San Jose automation firm leads in venture capital megafunding

Venture capital funding in the South Bay last year reached the highest levels in nearly a decade with a San Jose firm that invests in AI landing some of the biggest deals.

Last November, San Jose-based software developer Automation Anywhere announced that the company had raised $300 million from the Saudi-backed SoftBank Vision Fund.

CEO and co-founder Mihir Shukla said that the capital will be used to grow the business overseas.

“With this additional capital, we are in a position to do far more than any other provider. We will not only continue to deliver the most advanced RPA (Robotic Process Automation) to the market, but we will help bring AI to millions,” Shukla said in a statement.

Automation Anywhere, with its headquarters on River Oaks Parkway in San Jose, is a developer of robotic process automation software. This week the company launched digital workers that can be downloaded online and customized to different business processes.

Four months earlier, Automation Anywhere raised $250 million in a round led by New Enterprise Associates (NEA) and Goldman Sachs Growth Equity with participation from General Atlantic and World Innovation Lab.

Industry experts not surprised by record-breaking deals

“The Silicon Valley ecosystem, which now includes the entire Bay Area, continues to be extremely dynamic, thanks to the influx of interest in advanced technology from around the world,” said Bill Reichert, managing partner at Garage Technology Ventures, a venture capital firm in Palo Alto.

Carl Fritjofsson, who oversees the Swedish venture capital firm Creandum’s San Francisco office, agrees.

“Companies which are showing traction in massive markets where their software innovation is creating a long-term competitive moat have fantastic opportunities to attract massive amounts of capital,” he said. “Automation Anywhere is a great example of this.”

Other noticeable large venture capital rounds in the South Bay Area last year were the funding of Milpitas-based smart glass developer View and Zume Pizza, which bakes pizza with the help of robots.

Both companies received new capital from SoftBank Vision Fund.

Palo Alto-based Earnin, which provides faster paychecks, raised $125 million in December from existing investor Andreessen Horowitz, as well as Spark Capital, Matrix Partners, DST Global, March Capital Partners, Coatue Management and Ribbit Capital.

“Not only have financial investors continued to expand their appetite for Silicon Valley companies,” Reichert said, “but pretty much every major corporation in the world has some form of Silicon Valley outreach, from investing in venture funds to creating their own corporate venture funds to building their own local R&D presence.”

The new trend in venture capital: Fewer but bigger deals

The total venture capital funding to South Bay-based companies last year reached $18 billion, according to data from PwC and CB Insights.

That’s the highest level since 2000, though the number of deals declined from 682 to 645 during the same time period. The value of the deals made the South Bay one of the hottest venture capital markets in the nation.

San Francisco led the pack with a total funding of $28 million.

Mega-rounds, which are investments of more than one hundred million dollars, are a growing trend in venture markets all over the world. In January, San Francisco-based Uber raised $1.2 billion from SoftBank.

Fritjofsson predicted the trend toward larger investments will continue this year.

“One explanation is that the digital distribution channels are really just Facebook and Google where competition becomes incredibly difficult and it simply requires more capital than before to scale a new product,” he said. “On top of that, there is an incredible amount of money in the market that wants to invest in fast-growing startup companies.”

But a weakened world economy in 2019 could dampen the supply of capital, experts said. That means development in the venture capital market can go either way in 2019.

Uber, Pinterest, Airbnb, Lyft and Slack are Silicon Valley companies backed by venture capital, but are expected to go to the stock market.

“There is a risk that the market does not think hat the companies correspond to their private soaring values,” Fritjofsson said.

Reichert said there are other risks in the market to consider.

“The promises of AI, autonomous vehicles, Industry 4.0, healthtech and other hot sectors will take much longer to materialize than their enthusiasts proclaim,” Reichert said.

The risk to the Silicon Valley economy could come from external variable, Reichert added, like the escalation of tensions with China, the possible disruption of the European economy or other unforeseen “black swans.”

Contact Magaretha Levander at [email protected] or follow her @MargLevander on Twitter.