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Opportunities For VC’s in IoT – Industrial Internet of Things ?

Eric Buatois, BGV General Partner shares his perspective on the opportunities for Venture investing in IoT We are preparing ourselves for a new world where personal devices, cars, glasses, and watches will be connected to the internet for the benefits of the consumer. New smart cities connecting existing infrastructure promise a better environment for consumers. Our new connected homes are envisioned to  automatically secure, and control heating and air conditioning. However all the above emerging market segments demand a fundamentally new consumer behavior.  Such large changes will only occur if large consumer brands invest in creating the demand and providing the right solution at the right price. Large software companies such as Google and Apple are expanding their market footprint acquiring various hardware companies to expand their sensor product portfolio, penetrating deeper in the home and the life of consumers as part of their IoT strategy. To exploit the value creation opportunities presented by the Internet of Things Consumer Internet companies process 70% of the consumer data going through their sites and expect this to increase over time. At the other end of the spectrum large industrial corporations process only 1% of the data generated by their installed industrial equipment.  Furthermore these companies face increasing pressures to increase their top line revenues, grow customer loyalty and adopt new technologies at the risk of being dis intermediated..  Industrial segments such as oil & gas, utilities, manufacturing, commercial and industrial building automation, medical equipment providers and hospitals are facing a revolution where the data and services created around the data captured by their core equipment will generate high shareholder returns. Companies such as General electric, Honeywell, ABB, Siemens, United Technology, Whirlpool, Bosch, Ford, Renault, Volkswagen need to implement a cultural change whereby gathering customer data and selling it as a service will become as important if not more important than delivering superior products.  But corporations in these industries will face difficulties in attracting the top software talent needed to build these solutions. The current lack of trained data scientist and bid/data analytic experts combined with a low-tech brand image put these industrial companies at a disadvantage when it comes to recruiting this “scarce skilled talent.” Therefore it is not surprising to see companies like General Electric, Honeywell, ABB, Siemens, United Technology, and many international Car manufacturers coming to Silicon Valley with the goals of building a business intelligence hub and developing local eco systems.  But will this be enough? Certainly not. Google, Microsoft, Facebook can buy sensors, consumer devices, robot companies and integrate them effectively in their customer value delivery engine. Now, if Honeywell, Siemens, ABB, GE want to acquire innovative software companies the resulting value creation will be disappointing. Why? Because the effective value will reside in the information created through the gathering and processing of data coming from installed equipment. This resulting information has to be shared by players across the value chain of the same industry or even across different industries. Technology has removed the friction of connecting, gathering and aggregating data. Uber has changed the taxi business model leveraging the connectivity platform built by Twilio.   A new generation of integrated connection and information processing platforms will emerge allowing industrial companies to concentrate on their unique algorithm and solution software. They will form a new industrial IOT highway. Despite their top management commitment and significant capital investment, the GE, Siemens, Honeywell of the world will not have the time or talent to build these platforms. These industrial IOT technology companies are likely to emerge in technology hubs such as Silicon Valley. Either local or global these emerging platform companies will create a massive network effect. More connectivity to more and more things combined with a slick mobile user interface will allow more and more applications to emerge increasing the scale of connections and the value of the platform. The complex and lengthy sales cycles experienced by Venture Capitalist who have invested in startups serving the industrial sector will be reduced dramatically incenting them to participate in such companies. Who will perform this industrial IOT App store role? Who will build the necessary wireless and connectivity grid to connect industrial equipment’s?  Technology Start-ups backed by Venture Capitalists!  These companies will start by focusing on a couple of market solutions and ultimately expand horizontally across industries.  Who will benefit in delivering solutions on this new grid? GE, Siemens, ABB, Renault, Honeywell… BGV is actively involved in identifying investment in industrial IOT as well as establishing pro-active partnerships with industrial corporations to assist in the transformation of the Industrial Internet of Things.