News

The Internet of Things (IOT)

Panelists: Johnathan Murray, Managing Director of Draper Triangle Ventures (Moderator)

 

Kevin DiDio, Counsel for Varnum

Brad Erickson, Research Analyst, Mobility & IoT for Pacific Crest Securities

Denis Foo Kune, Co-Funder & CEO of Virta Laboratories

John (Ivo) Stivoric, VP of R&D for Jawbone

Matt Van Haaren, CEO of Pixel Velocity

Johnathan transported our imaginations back to what Rip Van Winkle might see in IT technology if he were to wake up today. Now, IT is all about sustainable value where hardware is great but you have to drive utility so it is a blend of software, service and hardware if you want to stay cutting edge. Turning to the panel, Johnathan asked each one to report in on their opinions of where IT is at in their sectors.

 

Brad: Smart From the industrial perspective, phones have been saturated in profit margins three years go. Components have been driven down in cost. Software needs to catch up. He sees the following opportunities: waste reduction in things like food and industrial equipment downtime; inventory management; delays of all kinds. He feels that the industrial side has more IT opportunities than does the consumer side.

 

John: From the consumer side, he feels people want to be understood and helped to understand their environment. Medical applications and how to use things are a hot spot for IT advances. Consumers are inundated with messaging and drown in the volume of interactions. Why not use IT to sort through interactions to limit them and create higher value. As an example, why look at all emails and texts in a clueless manner trying to understand who they are from or what they want and if they are important?

 

Matt: From the energy perspective, data collection from sensors is great but more value comes from making sense of the data to make correlations that; improve rapid decisions, allow for proactive responses, mitigate shut downs, and cut costs. The energy market has a lot to catch up in I devices and software as well as cloud-based systems.

 

Denis: From the security point of view, there are bottle necks in user trust around privacy, security, and data accuracy. Hackers exploit system weaknesses to gain passwords as entry to steel credit card information or links to getting credit card information. In the medical field alone, there are 12 million routers that are vulnerable today. The challenge of IT today is to design in security into new systems verses plugging holes in old systems.

 

Kevin: From the legal side, smart products will evolve into smart cities. Soon every company will be an IOT company. There are vulnerabilities in devices used to make our lives easier, such as, home monitoring devices. Manufacturers must keep up to date in not only thinking about how their device could be misused by the end user, but also in how the device could be used as a link to other devices for further crime. The FTC has three privacy challenges for IOT companies: 1) data collection, 2) potential for unexpected uses of consumer data, and 3) heightened security risks. Manufacturers should keep connectivity first in mind instead of just remediating after events occur. Your CIO and General Counsel need to be working together.

 

Observations: Sharing infrastructure has to be shared amongst companies in order to provide connectivity with multiple devices and platforms. Doing so introduces risk of non-compliant players introducing system vulnerabilities. Accreditation may be one way to mitigate this phenomenon.

 

People are voluntarily joining the internet collective to get value but what are they sacrificing? Privacy? Security? They still want the benefits without the risk or being harmed.

 

Companies do not want to air their dirty laundry (weaknesses) even to service providers who could prevent issues.

 

So what would Rip Van Winkle see if he were to wake up 10 years from now? Ideas: a car that nearly drives itself; automatic dispatching of repair teams in response to gas pipeline leaks; technology that allows the consumer to control their own privacy; a football deflating app on a watch; human interaction devices on touch screens or wrist devices providing emotionally important interactions; and a smart T-shirt to tell the wearer not only the calories of what they ate but how much exercise they will have to do to work it off. 

 

Main Street businesses have a growing number of non-bank sources for funding their growth.  Capital is flowing into the space.  Last fall, UK Based Funding Circle, LTD, raised a $37 million C round investment from a number of VC firms and partnered with San Francisco based Endurance Lending Network to form Funding Circle USA.  Like the UK operation, Funding Circle USA is a peer to peer lending network that makes a marketplace for small business loans. 

Broadly, the idea works like this.  Potential borrowers apply on line and are screened for approval.  Funding circle only will consider loans to businesses that have been in operation for a couple of years. Rates are reasonable starting out around 6%.  Loans are approved using a scoring model and funded rapidly with funding possible in less than a week.  Loans range in size from $25,000 to $500,000.  Approved and accredited investors that are part of the Company’s network of investors can choose to invest in the loan.  Funding Circle makes its money from modest fees charged to borrowers and investors.

Franchisees of approved concepts can receive loans from Apple Pie Capital, another investor funded platform.  Apple Pie, also San Francisco based, recently raised $6.7 million in an A round and has raised an additional pool of committed investor funds totaling $28 million to lend to franchisees of approved brands.  Like Funding Circle, investors select the loans they want to fund.   Unlike SBA loans from banks, approval is fast and personal collateral is not required.  Funding is available for start-up franchisees meeting approval requirements.

There are other platforms providing funding across the country.  Michigan, like other states, has authorized the creation of funding platforms that offer both debt and equity forms of funding to Michigan based businesses that are startups. This effort in Michigan is in its infancy.   Come to our June meeting to learn more from our panel about the current status platforms operating under the Michigan law known as the MILE Act and the Federal JOBS Act and their impact on new businesses.

