solutions. The buyer was a subsidiary of Hunter Industries Inc. Financial terms weren’t disclosed.
• The Penray Companies, Inc, a Wheeling, Ill.-based chemical additive developer, was acquired by PLZ Aeroscience Corporation. The seller was Source Capital. Financial terms weren’t disclosed.
FIRMS + FUNDS
• Iris Capital, a Paris-based private equity and venture capital firm, raised €250 million ($280 million) for IrisNext, its new fund focusing on digital transformation opportunities.
• Go Yamashita joined KKR as the head of KKR Capital Markets Japan. Previously, Yamashita was at Blackstone.