October 2, 2020 | By Paul Glaser, Head of Pathfinder

In this article

  • New Portfolio Company Exits: Chef and Portworx

  • Market Perspective — Quantum Computing

  • Impact of COVID-19 on Venture Funding

  • Solutions — Aligning With Corporate Strategy

  • Commitment to Diversity and Inclusion

  • Portfolio Company News

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This month we wish to congratulate portfolio companies Chef and Portworx. Both announced acquisitions in September by Progress and Pure Storage, respectively. They mark the fourth and fifth exit from the portfolio in the past 12 months.

Continue reading for our summary of the venture capital ecosystem including the impacts of COVID-19 — from the March / April slowdown to what we expect to be an active remainder of 2020.

We also provide an update on the quantum computing market as well as discuss many of the different strategic rationale behind our transactions. Finally, Pathfinder participated in the VC Human Capital Survey and is committed to a diverse VC ecosystem.

Chef and Portworx mark the fourth and fifth exit from the portfolio in the past 12 months.

Portfolio Company Exits

Chef Acquired by Progress

Last month, Progress announced that it had entered into a definitive agreement to acquire, Chef, one of Pathfinder's oldest investments and a global leader in DevOps and DevSecOps.

The acquisition is expected to close in October 2020, subject to obtaining regulatory consents and satisfaction of other customary closing conditions. Read more

Portworx Acquired by Pure Storage for $370M

In mid-September, Portworx announced that it had been acquired by Pure Storage. Portworx provides a cloud-native storage and data-management platform based on Kubernetes.

HPE’s investment in Portworx enabled us an opportunity to bring leadership in storage to cloud native environments. Read more

Market Perspective — Quantum Computing

The quantum computing space is awash in buzz. Exciting technical breakthroughs and large financial investments have moved the conversation from technical publications to mainstream media and have prompted businesses to start considering their quantum strategies.

The quantum stack is still developing, but boundaries have emerged that make it possible to cluster new startups and incumbent players based on their technology. You can broadly segment the quantum computing stack into four layers: software and services, hardware, tools, and the complete solution (see table below).

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We note most startups anchor themselves to one specific layer. This makes sense given the enormous technical, scientific, and engineering challenges many of these early-stage companies are solving. Interestingly, many of those challenges are within the hardware layer, where the rate of innovation — and investment — has been highest.

Another evident trend is hyperscale vendors (AWS, GCP, Azure) focusing on delivery of an end-to-end quantum computing solution via their cloud platforms. It should come as no surprise that these technology giants want to present quantum computing as another type of cloud resource, similar to CPUs and GPUs.

We see opportunity for additional innovation in the services, software, and tools layers. While the hardware players duke it out over whose qubits are better (trapped ion, neutral atoms, superconducting, topological, silicon spin, photonics), startups in these layers are working to identify algorithms and compilers that are best suited for individual applications.

Pathfinder looks forward to closely following the technical advancements and evolution of the startup ecosystem in the years to come.

Impact of COVID-19 on Venture Funding

Covid-19 has greatly affected the global economy as well as made a significant impact on the venture landscape. Some categories of investment remain depressed, while others appear near all-time highs.

We see in Figure 1 that total deal value continues to remain strong despite a dip in deal count. Indeed, 2020 is still on pace for another record in terms of dollars invested with $69 billion in H1 2020. We note that even though overall deal count has dipped, later stage deal counts remained steady through Q2 reflecting investor preferences for more stable, later-stage companies. The steepest decline was reflected in Angel and Seed financings as investors have chosen to focus more on stability (Figure 2).

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Retrieved from Pitchbook, CBInsights)

We see the recent run-up in public equity markets, specifically high software (SaaS) multiples, reflected in pre-money private valuations (Figure 3). We have observed numerous companies raising $100 million+ rounds with valuations greater than $1 billion. Startups in Artificial Intelligence (AI) and Machine Learning (ML) are seeing valuations that are double the 2019 figures.

Lastly, we note that exits, whether IPO or M&A, are down significantly from prior years (Figure 4). This reflects the macro uncertainty faced by large acquirers in spring and early summer. We expect these numbers to rebound in the second half, and we have seen a recent return of the tech IPOs (Snowflake, JFrog, Asana, Sumo Logic).

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Retrieved from Pitchbook, CBInsights)

Solutions — Aligning With Corporate Strategy

Investing is more challenging for corporate venture capital (CVC) organizations than typical financially-focused venture capital (VC) firms. For VCs, the priority is to make money and therefore they look to find the next “unicorn” such as Google or Zoom. CVCs must consider strategic factors beyond financial return that complicate the selection process.

At Pathfinder, we look at how an investment aligns with the corporate strategy and try to fit each investment into a type of innovation model. Options may include partnering for ecosystem development, expanding into market adjacencies through resale, OEM or embedded technology partnership, or just simply learning more about an early emerging market.

Investment as part of these innovation models enables insights not otherwise necessarily available. Investing may be a way to track a leading-edge technology and monitor new markets. It can be a way to learn about new customer problems and methods or the business models to address them. Or, it can simply be “skin-in-the-game” as we align go-to-market strategies that maximize joint revenue.

The role for the Pathfinder’s Solutions team differs depending on the model, but the core mission remains the same — help facilitate engagement between the portfolio company and the business to achieve the strategic fit envisioned at the time of the investment.

Commitment to Diversity and Inclusion

Hewlett Packard Pathfinder is committed to advancing a more diverse, equitable, and inclusive venture capital ecosystem. We have signed the #VCHumanCapital Pledge and commit to do our part to further this industry-wide, data-driven effort to drive meaningful change. This survey provides critical data for tracking, measuring, and reporting the industry's data and progress. As an industry, we can only improve what we measure.

Learn more about the survey and see the full list of VC firms who have pledged their participation here.

Portfolio Company News