a vc's view on iot: everything is changing.... still

Internet of Things

Everything is Changing (still): A VC’s perspective

Simple events remind us IoT is everywhere

+I recently experienced a new “smart elevator”

Push the touch screen, it tells you which to board. No buttons, no indicators. You must trust it.

Our life was in it’s hands.

The women next to me and I looked at each other

“Everything is changing,” she said.

IoT: A fundamental shift in our world

Source: Cisco

First: A quick bit about HPVP and meHappy to chat more any time4

• Twitter: @guyhturner

• Blog: vcwithme.co

• Mgmt Consultant

• Angel

• Engineer

• Twitter: @hydeparkvp

• Early-stage IT at $0-2M rev rate

• Midwest focus

• $25M fund size

• Seed or Series A, $1-3M rounds

Iot is not what we hear about in TechCrunch

… these are only the tips of the iceberg and only training wheels

This is…

… and this

IoT is an industrial and business play

Source: Intel

Deployment of “things” in the IoT

This is not the first industrial revolutionContinued evolution of human:machine:world interaction

1st ~1800 2nd ~1870

Source: Multiple, ECNMAG

“cyber-physical production systems” 

town factory

subsistence farm

mass productionquality of life

poverty (sort of)

SteamCentral gov’t

TelegraphElectricityFossil fuel

3rd ~1975knowledge worker

factory worker

SiliconComputerInternet

4th ~2010connected devices

people (scary)

Micro/nanoEfficient chipsBig data

IoT: a network of unmatched power (again)Analogy: Telegraph is to train as IoT is to personalization

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Source: Chandler, Strategy and Structure

- Coordination and planning- Across many points- Over long distance - In (near) real time- Of multiple independent

machines/people- To meet human physical

needs at scale- Affordably

- Coordination and planning- Across many points- Over long distance - In real time- Of multiple independent

machines/people- To meet physical human

needs at scale- Affordably- On a 1:1 basis

1:1 marketing1:1 supply chain 1:1 environment1:1 healthcare

As with all revolutions, money to be made(and heads will roll)

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• Upstarts with agility

• Certain asset ownerso Telecom (bandwidth)o Raw materials (as for all

revolutions)

• Software models (sticky, network effects)

• The un-connected/untrained

• Slow adopters

• Large industrial with antiquated sunk cost in faster moving sectors

• Hardware models (unless low cost provider)

So what (is the size of the prize)?12

Source: ICD, Google Finance

$8.9TRILLIONPER YEAR by 2020!!!!$0.5B

APPL Mkt Cap

$0.36BGOOG

Mkt Cap

7.9% CAGR

Market size13

• Revenue

• Devices by category

• Growth rate

Tons of entra

nt startu

ps and big

company brands

That’s why three of top 5 IoT VCs are big HW companies; $1B invested in 2013

14

Source: CBInsights

Top 5IntelTrue

QualcommCiscoKleiner

Intel has always struggled in mobileQualcomm an offensive move

Cisco under threat from SDN (software-defined network)

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… and other HW companies jumping in

$100M fundHealthcare IoT

$100M fundManufacturing IoT

48M GBP fund from UK gov’tGeneral IoT

Source: TechCrunch

(OK, not a HW company but funny)

Are hardware models doomed?16

“Make up for margin with volume” only works in a blue ocean race… the start of a new market

Android announced

First android soldiPhone high end

iPhone low end

Source: Garmin, aaplinvestors.net

… or if you can be the low cost provider17

“How Lenovo

found treasure

in the PC

industry’s trash”

Source: Businessweek

Yet, software pricing power builds with time18

As a business, how much do you spend today on SW vs 10 years ago? How about HW?

Stickiness

Network Effects

Switching costs

Source: Salesforce 10-Ks

***Action***

Decision

Insight

Incr

easi

ng v

alue

HW

HW’s value is in extending the reach of SW

Data

Example: smartgrid

load balancing

Exception: human

affinity for beauty

(eg, iPhone)

Why so many HW companies seeking IoT SW models

***Action***

Decision

Insight

HW

SW business models excite VCs

Data

E-commerce, Lead Gen, Advertising

SaaS (ERP, Marketing Automation, CRM, etc)

SaaS (analytics, monitoring, business Intelligence)

DaaS, Data Aggregator, Data Normalizer, Storage

Sell it, wait, sell it again later (maybe)Leasing/renting… may be a play here

In IoT, these models applied on a per device or per endpoint transaction basis

Watchout startups: structure of some IoT target verticals favor incumbents

21

Des

ign

cyc

le a

nd

life

cyc

le

Speed of adoption

Big companies have two major resources vs startups: Time and money

(somewhat) better for startups

Favors incumbents

Example from HPVP portfolio22

• Vision: sensor backend-as-a-service

• Huge opportunity to replace installed base of on-site sensor backends, but players TOO SLOW to adopt within startup funding and lifecycle

• Instead, FOR SPEED, working on the innovative edges of industry – new active sensor base with big companies and their existing customers

What it means to be “human” changes in every revolution

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How we have changed

1st ~1800 2nd ~1870

3rd ~1975 4th ~2010

Wants not needsPeasant to production

Worker to thinker ?

Scenario 1: utopian network node25

Human needs/wants known by external and internal (implanted) network of technology in real time or BEFORE human sensed

Intellectual/thought driven society with technology meeting physical needs on a 1:1 basis… “Wall-E”… except prettier?

Scenario 2: technology industrial complex26

Rise of SW network effects and returns of scale creates outsized wealth and power concentration

Source: Forbes

Do we trust these people not to be evil?

This phenomenon driven by SW and SW margins

Scenario 3: Skynet (of course this would be in here)27 Technology evolves faster than we do, creating own species of

smart connected devices with autonomy and self-determination

Source: Marseille Museum, Intel

10M years 40 years

Human Brain Evolution Computer Evolution (via Moore’s Law)

If climate change was an unintended consequence of human ingenuity, imaging what else is possible!

Scenario 4: never alone28

Always connected

Loss of freedom and personal sanctity

Psychological mechanism ill equipped to cope

Being human is to have problems, being an entrepreneur is to solve them

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IoT will solve problems, and it will create new ones

Will you solve a problem now with IoT, or one that IoT creates?