2016: year in review
Posted on 19 December, 2016 by Thierry Heles, editor
Editor Thierry Heles looks back on the highlights of the past year.
It is perhaps a sign of the times we live in that one of the last funds to be launched in 2016 is a collaboration between Russia and Japan, which created a $1bn fund on Friday to strengthen economic ties after a 70-year rift between the two nations following World War II.
Over the past 12 months, Global Government Venturing has recorded more than 200 funds – both new vehicles and commitments to existing initiatives – and several of these warrant revisiting as highlights.
A range of countries and states have joined the government venturing space and that is no surprise considering assets under management by sovereign wealth funds totalled $6.51 trillion by May, an increase of $200bn over the previous year.
One nation that is hoping to tap into the startup ecosystem is Vietnam, which revealed its plans for a government venturing arm in September, saying it would also overhaul regulations that currently do not account for angel investors and venture capital firms. While the country certainly has a long way to go, its ambitious target of being a startup-friendly nation by 2020 may give it the required focus to make the necessary changes happen.
Ho Chi Minh City in Vietnam, meanwhile, also made its first moves into investments, announcing a $45m fund to help startups develop prototypes in food production, finance, insurance, commerce, transport and logistics, tourism, communication, real estate, healthcare, education, technology, mechanics, electronics and chemicals.
A couple of thousand miles to the west, a state that significantly increased its activities was India’s Karnataka, which has set up a $58m fund aimed at a range of undisclosed sectors, a $7.5m vehicle targeting pharmaceutical startups and a $15m initiative to invest in semiconductor technology producers. Karnataka is reportedly the only one of India’s states that has so far managed to make a profit from government venturing, spurring the local government to increase its commitments.
One government-owned firm that has not been doing so well is the New Zealand Venture Investment Fund (NZVIF), which named Richard Dellabarca as its new chief executive while dealing with a drop in the value of its investments, caused partly by the global financial crisis but also due to a clause in its agreements with VC co-investors that gives those partners the right to buy out co-investments after five years. Factoring in that clause, which was finally abolished last year, NZVIF has actually achieved only a $0.93 return for every $1 invested.
The EU is often reported to be struggling with the aftermath of that same financial meltdown in 2008, but eight years on, the single market seems as determined as ever to invest in its startup ecosystem despite criticisms of European Commission president Jean-Claude Juncker’s European Fund for Strategic Investments (EFSI).
In November, the EU launched a $1.7bn VC fund with the stated aim of retaining startups in Europe rather than seeing them leave for Silicon Valley due to a lack of funding. The absence of such funding is a continuing problem for Europe, but one that is increasingly being tackled by the continent’s nations. Last week, Germany and France teamed up for a $1.1bn joint fund to invest in cybersecurity, nanotech, open-source software development and supercomputers.
In fact, both France and Germany are among the most high-profile government venturers in Europe, with French public investment bank BPIfrance, which has participated in dozens of deals over the past year, and German public-private partnership High-Tech Gründerfonds, which set out to raise $338m for its third vehicle in June, continuing to be household names.
Portugal also made a splash in November when it joined the government venturing world and revealed a $220m fund of funds, dubbed 200M, that will supply match funding to overseas VC funds that back Portugal-based companies. The government hopes this will have the added side-effect of convincing businesses to relocate to Portugal.
Portugal’s ambitions, however, are still dwarfed by the $11bn heading towards Central and Eastern Europe courtesy of China, insurance provider China Life Insurance and conglomerate Fosun. China’s aim is to use the funding to make in-roads into the EU, which has traditionally been reluctant to accept venture capital from the People’s Republic.
Further north, Estonia gained a $66m fund of funds thanks to capital from the country’s Ministry of Economic Affairs and Communications and the European Investment Fund. The EstFund, also backed by corporate financier KredEx, was launched in March and will split its assets across three distinct funds, allocating half of the money to the Venture Capital Fund and splitting the remainder between Expansion Capital Fund and Business Angels Co-Investment Fund.
That news was swiftly followed by Estonia opening up the call for fund managers to take over Smartcap, the VC affiliate of the country’s Estonian Development Fund, in August. The new manager, which will take over running of the direct investment portfolio and will be responsible for raising a new fund, is set to be announced towards Christmas – though at the time of publication details have yet to emerge.
Elsewhere in Europe, Luxembourg became the continent’s first country to propose a law clarifying rules around the commercial exploitation of asteroids in June and set aside a $223m vehicle to invest in space mining. It did not take the grand duchy long to find suitable investees and in November it put $27.6m into US-based Planetary Resources with the support of publicly-owned financial institution Société Nationale de Crédit et d’Investissement.
The US, incidentally, is the only other country to have a law governing space mining. That is in part thanks to a private sector increasingly driven to win public contracts to carry astronauts into space, but also due to one of the country’s proudest and most historic organisations, Nasa. The space agency itself has been busy not only with missions to Mars, but also by releasing a database with thousands of expired patents and 56 technologies into the public domain in May. Nasa-licensed technology has already been used in a diverse set of products – ranging from baby formula to memory foam and water filtration to cloud computing – so this initiative promises interesting results.
Another US public body, the Pentagon, in September committed to supplying $75m to the new Flexible Hybrid Electronic Institute (FHEI), which will focus on wearable electronics. The Pentagon is only one of many players in this program, partnering a consortium known as FlexTech Alliance, made up of 162 companies, universities and non-profits. FHEI is the fifth of six manufacturing institutes to be managed by the Pentagon and the ninth launched since 2012 under the National Network for Manufacturing Innovation, a program aimed at building a research-to-manufacture infrastructure for industry and academia.
In neighbouring Canada, public investors had another busy year, launching and supporting a couple of dozen funds in total, including on a national and provincial level. Sizes ranged from fairly small, such as a $3.8m fund targeting Quebec’s Les Appalaches region in September, to the IT Venture Fund II, a $111.4m fund established by BDC Capital, the VC arm of state-owned Business Development Bank of Canada in March.
Finally, the year’s most impressive announcement came from Saudi Arabia, where government venturing unit Public Investment Fund (PIF) revealed a $100bn fund in collaboration with Japan-based telecoms and internet group SoftBank in October. PIF is expected to provide nearly half at $45bn, with $25bn coming from SoftBank. Headquartered in London, the fund has made headlines several times since, attracting interest from Qatar’s sovereign wealth fund Qatar Investment Authority later in October and Abu Dhabi’s investment vehicle Mubadala Development Company in November. Last week, consumer technology manufacturer Apple was reported to be considering a $1bn commitment, which SoftBank’s chief executive Masayoshi Son said earlier this month looks set to be oversubscribed.
This has been a tumultuous year, and its impact will be felt for many more years to come. The election of Donald Trump as president has the potential to reshape the world with more isolationist US policies and a friendlier attitude to Russia and Taiwan, while the Brexit process is set to begin in April 2017 and make a wide range of economic challenges very real very quickly – which, despite their best efforts, government-backed funds may struggle to cope with. Nevertheless, 2016 ends with the global stage having readied a great deal of firepower to make sure innovative startups can access the capital necessary to grow.
– Global Government Venturing will be taking a break over the holiday season and will return on January 3. We would like to thank all of our readers for the continued support and wish you a merry Christmas and a happy new year.
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