Why Alphabet’s Verily Sought External Funding

Verily raises funds for acquisitions

Alphabet’s (GOOGL) Verily subsidiary recently raised $1.0 billion in additional capital from a group of investors led by private equity firm Silver Lake. Other investors that participated in the latest Verily investment round included Ontario Teachers’ Pension Plan. Verily said it turned to external investors for additional funding in order to increase flexibility and optionality as it expands its focus areas.

Verily intends to use additional capital to invest in areas such as acquisitions and strategic partnerships. One of Verily’s strategic partners is DexCom (DXCM), a maker of a continuous glucose monitoring system. Last year, Verily revised its agreement with DexCom to allow it to own an equity stake in the company. DexCom made a profit of $46.6 million on revenue of $266.7 million in the third quarter of 2018. Both profit and revenue increased year-over-year.

Why Alphabet’s Verily Sought External Funding

Verily selected FDA program

Verily is focused on life sciences. Last year it was selected alongside Fitbit (FIT), Samsung (SSNLF), and other companies to join an FDA pilot program aimed at speeding up approval of new digital health products. Fitbit makes wrist wearables that can be used for health monitoring such as tracking periods. Samsung makes medical devices such as diagnostic imaging systems through its Samsung Healthcare unit.

Verily is a member of Other Bets

Verily graduated from Alphabet’s X incubation factory. It is part of Alphabet’s Other Bets, where revenue jumped 25% YoY to $146 million in the third quarter of 2018. Alphabet’s total revenue rose 21.5% YoY in the third quarter compared to revenue growth of 19% YoY for Microsoft (MSFT) in that period.