Paul Wallbank – Brilliant Communications

Category: Investment

  • Founder therapy and Smiley curves – the tough world of hardware startups

    Founder therapy and Smiley curves – the tough world of hardware startups

    There’s no doubt building a hardware startup is hard, whether it’s sensor networks, smart lights or home automation hubs getting physical products to the market is far tougher than launching an online service or app.

    In a light industrial part of San Francisco’s Inner Mission district, the Highway One incubator is one of the initiatives looking at helping entrepreneurs bring their ideas to market.

    “Our goal is to help hardware startups scale faster,” says Brady Forrest the director of Highway One. “We turn prototypes into products. People come here with an idea and we make sure they can implement it, we bring a lot of design best practices and engineering best practices and make sure they are being honest with themselves.”

    “I also end up conducting a lot of founder therapy.”

    The selection process

    Getting onto the four-month program is competitive with applicants being subjected to a rigorous vetting process, “they fill out a double page application, send in a video of them telling their story and then a video of them using a prototype.”

    “Then we start to talk with some business analysts to check the market sizes, competitors and then we go to an engineering review to check the team has the technical chops and that prototype is what they say it and that it’s achievable.”

    Once on the program the course is an intense immersion on building a product with access to a prototyping lab, support services and a 10-day trip to Shenzhen, China, to learn about global manufacturing.

    The Shenzhen link is important as Highway One is part of PCH International, an Irish company born out of founder Liam Casey’s case work in sourcing Chinese manufacturers. This Fortune magazine profile of Casey and PCH describes how deeply embedded the company is in global supply chains.

    Want investors want

    At the end of the incubator process is a pitch day before potential investors. Right now Forrest says, “I think investors want to de-risk as much as possible. Right now hardware is so expensive and it’s higher risk. Yet in a lot of ways it’s easier in a lot of ways for people to know what they’re getting.”

    smiling_curve

    Part of the challenge in funding hardware startups lies in financing the fabrication phase of the product’s development. Forrest cites the ‘Smiley Curve’, originally described by Acer founder Stan Shih, where the value added is at the beginning and ends of the cycle.

    “The VC’s don’t like to fund the build part, one nice thing for startups is that they can get manufacturers will take on the build part so they don’t have to seek funding for working capital”

    Hardware’s next wave

    For investors, this makes funding hardware startups easier for investors. “It’s still not easy though,” Forrest warns. “It’s become harder for hardware startups to raise new rounds, so they have to watch their burn.”

    While at the moment a lot of the focus is on wearables and the IoT, Forrest sees the Federal Drug Administration’s new rules on medical accessories changing the sort of devices being pitched to the program.  “I now think we’re moving into a new field where the devices will have an effect on the body. The FDA’s new rules around making it easier to make things around FDA approved devices will open that.”

    He’ll find out soon what the next big thing is in hardware startups as applications for Highway One’s May 2016 round of participants is now open.

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  • Nine billion opportunities for fraud

    Nine billion opportunities for fraud

    Everything is not all it seems at Theranos, the medical testing startup estimated to be worth  nine billion dollars reports the Wall Street Journal.

    If true, the allegations Theranos is using conventional technology to run its diagnostic tests mean most of the investment community and tech media have been sucked into an elaborate con.

    While it’s too early to say whether the allegations about Theranos are true, with so many multi billion dollar ‘unicorns’ running around it’s inevitable somebody will try such a scam.

    Indeed, it’s in the interests of many to promote such a unicorn and for those early into the company it could be immensely profitable.

    Even if Theranos turns out to be for real, there will be those that won’t be.

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  • Using city muscle to drive private investment

    Using city muscle to drive private investment

    Chattanooga in the US mid West introduced city broadband in 2008 in the face of legal challenges from the existing cable operators.

    The operators lost in the courts and were forced to compete with the local, city owned power company’s network.

    Now Wired reports Chattanooga is upping the ante by increasing the available throughput of their network to 10Gb.

    While that’s good news for those businesses and households in Chattanooga that need those speeds, there’s a much more important effect that Wired points out.

    Municipal broadband providers are raising expectations nationwide for what good Internet service means, forcing commercial providers to improve their infrastructure. And by increasing the amount of bandwidth available, they could be setting the stage for the creation of new, more bandwidth-hungry applications. This is how better service goes from a “nice-to-have” to a “you’d-better-have” for the country’s recalcitrant cable companies.

