After HFs, Blackstone Tries VC

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Blackstone hints at a venture capital unit in this week’s earnings call. Stephen A. Schwarzman, Blackstone co-founder, now follow his peers – KKR and TPG- into an another asset class. Early in their founding cycle, Airbnb and Uber received TPG’s money and most recently, Lyft got money from KKR.

No should ever doubt Blackstone performance in leveraged buyouts. In fact, Blackstone has also been successful applying private equity strategies to real estate under the guidance of Mr. Jonathan Gray.

Unfortunately, private equity firms have not been successful in other alternative assets, such as hedge funds.

In the past several years, private equity firms – KKR, TPG, and Carlyle – have shut down some or all of their hedge funds. In December 2016, Blackstone ended its $1.8 billion hedge fund, Senfina.

Now Blackstone may be successful in venture capital- it has venture veteran Jim Breyer on its boards – but time will tell.

Intel Capital’s Portfolio Decreases 10%

 

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Intel today (May 2th) released its Form 10-Q  for the quarter ended April 2, 2016. While everyone paid attention to other things, the most important number was the current valuation of Intel Capital’s portfolio companies. The valuation of the portfolio decreased by 10% from the quarter ended December 26, 2015.  

Inside Intel. Intel Capital’s portfolio was valued at $2.3 billion at the quarter end of April 2, 2016 while the portfolio had a value $2.5 billion at the end of December 26, 2015. Over the quarter, the portfolio declined by $200 million as estimated by Intel. Portfolio companies generally do not trade on public markets. Intel must value their  “non-marketable investments” using other valuation methods.

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Intel Capital did not make any significant investment in new companies over the quarter ended April 2, 2016. Total amount invested, $1.5 billion, remained the same during the recent quarter.

Power Failure. In addition, there were no write-downs, impairments, of the investments during the current quarter.  For accounting purposes, Intel would need to write-down an investment if there were  a significant change in the value of an investment.  Last year was an exception; Intel wrote-down $160 million of its Intel Capital investments.

Fund companies must also value their  investments and some on more frequent basis than Intel. For example, Fidelity updates its holdings on monthly basis. Last week, Fidelity raised the value of its holdings. Like to Intel, Fidelity and other fund companies must value their holding using other methods than market prices.

The difference, between the valuation of Intel and the mutual fund companies, is the life cycle of the company. Intel Capital is investing in early stage companies while the mutual companies are investing at the later stage companies.

More Chips? The chart below reflect the changes in the Intel Capital portfolio’s carrying value (CV) and fair value (FV) over the past two years. Carrying value is the actual amount invested in portfolio companies. The amount invested increased from $1.3 billion at the end of 2014 to $1.5 billion at the end of the current quarter. Intel investments in Cloudera and UniSpreadtrum were excluded from the reported amounts since the two companies  not Intel Capital portfolio companies.

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The Garage Sales of Silicon Valley

Alphabet joins this month’s garage sales in Silicon Valley. In late March 2016, Bloomberg broke the news that Boston Dynamics was up for sale. The sale comes after Google purchased the robotics company in 2013. Alphabet’s fire sale is matched by Yahoo’s perennial sale of its core business.

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It not faulty technology causing the “for sale” sign at the Googleplex. The reason is finance, New York City style. No one knows when Wall Street invaded Silicon Valley; but for Alphabet, it happened last year with the hiring of new CFO, Ruth Porat. Ms. Port came from Morgan Stanley to provide financial discipline to the newly created Alphabet.

Google became Alphabet to resemble Warren Buffet’s holding company, Berkshire Hathaway. As Berkshire’s head, Buffet’s main job is allocating capital among the many businesses owned by Berkshire. In the same way, Ruth Porat’s job is allocating Google search cash among Alphabet’s other bets.

So Boston Dynamics‘ sale shouldn’t be a surprise. Alphabet’s first 10-K announced the changes in January 2016: now Alphabet’s businesses would be managed according to “resource allocation” and “performance assessment”. Boston Dynamics did mostly research and was far, far away from selling a robot.

So with a dim commercial future, Alphabet must have decided to allocate its capital elsewhere and sell Boston Dynamics.

 

In Tech, Nike Scores Again?

Nike tries again at venture capital and scores a touchdown? That’s the news apparently left out of a report by CB Insights. Published on March 22, 2016, the report told of big “bets” by fitness brands in tech and other areas. CB Insights’ findings were culled something called the Business Social Graph. To tell this story, you really numbers not pictures, so continue reading.

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Nike started its corporate venture capital unit in late 2011. In the beginning, Nike’s team was Avi Sahi and John Hull. According to Linkedin, Avi Sahi was involved in two transactions involving a minority investment in DyeCoo Textile and another in Llamasoft. Both investments fit the venture capital unit’s mission of sustainability and innovation.

It appear Nike appears invested $2 million in DyeCoo and $3 million in Llamasoft. The amounts come from quarterly filing reports summarized in the chart at the bottom. While the amounts may be small for Nike, the amount are larger for founders of these companies.

Nike invested, along with Intel Capital, in Reflektion in March 2014. Reflektion brings machine learning to e-commerce. Nike investment appears to be $1 million and was part of the $8 million Series A round. Nike also invested $1 million in the Series A round of Grabit. Grabit makes adhesion technology for material handling and industrial automation.

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Now Hannah Jones appears to head Nike’s corporate venture capital ambitions after the departure Avi Sahi left in November 2014. John Hull left earlier in 2012. She now leads the sustainable business and innovation team at Nike. And Ms. Jones has the title to match: Chief Sustainability Officer & VP of the Innovation Accelerator.

Ms. Jones has picked up the pace of Nike’s investments. Under Avi Sahi, Nike made about one investment each year of approximately $1 million to $3 million (see chart below). Since 2014, Nike has not announced any new minority investments. But according to SEC filings, Nike has more than double its corporate investments. 

By then of 2015, Nike corporate investments increased from $6 million to $17 million. In the three months ended May 31, 2015, the increase was $2 million. For next quarter ended August 31, 2015, the amount increase was $1 million. The last quarter filed by Nike, the amount of increased to $8 million.

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Where do the numbers come from? Answer: Not from a Business Social Graph, but from Nike.  In the filings, Nike has made investments of non-marketable preferred stock, the kind of security associated with private companies. Nike reports the value of these investment using internal models and assumptions, since there are no public market prices.

Since 2011, these investment have increased from zero to $17 million. The increase may have come from increases in the amount and the value of the investments. The assumption made here is the increases are due additional investments. Why? The increases correspond to publicly announced minority investments by Nike. In addition, the investments have been steady and modest.

If Nike has indeed increased its venture investments, this is good news for founders and startups of Silicon Valley.


Nike’s Quarterly 10-K: 2011 to 2015.

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