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Startups enter the third wave of technology

By Holger Diellenberg

Why does investment influence how we evolve? Are we willing to pay now for what we believe will be better and rewarding later? Backing our young disruptive startups (courage) and understanding technology (knowledge) has a lot to do with investing well in the third wave of technology.

I’m a maker at heart and recently with Space Tank I have begun to invest in the future. Along this 6 year journey I have noticed that words like manufacturing are no longer popular, they are being replaced with words like tech. It took me a while to come to grips with how important this is and how much it influences investment and even the labels that startups are given.

Technology has embedded itself in our lives via physical hardware and wireless software. Renewable energy sources, simple to use advanced manufacturing and software apps are connecting everything. This has set the stage for a new kind of startup as well as a new kind of investment.

Some people are calling this, the third wave of technology.

Now that the first two waves of internet development have settled, market leaders like Google, Facebook, Amazon, Alibaba, Airbnb and Uber have risen out of the seething ocean of app development like rocks of Gibraltar. They have matured and broadened their user base. Some have grown into island groups like Airbnb. Others have become so fundamental to the way the internet works, like Google or Alibaba; that they have become like continents on which smaller apps take root. All of this activity is based on information communications technology. (ICT)

ICT is now so ubiquitous that it’s become a socio economic framework in which nearly all business, industry and social interactions takes place. Tech has matured from silicon to wifi and on to artificial intelligence (AI) so that now, machines talk to each other, materials and physical products can have ‘smart’ functionality and all of it is accessible by humans and machines at all times.

As ICT becomes embedded into things, it’s no longer enough to just invest in apps.

Future opportunities will lie in products for alternative mobility, sustainable energy, smart cities, food security, wearables, medical and health, sports and leisure.

Today the terms app and startup go hand in hand. Armed with ICT and AI, young tech savvy individuals are taking on the world and are tipping established industries on their heads. The app revolution is being led by twenty somethings and has spread from Silicon Valley to almost every corner of the world with notable cities like Tel Aviv becoming hot spots for development. As the underlying technology ripens and the market becomes saturated, a new narrative is emerging – a sentiment coming out of the world of apps is that, there’s nothing to see here anymore. Look elsewhere for new opportunities.

App download decline has been reported and argued since 2016 with popular headlines like, “Have we reached Peak App”, “The App Boom is over” and how “App Overload” is becoming a problem for our work and private lives.

It’s also been a question on investor’s minds. The narrative is that consumers already have all the apps they need, new apps are no longer exciting and the biggest internet players have risen to the top and dominate a maturing market. For developers and investors, breaking through with a new app will be a rare occurrence reserved only for the few standouts going forward.

This signals a maturation point. ICT technologies have gone from a corporate few and reached all the way down to the invisible individual developer. We are now seeing oceans of apps spilling out of every conceivable market place bombarding us with an exhausting over supply of choice. ICT and app development has moved from a concentrated minority to a diluted majority.

Think about it like this, ‘App’ stands for appetizer….

If you’re wondering what’s next? If you’re after new opportunities to invest in – look at how technologies can be applied to things and lives for inspiration.

I understand the term startup as an individual turbo charged by technology. Within the timeline of ICT growth and maturation, I see ‘app development’ as simply the first logical thing a startup would conquer because it is the simplest thing to do. They don’t need factories and industrial machinery or expensive labor. All they need is an affordable laptop, coding ability and an insight into the industry or market sector they want to improve or disrupt.

Joining binary code with physical mechanical things is an order of magnitude harder than just coding in it’s own right – but as we move beyond peak app, it may be the only direction open to investors and startups.

The return on investment implications for merging binary with physical are huge. For instance look at the mobility/transportation market; the health/medical sector, sustainable energy products, smart wearables etc. The list goes on. Imagine how electric vehicles and drones are changing mobility and delivery. Self solar charging tents, jackets, security badges, cars and phones. Wifi power. Industrial/human interfaces already show how exoskeletons, robotics and augmented reality are entering the work place… and defence.

Just as the affordability and accessibility of computers and information lead to the internet and app phenomena, it seems inevitable that affordable and easy to use design tools, advanced manufacturing and ICT will lead to an explosion of new physical products.

Advanced manufacturing capabilities are already entering people’s homes in the forms of laser cutters, 3D printers and multi axis milling machines. Desktop machines are already below $10,000, some lower than $1,000. Now days – someone who spots an improvement or opportunity for a physical product, can with relative ease and low cost, start tinkering on a solution in their own living room.

We will see an explosion of startup activity where technology is inherent in the making of, in the use of and inside of physical products.

Construction, food & fibre, medical, health, defence, new energy and transport technologies are all featured in the Victorian Government’s Future Industries Initiative. These sectors are seen to be the building blocks for future growth for our economy and will help our industries transition toward a more competitive global economic position. It’s not a coincidence that these sectors have been identified…. and for a change I agree with the Government on this. These sectors hold great opportunities for startups.

I believe that this is where the startup world will go. App developers have shown how a tech charged individual can hit $billions in revenue within five years and topple industry giants. cloud computing and the internet of things bring new levels of connectivity, artificial intelligence offers blue sky opportunities and advanced manufacturing turns living rooms into prototyping labs.

The digital is merging with the physical and the startup definition is expanding.

Victoria has mature legacy industry strengths that can support startup expansion into medical, health, construction, food and agriculture, sports and leisure, sustainable energy and mobility sectors. We have a strong finance and business support industry that can nurture young players.

What we need desperately is for investors to get on board. At the moment many startups who are developing applied tech products still need to travel to America or Asia to find investors who will support them. And unfortunately we tend to celebrate that. Instead we should be finding a way to encourage local investment to help keep our brains on-shore!

At Space Tank we have resources for startups and opportunities for investors. If you’re a startup developing an applied technology product for market or an investor looking for opportunities beyond apps, get in touch.

 


References

Here are some references that you can follow to get a better insight into Melbourne’s startup world, the need for investment and how startups are expanding beyond apps to develop physical products.

Startupgenome.com 2018 Melbourne Report written in partnership with LaunchVic says: Melbourne has an acute capital gap at the earliest stage and a lower level of early-stage capital than every other comparison ecosystem. Median funding round sizes are smaller, series A rounds are half the size of the global median and a lower proportion of startups in Melbourne get seed funding than in other ecosystems.

Melbourne’s startup ecosystem has rapidly moved through the activation phase and must now continue the momentum to build diversity, density and investment in order to grow into a mature sector that can produce global disruptors.

Dandolo Partners Startup ecosystem mapping identified strong sector strengths in: Health, Consumer Goods, Transport/Logistics/Travel, Food/Fibre, Design, Sports/Recreation and New Energy. Applied Tech is the biggest umbrella category encompassing 39% of the overall startup action.

The Applied Technology field represents 50% of all Victorian startup activity as reported in the 2018 Startup Muster report and the majority stem from legacy industries. The evidence is showing that new greenfield investment opportunities lie in legacy industry sectors and we have strengths in these areas.

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