Big Loss at Workday Ventures

Gone, but not in sixty seconds. Actually a ton of money was lost in Workday’s venture portfolio. It’s the same portfolio established last year with great fanfare as Workday Ventures

Normally venture capitalists are paid to make these “bets” on behalf of limited partners, but now more corporations are making them for shareholders.

Workday began its big adventure into venture investing in July 2015. As the chart below shows, Workday investments grew from $10 million and after one year, reached $29 million. In the quarter ended July 31, 2015, Workday invested approximately $17 million in private companies.

image
Workday Private Company Portfolio Source: SEC Filings

Poof goes all the money. Workday’s Form 10-K for July 31, 2016, reported:

During the three months ended July 31, 2016, we recorded a $15 million other-than-temporary impairment for one of our cost method investments

Translated this means Workday wrote down and took a loss in it’s private company portfolio. The loss of $15 million was from just ONE investment and reduced the portfolio from $29 million to $14 million.

Since starting in 2015, Workday Ventures invested in five companies: Jobr, Metanautix, Thinair, Scoop Technologies, Unbabel. Exits were made from Jobr and Metanautix. Monster brought Jobr in June 2016 for $12.5 million and Microsoft acquired Metanautix in late 2015.

The table below tallies Workday’s exits and highlights a 1,000% return on a time gain of $3 million.

download (1)
Workday Gains from Private Company Investments Source: SEC Filings

Wiped out are the gains earned in the past year.  And now Workday is back where it started with a lot less cash. Maybe shareholders won’t care; it is not their money anyway.

 

Workday Invests $100K in Scoop

download (6)Here’s a Scoop: Workday invests another $100,000 into Scoop Technologies. That amount is on top of the $700,000 invested last year. Scoop makes an “automated carpooling app” and now has a total investment of $800,000 from Workday.  That’s the last information come from Workday’s most recent quarterly filing on June 1st.

Workday’s 1Q16 filings show a minority investment of $100,000; it’s in the same period that Workday made another seed investment in Scoop. The first reported investment occurred in November 2015, close to another minority investment of $700,000 made in quarter ending October 30, 2015. So due to the proximity of the seed investment and the filings, it appears Workday has made two investments in Scoop Technologies.

These startup investments are part of Workday Venture’s focuses on machine learning and big data. Workday Ventures began officially in July 2015 as Workday’s venture capital unit. At that time there were four announced portfolio companies: Jobr, Thinair, Unbabel, and Metanautix.

Workday Venture invested approximately $17 million in the three months ended July 31, 2015. At the same time, it was announced that Workday had invested in four companies. So the average investment was $4 million. And before the year end, Workday Ventures’ had its first exit with the acquisition of Metanautix by Microsoft.

download (7)

Due to the enthusiasm for tech by many investors, corporate venture capital is now in vogue. Intel Capital has been one of the oldest; others like Workday Venture are more recent. Workday Ventures is run Adeyemi Ajao. Mr. Ajao started, along with Brendan Wallace, Identified. The company uses social data to build more acquire picture of job candidates. In 2014, Identified was purchased by Workday for approximately $26 million.

Workday Venture’s mission may be strategic, but it’s not difficult to think the motivation is also financial. For example, the financials for the quarter ended July 31, 2015 revealed a 10 x return for Workday. Workday’s minority investment of $300,000 resulted in $3 million gain. It’s not possible to identify the company, only the great returns.

Returns for corporate venture capital are different than traditional venture capital.  At a minimum, a venture capital firm must invest one company which will return at least the entire fund. For example, in a $10 million fund, if there are ten portfolio companies, one investment of $1 million must return $10 million, so at least the limited partners break even.

For corporate venture capital, it’s different. The minimum rate of return is the corporation’s cost of capital. Very simply, it’s the cost of money coming from the selling stock and issuing debt. To be successful, a corporation, like Workday, must invest the money at higher rate than it’s cost of capital. Workday’s cost of capital is 16%.  

Due to the recent bull market in tech, hitting that rate may not so difficult. In 2014, Workday invested $10 million in the SaaS later-stage company, Anaplan. Workday received 1.4 million of D preferred shares. At the time, the value was $10 per share for share. Anaplan is expected to go public in 2016.

Thanks for reading and please share. Follow me on Twitter.

download (8)