The Industrial IoT (IIoT) startup Relayr
recently sold for a reported $300 million. While it is not a unicorn type exit with a billion Euro
valuation, it is a very significant exit for a startup in the IIoT space and
for a startup based in Germany.
The importance for IIoT
Germany is a great place for an IIoT startup to
engage with industrial customers: There are about 2000 so called Hidden
Champions in Germany, and most
are located in the south of the country. These ‘hidden champions’ are global
players, and startups serving these customers should expect to scale globally
very quickly.
Relayr has had to develop four basic approaches
in order to scale:
1. Make sure that there is a business outcome and the vertical market
understands the value proposition
Relayr’s core products is a horizontal solution,
a middleware in the cloud which acts a data broker. They started with a
horizontal go-to-market approach, but that value proposition turned out to be
too complex to communicate, and the customers did not have the know-how
to connect Operational Technology (OT) and IT.
Relayr then focused on use cases in a four specific verticals - manufacturing,
energy, transportation, and retail - and developed prepackaged products for
each use case and vertical.
The business outcomes of the use cases were
either opex minimization or creating new revenue streams. Predictive
maintenance is such a business outcome that results in opex minimization.
2. Know your buying center
Selling IIoT requires executive sponsorship, in
particular when wanting to change business outcomes. CIOs typically cannot
change these outcomes, and Relayr ends up selling to the CEO as the buying
center. At the CEO level, they try to position themselves as one of the key
providers vis-a-vis competitors such as Cisco and GE.
3. Make sure that your product connects well
with the surrounding ecosystem
Industrial environments require high quality
systems and the ability to exchange data with others. In addition, most
environments are hybrid on premise and cloud deployments, and the product
architecture needs to be designed with that in mind.
Relayr offers six prepackaged products with OEM partners based on the Relayr
routing gateways. The gateway has an open ecosystem with other vendors for
hardware, software, security and connectivity.
4. Have a structured GTM approach with clearly
defined deliverables
Relayr receives many leads from partners, but
the customer requests tend to be very unspecific. In response, they have built
structured and templated roll-out process for their GTM and devised the
following ‘5-4-3’ schema:
- Firstly, a five day discovery session to
identify the low hanging fruit impact use cases. This compresses the
consulting sales cycle from months to one week.
- Secondly, a four week prototyping phase
- Thirdly, a three month roll-out plan. Some of
these roll outs were global from day one and required zero touch
deployments.
The Relayr business model is to drive services
revenues for enablement until SaaS revenues kicks in. The services revenues are
a means to an end and cost neutral. The SaaS pricing started by charging per
device per year for small projects, but Relayr quickly realized that this
pricing metric was unrelated to a business outcome. Their goal is to grow
strategically with a customer, and hence churn tends to be low.
The SaaS sales cycle depends on the complexity
of the sale. For a single machine the cycle is six months; for others that are
more complex up to one year but in both cases, the key is to provide the
customer with a clearly defined environment. In addition, they are offering
insurance of a business outcome as a unique selling point, e.g. a performance
outcome from energy management. Guaranteeing this business outcome helps
accelerate the sales cycle.
A complex environment requires sales discipline.
Junior sales people did not work out for Relayr. Instead, Relayr went through
engagements with consulting companies such as McKinsey , EY, and Accenture to
establish credibility. In addition, the open platform for developers provided a
sandbox environment which resulted in 50% of projects being industry initiated.
The importance of the exit
Getting to a $300 million valuation in five
years is a great outcome by any startup measure. Given where the company
revenue generation after five years and given the complexity of the IIoT space,
growing into a fully fledged unicorn valuation would have likely been
difficult. It would have required taking on more capital - likely from large
international investors -, and expanding more aggressively internationally.
Relayr raised $66.8 million in six rounds from
the likes of KPCB, Munich Re, Deutsche Telekom and others. CEO Josef
Brunner has stated that they were intentionally looking for US investor early
on to push their thinking and for the brand when approaching customers and
indeed, KPCB is one of few US VCs who have invested in a European startup early
on.
Founders and early stage investors likely had a nice exit, but it was not a
fund returning exit for KPCB, and it is unlikely that Deutsche Telekom made a
lot of money after their last investment just a few months prior to the sale.
The buyer Munich Re/HBS is an insurance company
that is using IIoT to offer risk services. A sign for more IIoT acquisitions to
come from competing insurance providers?
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Further reading (in German):
