MFV Partners — 2019 Review

As 2019 winds down, we at MFV Partners are thankful to all our partners — Entrepreneurs, Limited Partners, Co-Investors and Ecosystem participants. This has been a great year for us. Our 4 portfolio companies from 2018 have grown leaps and bounds and will continue to great heights in 2020 and beyond. We invested in 3 more companies in 2019 bringing our portfolio count to 7. More details on our new investments very soon!

As a fund, we focus on companies primarily differentiated through fundamental technology (aka deep-tech) in Series A stage. We focus on such companies disrupting traditional industries like Automotive, Manufacturing, Enterprise Services … Here are some of our high level observations from 2019:

Slowdown on “L5 free-range Autonomous Driving”, Increased activity on “Constrained Autonomy” and “ADAS / Automotive Tech”

It seemed clear in 2019 that Autonomous driving in every street in America will be a certain reality at some point, but it is not coming in large waves soon. There are regulatory issues that need sorting out, the technology needs more work, and the economics of autonomy needs proving out. Startups targeting pure-play on-street / freeway autonomy faced headwinds in 2019. It is healthy for the industry to go through this.

That said, two things became clear:

• There are several constrained autonomy use cases — delivery robots, mines, campuses, ports … where the regulatory and unit economics risks are significantly less. Companies pivoted to this area or focused on this area flourished in 2019.
• New technology going into Cars, trucks and automotive vehicles is not slowing down. Areas like Data Management, Security, Human-Machine Interaction, new sensors, power electronics … saw significant traction with investors and customers.

MFV View: We are long on Automotive tech despite the slowdown in Autonomous Vehicles — the disruption of the transportation industry is in its infancy. We have long way to go.

After languishing for years (decades?!?), Robotics has found its footing!

Entrepreneurs’, customers’ and investors’ excitement in Robotics has been ramping up and went up significantly in 2019. Robotics startups are finding traction across a variety of industry verticals — Manufacturing, Transportation, Construction, Agriculture, Hospitality and many more. Robotics has had a paradigm shift in the last few years. Robotics used to be all about hardware and motors and grippers and legs. While continued work happens there, off the shelf hardware is good enough for most applications. With the progress in Computer Vision and AI, the problem has moved from Hardware components to Software and Intelligent Systems. Robotics Companies are really Software companies now. We have seen full stack Robotics companies build products from scratch, pilot with customers, deploy and make revenues — all using just Seed Capital (and interestingly with less capital than many Enterprise Software startups :-) )

MFV View: We are long on Robotics — we see significant gaps in the current value chain and there are many value creation opportunities.

AI Compute is here to stay!

Applied AI startups may go through AI winter, but AI Compute is here to stay. There are questions around deployment traction of AI startups in Enterprises. Big Companies that have significant data gravity are probably doing better with AI deployment than new AI startups. But it has become very clear now that for AI / Neural Networks, a new type of compute architecture is required — there are no two ways about it. Current architectures of CPU, DSP and GPU are limited for neural network implementations. Lot of the current activity is in servers where model training is driving compute requirements. We saw big investments, valuations and exits in the area. Newer architectures are required for inference on the edge as well. There are more than 100 companies targeting some form of AI compute architecture now.

MFV View: Performance matters, edge or server. Edge AI architecture requires ultra low power but not at the cost of performance. Our investment in Analog Inference is squarely focused on this area.

Some of the big questions continue to remain …

We saw the collapse of capital driven growth (revenues and valuation) through WeWork and several tech IPO’s this year. Many cheered at the WeWork collapse and public market performance of high-capital tech IPO companies, indicating that things are changing. But we haven’t seen that effect trickle back into private company valuations though — early or later rounds. Quantitative Easing has been a factor — Softbank or not — over the last 10 years. There is plenty of cheap capital available that is willing to take on risks in search of returns. Just in US, there are 1000+ micro VC funds now and the capital deployment has surpassed the peak of 2000. This question will continue on in 2020.

Going into 2020, we are bullish on the ecosystem and we continue to be amazed by the resilient entrepreneurs driving disruptive innovation through several industries. We are thankful for the great year we had in 2019 and we look forward to working with all the ecosystem partners in 2020 and beyond.

MFV Partners wishes everyone a happy, healthy, peaceful and prosperous New Year 2020!