    A few municipal projects could be the trigger to getting better services across the country. This is a model that could work in many other fields as well.

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  • Riding the rails of the global economy

    Riding the rails of the global economy

    Irish economist David McWilliams reflects on how a train ride between Boston and New York illustrates how a lack of investment in the US and over capitalisation in China has affected the global economy.

    A lack of public investment is hurting the US in McWilliams view and that’s exacerbated by a reluctance of the private sector to commit to new productive assets and projects. Weak investment affects household wealth and savings, it also means the low interest rates are encouraging speculation rather than economic growth.

    Meanwhile in China, the nation’s massive expansion has created a global glut in manufacturing capacity. That makes business even more reluctant to invest in plant and equipment while creating risks for the commodities based economies like Russia, Brazil and Australia that feed that machine.

    One aspect that McWilliams overlooks is another shift in the global economy – the shift to smaller scale manufacturing and automation, “real investment tends to be in big machines that make big stuff,” he says.

    That investment in big machines may not be the economic driver they were half a century ago as building and maintaining the machines themselves are no longer labour intensive. Furthermore, the manufacturing of tomorrow may well be much more distributed and on a local, smaller scale.

    McWilliams’ points though are well made. We need to be looking at how to stimulate private investment in productive assets while looking at the public investments that will enhance our economies and improve our living standards.

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  • Does broadband really create an innovative economy?

    Does broadband really create an innovative economy?

    How much does broadband really matter in developing a competitive and innovative modern economy? A corporate lunch with US software company NetApp last week illustrated that there’s more to creating a successful digital society than just rolling out fibre connections.

    Rich Scurfield, NetApp’s Senior Vice President responsible for the Asia-Pacific was outlining the firm’s plans for the Australian market and how it fits into the broader jigsaw puzzle of economies across the region.

    Like many companies in the China market NetApp is finding it hard with Scurfield describing the market as “chaotic”. This isn’t unusual for western technology companies and Apple is one of the few to have had substantial success.

    Across the rest of East Asia, Scurfield sees them ranging as being mature, stable and settled in the cases of Japan, Singapore, Australia and New Zealand through to India where the opportunities and the challenges of connecting a billion people are immense.

    Digital outliers

    The interesting outlier is South Korea, one of the most connected nations in the world, where the promise of ubiquitous broadband isn’t delivering the expected economic benefits to the entire community.

    In theory, South Korea should be seeing a boom in connected small businesses. As Scurfield says, “from a technology providers’ view this connectivity means you could do more things very differently because of the infrastructure that’s available.”

    Global Innovation Rankings

    Korea’s underperformance is illustrated by last year’s Global Innovation Index that saw South Korea coming in at 16th, just ahead of both Australia and New Zealand whose broadband rollouts are nowhere near as advanced as the ROK’s.

    Making a close comparison of Australia and the Republic of Korea’s strengths in the WIPO innovation index, it’s clear the technology and engineering aspects are just part of a far more complex set of factors such as confidence in institutions, the ease of doing business and even freedom of the press.

    Putting those factors together makes a country far more likely to encourage its population to start new innovative businesses that can compete globally. When you have a small group of chaebol dominating the private sector then it’s much harder for new entrants to enter the market – interestingly a private sector dominated by big conglomerates is a problem Australia shares.

    Small business laggards

    NetApp’s Scurfield flagged exactly this problem, “Korea is an interesting market in there’s about six companies that matter and from a competitive view those companies are extremely advanced, they have great technology and great people.”

    “However what’s not happening across the rest of the country is this adoption isn’t bleeding into the broader community,” said Scurfield “Because of that I don’t see broadband connectivity as having a wide impact.”

    That Korean small and medium businesses aren’t using broadband technologies to develop innovative new products and service in one of the most connected economies on earth raises a question about just how effective investment in infrastructure is when it’s faced with cultural barriers.

    Certainly we should be keeping in mind that economic development, global competitiveness and the creation of industry hubs is as much a matter of people, national institutions and culture as it is of technology.

    We shouldn’t lose sight of the importance of our people and institutions when evaluating the strengths and weaknesses of a nation in today’s connected world.

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