What’s Next

Exciting things are happening in technology across the board. Virtual reality will compete with the real world in providing visceral experiences, IoT will tie ordinary objects to intelligent networks, wearables will uncover valuable data related to health and serve as an enabler for extended connectivity.

To expedite innovation, exceptional startups need to be discovered and grown. This post shares my observations from having avidly followed technology related to IoT, VR, and wearables, among other areas.

Internet of Things

Last summer when I asked Toni Schneider what he thought was next, he sat there thinking. With confidence, he said, “internet of things,” following up with all the reasons why. “The technology is finally here,” he said. “Entrepreneurs just need to properly apply it.” McKinsey estimates close to 30 billion sensors will be sharing data wirelessly by 2020. Startups to be on the lookout for are those with a long-term, specific plan on how to leverage the power of these connected devices, how to create (or plug into) an interoperable ecosystem, how to make use of the new, vast amount of collected data.

Consumers

TL;DR: may take a while for mass traction with consumers, focus should be on educating users, should explore applications outside of smart homes

For consumers, the initial scope of interest lies in connected homes. It makes perfect sense: smartphones are the tech enabler, serving as the controller for connected smart devices. Companies like Nest and Quirky have sparked a buzz on building a smarter home. Apple touts HomeKit, mesmerizing its audience with the idea of controlling connected accessories at home.

As Zal and Benedict points out in the a16z podcast, on the same point as Toni, the technology is already here. But the challenge is finding the right applications and crossing the chasm by properly educating the early majority on creating an ecosystem of smart devices. This is difficult — there are giants competing in this market, posing a serious barrier to mass adoption. One reviewer of the Nest mobile app says, “No HomeKit, No Business. If Nest refuses to integrate with Apple HomeKit on iOS devices, I will drop Nest permanently.” Many others echo this opinion. While Quirky is headed in the right direction by partnering with a large company like GE for its smart device collection, it will require some time, and a truly transformational and seamless application for IoT to take off on the consumer side.

On another note, a major barrier to consumer IoT lies in the notion that millennials are more likely to be early adopters of technology than older generations. Given this assumption is true, it makes sense why IoT applications have yet to take off — most consumer applications of IoT have been targeted at smarter homes. Majority of millennials have yet to settle on a permanent home of their own. So why invest the time and money in smarter homes now? To fuel user adoption, consumer IoT should place the priority in educating consumers of the product value. Nest killed it in this regard. It made economical sense to purchase Nest — their tagline is, “Programs itself. Then pays for itself.” Smart light bulbs and other devices in Quirky’s collections are neat, but the cost benefit of the effort required to install those connected devices may not be quite worth it yet for the majority users.

Enterprise/Industrial

TL;DR: big room for IoT applications in building a smarter world, should be rigorous in assessing market’s willingness to adopt new technology

Consumer applications may take some time to gain mass traction but on the flip side, there is tremendous potential in enterprise and industrial applications of IoT.

Last summer, I worked in strategy and business development for Streetline, an IoT company aiming to create smart cities. Streetline’s first step was to build a network through smart sensors, which can detect whether parking spots are taken or not. Users would go on Streetline’s mobile app, Parker, to view open spots in operating cities. Environmentally, less time driving around for parking means less CO2 emissions. This is a great value proposition, but the real money was in providing parking analytics to city officials. Imagine the opportunities beyond smart parking — smart sensors are a robust technology, flexible enough to add multiple dimensions of functionality. These sensors could detect temperature, so cities can identify which roads to salt. They can detect sound, so cities can detect accidents and crimes. Streetline’s sensors would inject life into cities, providing unprecedented data and insights to municipals.

Other industrial and enterprise use cases are vast. GE is one of the leaders in this effort, announcing the industrial internet of things evolution of turning jet engines, locomotives and other giant machines into “data-spewing computers.” These IoT applications can eliminate sporadic breakdowns of engines, optimize business processes in manufacturing utilities and transportation, and monitor structural health of bridges and dams. It will be interesting to see rising players aiming to provide solutions for a smarter world.

A note of caution for investing in industrial IoT startups: in choosing which IoT companies to invest in, it is crucial to understand which market their business model is dealing with. Streetline had a great vision. But how do they make money? They charge cities a hefty amount for providing parking analytics with their sensors. Streetline has been struggling since municipals are extremely slow to work with, have tight budgets, and are hesitant to be early adopters of new technology. It is easy to be blinded by the novel applications of IoT technology but investors must be rigorous in assessing the sources of revenue.

Investment Opportunities

IoT is just beginning. Prospective investments must be proficient at educating customers on the value of their new technology. They should have reliable sources of revenue in their market. They need to consider interoperability within the ecosystem of other connected devices. Considering these points, here are two IoT startups I would bet long on.

  1. Enlighted: provides a smart lighting system mainly targeted at enterprise customers. It saves about 70% of lighting energy costs by intelligently adjusting light and collects real-time environmental data. These sensors have other capabilities like detecting temperature and movement, similar to Streetline sensors. Enlighted has clear marketing and value proposition that the product pays for itself from all the reduced electricity costs, similar to Nest. Enlighted is fairly late stage, raised $20 million in Series D last year. They have acquired some big customers including LinkedIn, Google, and AT&T.
  2. Neura: brings intelligence to connected ecosystems (AI + IoT). Neura connects smart devices directly with people’s behavior by creating shortcuts. For example, if a sensor detects that you are falling asleep, Neura turns off lights and locks the front door. Risky long-term investment, but strong founding team and impressive progress. Reminds me of IFTTT, which I’m a big fan of. What IFTTT did right is tapping into services that consumers use widely first. For example, automatically saving a photo to Dropbox or Evernote. Now they are tapping into IoT with new partners like HP for recipes like printing Instagram pictures. Neura’s vision is ambitious and with the right incremental strategy, there is incredible potential. Raised $2 million in seed funding.

Thoughts on IoT were longer than planned; would love to share thoughts on VR, wearables, other areas and startups another time. Quick note- a notable startup in wearable tech is Athos, and in VR, High Fidelity.

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