My idle thoughts on tech startups
Hardware, IoT, and the Long Arc of the Internet
We’re preparing to make our third investment with a hardware component here at NextView. This company will remain in stealth mode for at least a little while and it isn’t my place to divulge their plans, but we’re very excited about the founding team, market opportunity, and syndicate we will be part of.
We very nearly missed the opportunity to invest in this startup even though it’s located in our backyard and the founders knew NextView by reputation and through other entrepreneurs. “I didn’t know you guys invested in hardware stuff” one of the co-founders said when we first met, following an introduction from our co-investor in this round. I described our existing investments in Whoop and Konekt and our thinking more broadly on businesses that have a hardware component. But it occurred to me we haven’t talked publicly a great deal about our view of hardware businesses.
How does physical stuff fit in with NextView’s investment thesis focused on the internet and the broad innovation wave it represents? For starters we take a very, very long term view of internet innovation (more on this below). I’ve written about this over the years, most recently back in 2012 (The End of “Internet” Companies), but essentially here at NextView we believe the internet is the most disruptive innovation of our lifetimes and will remain so for decades. Only the sequencing of the genome and its potential for personalized medicine is comparable, and even that has been enabled in very small part by cloud computing and collaboration made possible by the internet.
The internet as we know it is 20ish years old. I played around on BBS’s when I was growing up in the late ’80s and of course the foundations of the web were laid even before that by the military and academic institutions. But the Mosiac browser wasn’t released until ’93 and opened the door to the world wide web, which of course has evolved from the desktop internet to the mobile internet to a soon to be pervasive internet. So heretofore the overwhelming majority of internet innovation has focused on the “digitization” of the world’s information, commerce, and social connectivity. You can probably think of household names in each of those categories.
In a world where connectivity is available on a nearly-pervasive basis, a whole new set of possibilities opens up for the internet and the physical world to be combined. We’ve seen this not only with the “on-demand” economy of Uber, AirBnB, et al but also with hardware devices that rely on a connection to internet to monitor, manipulate, manufacture, or otherwise impact our physical world. I’m still waiting for the internet-connected refrigerator I was promised in 1999 that would order milk automatically. But there’s a reasonable probability the next time I do buy a refrigerator, it may connect to the internet for the purpose of the OEM to analyze its use or troubleshoot repairs.
The majority of the companies in NextView’s portfolio are fundamentally software-based, rather than being hardware related. Frankly I would anticipate this will still remain true in the coming years, but the proportion which have a hardware component or are fundamentally hardware-based is increasing. So the answer to “Do you guys invest in hardware startups?” is indeed yes. The investments we make will be in companies whose devices are enabled by the internet or only make sense in a world of pervasive internet-connected devices. But we will undoubtedly continue to add more hardware related businesses to our portfolio.
I promised to return to how hardware fits into the long arc of the internet. If you look at the major disruption waves in the past, many of the new businesses that were ultimately enabled by these innovations took decades to emerge. The modern meatpacking industry (infamously chronicled in Upton Sinclair’s The Jungle) was a direct outgrowth of railroads broadly, and the refrigerated railroad car specifically, but it emerged 40+ years after the advent of steam-powered railroads. The drive-thru restaurant and the strip mall didn’t emerge until the 1950s, but both were innovations born of the automobile which was patented in 1896. Whether you apply the IoT label or not, internet enabled hardware businesses are a direct outgrowth of that early internet that began a couple decades ago. So here at NextView we will be investing in them along with all the other forms of internet-enabled seed stage companies.