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“Product Investors Want Vertical-Focused Solutions That Can Go Global”

India is a billion-strong nation. Just three years ago, the number of connected devices was already at 60 million – that’s almost 60% of the nation’s population. By 2020, the number of installed connected devices will be 1.9 billion.

Safe to say our nation has never been more connected, atleast virtually.

The Internet of Things, as a concept, has massively evolved over the years. From being an exclusive, official tool for enhancing business connectivity, it has well and truly permeated into every major aspect of life today. Industry pundits peg the IoT market in India to be valued at $9bn by next year, and businesses are agog with interest. Notable examples of connected devices dominating the market include Alexa and Google, but the applicability of IoT extends to several industries such as manufacturing, automotive, telecom, infrastructure and automation in buildings. Gartner has predicted that IoT can add $1.9 trillion by 2020 to the global economy. This is a hugely transformational piece of technology upon which rests the success of other deep technologies such as Artificial Intelligence, Computer Vision, Machine Learning, sensors, drones and more.

This multi-billion dollar industry awaits to be unleashed in India, and innovation lies at its very core.

Until 2014, IoT was unexplored territory that investors stayed away from. It wasn’t until late 2016 that IoT has invoked heightened interest among investors, corporates and even governments.

On World IoT Day (April 9), NASSCOM Center of Excellence for IoT and DSAI invited Anurag Ramdasan, principal investor of 3one4 Capital to discuss the changing investor landscape in IoT today. Ramdasan interacted with startups that have a strong core applicability of IoT, where he discussed at length about an evolved investor approach to IoT startups.

Niche Verticals The Need of the Hour

Anurag: The IoT space has evolved rapidly in the past five years. In 2014, there were 120 registered IoT startups, In 2019, that number reached 1250 – a 10X growth. Not only has the number increased, but the applicability of IoT too has expanded. Initial applications of IoT startups were targeted mainly at optimizing manufacturing operations. Today, IoT is the base technology being used to solve niche problems like electricity usage/wastage, assessing groundwater levels, estimating movement of trucks, cars, airplanes and more.

Fundraise Was a Challenge Earlier

Anurag: Another aspect that has changed now is the access to funds. There was an initial interest in investing in companies in the IoT space but a limited market size and ability to scale did cause a slowdown in this space. However, of late, there has been a growth in IoT companies targeting niche verticals and driving immense value to consumers in the space by providing very deep solutions that tackle complex problems.

This has created a tremendous amount of VC interest in this space and a lot of inflow of capital into companies raising funds in this space.

Now, corporate players are aggressively targeting innovators in the IoT space. Cisco’s John Chambers recently invested around $5mn in Lucideus, a company offering IT risk assessment and digital security services. Bosch is reportedly planning to invest Rs. 1700 cr in IoT, while Microsoft is looking to invest $5bn in IoT over the next four years.

Now That VCs Are Keen To Invest In Product: How Does A Startup Woo Them?

Anurag: Investor sentiment towards IoT startups has matured. Earlier, there were fewer domain experts within the investor circle. Today, we see over 2,800 companies each year across different stages and different verticals. The range allows us to analyse companies better, and domain experts provide some deep insights into the RoI on transformational technologies.

3one4 Capital has invested in around five to six IoT companies. Each of these companies have a very focused approach to problem solving. For instance, we invested in ToneTag, which uses encrypted ultra sound waves to make offline, proximity-based contactless payments on any device. Now, ToneTag has caught the attention of companies like Mastercard and Amazon, which are major players in the payments space and seek focused, technology-driven innovators.

Another investment we made was in AlphaICs, which accelerates AI workloads at datacenters and provides perception and decision-making abilities to the edge in various applications. It is the Big Bang of AI, delivering the next generation of AI computing. This kind of technology can be used across multiple industries. Being industry-agnostic is a tremendous advantage as the company can position themselves as a pure product entity.

We’re also early investors in Yulu Bikes, which uses an IoT-driven platform to rent dockless bicycles. It is intended to be a solution for short commutes and last mile connectivity, especially in major Indian cities.

As you can see, each one of these companies have chosen a very specific problem with a strong focus on technology capability. A generic approach to IoT solutions doesn’t appeal to investors anymore.

We are now looking for companies that are vertical focused, and potentially can go global.

India is a fast-growing innovation hub, and IoT can play a hugely transformational role in this innovation story. Even as investors are pushing for a more conducive environment for product startups to grow, the time is now for entrepreneurs to push the boundaries of creativity.

Anurag Ramdasan was part of the World IoT Day Knowledge Session held on April 9th at NASSCOM Center of Excellence, Bangalore. 

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