Chinese-US Startups Will Dominate the Internet of Things

Projections for the growth of Internet of Things (IoT) are so exponential they seem almost inconceivable. Today, the world has about 15 billion devices connected to the internet, everything from smartphones and computers to sensors in cars, factories, and beyond. But these 15 billion devices account for less than 1% of all the devices on earth that could be connected to the internet; 99.4% of the world’s devices are not connected today. By 2020, there could be at least 50 billion connected devices — and that’s a conservative estimate.

With the potential for such explosive growth, investors in the IoT space are understandably starry-eyed. IoT startups have garnered nearly $8 billion in funding over the last six years, with yearly investment totals more than doubling in the last five years. Both venture firms and corporations are sinking vast sums into IoT companies. At GGV Capital we have made a bold commitment to the IoT space, investing $100 million in 13 IoT startups in the last three years, with more to come.

Will this outsized venture investment translate into outsized returns? Clearly, there will be some big winners in the IoT space — those companies that find solutions to connect previously disconnected sectors, such as the automotive, industrial, and healthcare industries. Tesla, for example, is positioning itself as a software company that will connect cars to the internet. And, like any highly promising, but still unproven, technology, the IoT sector will create some epic failures, too.

At GGV, we’re betting on IoT companies with a unique framework: a US-China crossover.

IoT startups combining Chinese manufacturing expertise with American design and marketing prowess to build quality mass-market products have the potential to become billion-dollar companies. We’ve started with the consumer IoT sector, backing companies such as Misfit, Tile, Ehang, Niu, 1More, and Zepp, but will expand into industrial IoT applications. Investing in China and the US for the last 15 years, we see one thing clearly: teams that combine US and Chinese talent have a huge advantage on the global stage — and this will be especially true in IoT.

Why? Because China has an incredible wealth of experience in manufacturing — producing 90% of the world’s computers, for example — and is also leading the world in smartphone use and mobile innovation. Hardware design and mobile communications are the backbone of IoT, so China will have a huge edge in building the Internet of Things. Indeed we saw Chinese companies dominating CES this year.

Meanwhile, the US is the leader in design and marketing for mass-market consumer products. American technology companies are also leaders in software development — and IoT devices aren’t worth anything unless they run intelligent software and have the platform capabilities to make sense of all the data generated by myriad sensors. Thus, IoT companies that combine American design, marketing, and software expertise with Chinese hardware and mobile innovation will have the best chance to become global brands.

Consumer wearables company Misfit (recently purchased by Fossil Group) is a great example of an IoT company that combined Chinese and US teams to achieve breakout success. Misfit’s founder located half his employees in Vietnam, 25% in China, and 25% in the US, with headquarters in San Francisco. The company hired designers to create elegant designs, focused on high-quality manufacturing and engineering, and leveraged cross-border teams to create popular products for global consumers.

Of course, the US and China are also the world’s two leading economies and the two largest markets for consumer technology. IoT companies that can understand and thrive in both these countries are well positioned to succeed in the rest of the world. Misfit started selling in the US, but quickly expanded to China and India. Drone developer Ehang, which announced its human-sized drone at CES this year, and More Technology, developer of smart family health products and services, are both building teams in both the US and China, as well as developing their products for both markets.

With profits from the burgeoning IoT market estimated to reach $14 trillion in the next decade, Chinese-US crossover startups will have the best chance at capturing the largest global slice of pie.