The future of manufacturing is now

„Industry 4.0“ is definitely one of THE overused buzzwords. There have been a lot of discussions for years on what it could mean for Europe and what could be at stake for Europe’s industrial companies. I briefly want to elaborate our view as an Early Stage Investor on this and how tech startups can drive growth and innovation in Europe especially in the next upcoming years.

Status quo:
The decreasing cost of sensors, computing power and networks are leading to a situation where some ideas and products that would not have been imaginable a couple of years ago are now becoming feasible. This means that those technological breakthroughs do now have the potential to disrupt even old economies and solid business models of industrial companies, that have been working for decades. Huge amounts of data and the rapid developments in the field of machine learning in combination with decreased cost are now giving rise to the full potential of the 4th industrial revolution and cyber physical systems.

But for most people in charge at industrial companies this still sounds very fluffy and the question pops up what does this mean in specific and how does it affect my business. Or to put it in even clearer words: which horse do I bet on?

There are two things that have to be separated: 
First the technological platforms or enablers and secondly the usecases that can be built on top of these enablers.

Based on the trends I briefly described before there are a lot of new technologies that are now feasible and have the power to change businesses and even complete industries; so does 3D-printing, blockchain technology, the increasing computing power of mobile devices or augmented reality just to name a few examples. However, if you look under the hood most companies are still relying on old technologies like enterprise software systems from the 90s although smart sensors are allowing IoT platforms to emerge and a growing number of cloud applications to work. But not only cloud computing but all of these technologies are enabling concrete usecases for companies and are also opening up new markets and the possibility to try new business models. There are four big pockets to either become more efficient or to create new revenue streams based on new technologies:

  1. Digitization of product and service offerings — for example: really offering digital solutions for clients when it comes eg. to customer support, service agreements, etc.
  2. Big data and analytics — for example: understanding its own data, harmonizing it and then making the most out of it, like predictive maintenance or other usecases.
  3. New business models — for example: the creation of new business models based on digital processes and data — this could be an own digital marketplace for waste products.

4. Digitization and integration of the whole value chain — for example: connecting suppliers and other internal locations for a smooth and seamless supply chain process.

So this is the point where startups enter the stage and help industrial companies to stay ahead of the curve. So let’s look at some concrete examples for specific usecases:

  • Data Aggregation
    Cybus aggregates all machine data across your plant and serves them to your internal IT and third- party intelligence providers with access control on a data-point level. https://www.cybus.io/de/)
  • Plant optimization
    Sprio — Spiro offers plant-wide real-time control and predictive analytics to minimise environmental impacts and optimise operations to bring down costs and the variability of output quality. http://www.spirocontrol.com/
  • Computer Vision
    Insightness — Insightness are integrating smart pixels, smart processing and smart systems in an event-based vision technology for visual systems in AR/VR devices, drones and robots to create spatial awareness. http://www.insightness.com/
  • Production efficiency
    Linemetrics enables monitoring of machines and factory environment and the optimization of processes through the combination of IoT, sensors, M2M gateway, cloud and mobile to increase engergy- and production efficiency. https://www.linemetrics.com/de/
  • Smart warehousing
    Nemetris — Nemetris integrated machines and systems seamlessly to automate logistics and production processes and enables the need-synchronized production management, even past shipment and traceability. http://www.nemetris.com/de/
  • Smart packaging
    Is it fresh — Is it fresh produces Freshtags with low-cost printed nano-electronics (biochemical sensors) to track product information like origin, freshness, real expiration date and left quantity, all in real-time on their digital platform. http://www.is-it-fresh.com/
  • IoT-as-a-Service
    Senseforce — Senseforce digitizes your machinery through sensors, intelligent software, database and cloud application to collect data, enrich it on the machine and provides a sharable analytical interface. https://senseforce.io/en/

This are only a few examples I selected as the possibilities are nearly endless and differ a lot between specific industries. We see more than hundreds of deals each year and the number is getting higher as more startups start focussing on B2B / DeepTech. This is where I firmly believe Europe’s great opportunity lies compared to Consumer Businesses that often cannot compete with the strong domestic market in the US. Also the big European industrial giants realized that they have to move and most of them are trying to find a way to adapt to the changing circumstances. This can be either done via Corporate Venture Vehicles (like Siemens, Bosch and a lot of others did), internal innovation, incubation, direct investments or investments into Venture Capital funds. We strongly believe that the winning innovation strategy is a mix of all of these activities.

And there is a lot to win if you do this right and when you look at the growth and efficiency potential of „Industry 4.0“. An increase in productivity, the reduction of downtime and maintenance cost or the reduction of time to market are only some effects of “Industry 4.0” that in consequence are leading to increased margins.

What is in for Europe (and what is at stake)?

The first industrial revolution started in Europe and the whole continent is shaped by Europe’s strong fundament of innovation and technological developments and the strength of its engineers. Our wealth comes from the family businesses and big companies that came out of the past centuries of industrialization like Siemens, Volkswagen, Airbus, etc. And this companies actually have shown that they were able to adapt multiple times during the last 100 years. The only thing that has changed is the speed that change is happening now. So companies have to react quicker and more radical than ever before. This is the time where a lot of the developments and prosperity that came attached with Europe’s strong industrial base is at stake. But Europe’s odds besides all critics (which are understandable, especially when it comes to policy making) are not that bad.

If you look at UK and its great reputation when it comes to Artificial Intelligence and Machine Learning, Germany’s when it comes to Robotics or other examples in the Energy or Mobility sector we do not have to be afraid. But also the big US tech giants (Google, Apple, Facebook, Microsoft and Amazon) realized that there are a lot of great companies in Europe and acquired 53 European DeepTech companies since 2011. If you look at transactions like the acquisition of the British company Deepmind by Alphabet in 2014 for GBP 400M; the acquisition of Skype by Microsoft back in 2011 for USD 8.5bn or other deals like the massive USD 32bn acquisition of British ARM by the Japanese giant Softbank we have to be careful that Europe is not losing track and that also means being more aggressive when it comes down to M&A. Enough European industry giants understood this already and created their own vehicles and increased their investment pace.

Along with this, big companies are now also more willing to cooperate with startups than a couple of years ago. Therefore it is even more astonishing that investments of Venture Capital Funds and Growth Equity funds in the industrial sector are still a small fraction of the total market. Whereas 58% of all venture investments in Germany going into E-Commerce and Consumer Services only 1% of Venture investments are going into the industrial sector, despite the fact that the sector is responsible for 31% of Germany’s GDP.

When I saw the graph for the first time a couple of questions popped up:

Are investment horizons of industrial companies too long-term for Venture Capital funds? Is it too capital inefficient compared to other sectors until products reach their product market fit? Is the outcome of technologies and its specific usecases too unpredictable? What are industrial companies expecting from startups and what do they want to see — is there a big gap?

So the answer of how we can attract more Venture Capital investments into the sector and how we can get rid of existing obstacles and convince also industrial companies to invest more into Europe’s future will be an important one for the development of Europe. However, we at Speedinvest definitely think that “Industry 4.0” is one of the strongest growth opportunities when it comes to Early Stage investing in Europe and are trying to keep you up to date over the upcoming months and years on the developments of this very exciting space.