Sunday, January 12, 2014

Wearables Devices - The Future And The Past

Wearable Devices have generated interest from consumers and investors alike: Fitbit has shipped more than three million fitness trackers, the Pebble smartwatch has raised more than $10 million in the most successful crowd-funded project on Kickstarter to date, and Google has released Google Glass to beta developers with great fanfare in early 2013. Hundreds of millions of dollars of funding have been poured into Fitbit and Jawbone over the past five years. And major athletic brands like Nike and Under Armour have staked out initial positions in the race to quantify personal fitness. But is this an area where angel investors should tread?

The initial fitness appliances have been targeted towards walking and biking. Trackers to quantify additional activities such as weightlifting or swimming are in the works, and the race is underway to put sensors and hardware on every imaginable place of a person’s body. In what initially appears to be a race to scale the distribution of their hardware, the winners will be tightly integrating hardware and software to build a ubiquitous platform. The goal is to successfully repeat Apple’s journey from the iPod device to the iTunes platform.

Wearables of course are not a new category per se. Personal accessories like watches and glasses have been around for centuries, and watches were digitized in the seventies. What is new is that modern accessories collect much more data using miniaturized sensors and are tethered to smartphones to make this disparate information transparent. Fibit, Nike Fuelband, Jawbone, Lumoback and many others bear testament to this current wave. But with all the data gathered from accelerometers and other sensors, one wonders how much physical information is really needed until everything is quantified for every sport and every motion in every imaginable activity.

Back to Apple and the smartphone. The mobile phone emerged as a personal accessory in the 1980s and has become the central hub to collect and process all kinds of information. In fact, smartphones disrupted the market for wrist watches to such degree where the emergence of a new platform for wearable devices seems somewhat improbable, and displaying smartphone information on a wristband seems like a limited step at best.

However, more aspirational uses cases for wearable devices beyond the quantified self are emerging. Studies by educational researchers suggest that approximately 83% of human learning occurs visually, and the remaining 17% through the other senses. To date, Google Glass seems to be the device with the highest potential to change user behavior and the potential to become a stand alone platform. And yet, use cases for Google Glass still seem few and far between.

As Marc Andreessen has stated, hardware is hard. While there is a new crop of engineering graduates combining ME, EE and CS backgrounds, success in wearable devices requires expertise in manufacturing, design, inventory management and distribution, making success highly uncertain. And yet, there are three areas that could offer attractive opportunities for early stage investors:

  • Wearables for enterprise applications. A successful Kickstarter campaign can launch a product in the consumer space, but capital intensive marketing, distribution, and inventory are required to participate in the battle for the consumer space, let alone to become the one winner. In contrast, B2B spaces can have multiple winners, and avoid much of the channel and marketing cost.
  • Portable and detachable devices. These devices can be used in stationary or mobile modes, for example in laser distance measurements.

  • New software platforms. KPCB’s investment in MyFitnessPal and UnderArmour’s acquisition of MapMyFitness are examples of investors and acquirers hoping to replicate Android’s success in the wearable device space while avoiding capital intensive hardware.

Andreessen Horowitz has decided to forego early stage investments in wearables and instead double down in the later stages. This should not deter angels from investing in this exciting space.

Sunday, January 5, 2014

2013 - For This Angel Investor, A Good Ending After Some Initial Detours

In 2012, a disappointing Facebook IPO cast a shadow on tech IPOs and angel investments. Success in 2013 seemed to be an uncertain proposition, and in fact, the year got off to a slow start. But for the stock market, start-ups, and my own portfolio of angel investments the year turned out to be much better than initially expected.

Facebook shares surpassed their IPO price in late July 2013, and the IPO pipeline reopened in a big way. Twitter launched a successful IPO in November and saw its share price triple. Enterprise SaaS company Veeva Systems successfully IPO’d in October and returned more than 300x of the $7 million invested. The Dow Jones Industrial Average gained over 3,000 points and 26% to end just north of 16,500. 

Total money flowing into early stage investing even exceeded 2012, and 2013 saw the highest amount of seed deals since 2009. To wit: the Band of Angels made a larger number of investments in 2013 compared to 2012. Start-up valuations continued to decline, but overall angel and seed investing activity continued to be strong, perhaps supporting the claim that many valuable companies have indeed been started in the past years. The introduction of so-called Angellist Syndicates and Backers to crowdsource investments has made participation in start-up fund raising accessible to a much larger set of investors.  Companies such as Crunchbase, CBInsights and eShares are making significant headway in providing more transparency for early stage investors.
My own portfolio of early stage enterprise focused software companies started off with six start-ups. Given the high valuations of 2011/12 and somewhat uncertain outlook at the beginning of 2013, I expected to see difficulties raising follow-on rounds. But while valuations largely went sideways, the companies that needed to raise more money were able to do so. I also met with more than 50 start-ups, and made investments in three new teams
  • Tylr Mobile turns the inbox into a platform for mobile work. CEO and co-founder Ryan Nichols is passionate about workplace productivity, has been an early team member of two successful start-ups. The company was part of the Alchemist accelerator,  and Ryan was with SAP before the last two start-ups.
  • Paystik captures impulse payments in an easy and intuitive way and was founded by James Ioannidis and Mary Minno. The deal was sourced through the Band of Angels.
  • A6 Corporation is mapping the Internet topology to build a superior advertising exchange. Founder and CEO Bill Urschel is a serial entrepreneur, and returned to the Band of Angels for financing.

At the beginning of 2014 the stock market is trading at historical highs and the IPO pipeline is stocked with high profile companies. Money is still pouring into angel and seed investments as evidenced by Angellist and the ever growing number of Superangels and MicroVCs. But the shadow Series A crunch still has to play out, and having to raise $5 million in the next round - whether it is called Series A or Series B - will be the time where the wheat separates from the chaff. For entrepreneurs not much has changed: Hit your milestones, and Always Be Raising!