Lemonade Day provides kids K-12 the opportunity to experience entrepreneurship by planning, starting, owning, and operating their own businesses: lemonade stands! This national experiential learning program was brought to Michigan by Huntington Bank in 2011.Take a look at the results so far:

  • More than 70,000 Michigan youth have participated
  • Over $2.5 Million in revenue generated by the one-day businesses
  • Over $500 Thousand donated to charities
  • Detroit Public Schools incorporated Lemonade Day into their curriculum for all K-8 schools in 2013 and 2014.
  • More Michigan cities are coming on board. In 2014, Flint and Ann Arbor were added. Additional interest has come from Grand Rapids and Flint in 2015.

 

Accelerate Success…Volunteers are needed to mentor students, host workshops and introductions to Lions’ players on May 3, and to provide safe and visible locations for lemonade stands on June 6. Social media support is needed to promote Lemonade Day Michigan. Financial support is needed to provide the educational material free of charge to students. 

Volunteer to join Huntington Bank, MiQuest and SBAM, by contacting Lisa Brinker at Lisa.Brinker@huntington.com or Diane Durance at ddurance@miquest.org.  

The Michigan Celebrates Small Business (MCSB) awards event plays a key role in supporting and recognizing the achievements of Michigan’s new economy businesses from all parts of the state. This year’s reception and gala dinner event will be held on Thursday, May 7, at the Lansing Center in downtown Lansing. Best known for presenting the Michigan 50 Companies to Watch, the event has focused the spotlight on Michigan’s emerging companies for the past 11 years.

Among the recipients of this year’s 50 Companies to Watch awards, are Algal Scientific, BEET Analytics, Histosonics, and Varsity News Network – all companies that have gone through the NEF Coaching Team process or were coached by NEF for Michigan Growth Capital Symposium or Accelerate Michigan Innovation Competition. A complete list of award winners can be found on the event website at http://www.michigancelebrates.biz/the-event/2015-award-winners/

The first annual MCSB event was held in 2005. The Michigan Economic Development Corporation, Michigan Small Business Development Center, U.S. Small Business Administration, the Edward Lowe Foundation and the Small Business Association of Michigan joined forces to create this high-visibility program to celebrate entrepreneurial excellence and honor Michigan’s outstanding entrepreneurs. Launching with 400 attendees in 2005, the event quickly outgrew the capacity of the Kellogg Center. It was moved to the Lansing Center in 2008 and attendance has continued to grow; 1,000 attendees have filled the venue for the past three years.

In addition to the Gala festivities, the event includes a private reception for award recipients and underwriters at the Governor’s Residence on Wednesday, May 6. During the day on May 7, award recipients participate in a schedule of activities, tours and meetings, including visits to the Capitol to meet lawmakers and top government officials.

One major problem was that each time we thought we had found a killer app for the materials, we followed that idea only to learn that (1) the materials did not easily incorporate into the commercial process; or (2) while our material gave the commercial product significantly improved properties (strength, fire retardence, etc.) the resultant modified product was not initially tested to have sufficient advantage to whet the appetites of the potential client, or (3) we placed reliance on published data on performance of a commercial product which we thought we enhanced by more than an order of magnitude, when in fact the true numbers were hidden by the manufacturers as trade secrets and our materials only offered a marginal gain.

There is a lesson in all of this.  With technology, market pull works far better than technology push.  Not so very different from other product areas.  This was the most expensive loss I have taken in angel investing, and a number of friends came along too. You would think that I had learned my lesson in the 1980’s with my first company, which while successful (Inc. 500 in 1989) and providing a more than satisfactory exit for our investors, failed miserably on two technology push product ideas.

There are myriad ways for Tech companies to fail.  This is the story of one such failure and why it happened, at least in the opinion of this author.  The invention was a superior kind of chemical material with wide potential applications across multiple major industries. Several patents protected these inventions.  As lead investor, I led two rounds of Angel Investment totaling over $800k, accompanied by several state grants and investments adding $400k and federal SBIR funding more than $1 Million. These funds came after Millions in grants had been used to develop the materials at Michigan State University.

What was the problem?  Why did this commercialization not succeed? Well, therein is the story.  Of course there were multiple issues such that after less than three years, the Company closed its doors and returned its technology license to Michigan State University.  But the salient issue was that while the new materials could significantly improve commercial materials in diverse applications, no one case was compelling enough to forcefully argue for commercial adoption which would require at least some changes in production. So no Corporate Knight in shining armor came to our rescue.

It did not help that it took us more than a year to supply large volumes of the materials to potential sponsors (multiple liters of very light weight powders weighing a kilogram or more).   We were able to build a pre-pilot plant to do that, and design was complete on a much larger scale pilot plant.

First, what is DTX Launch Detroit? It is a program of the Detroit Technology Exchange (DTX), a programmatic partnership between TechTown Detroit, Bizdom, Invest Detroit, the Detroit Creative Corridor Center (DC3), Henry Ford Innovation Institute, Next Energy and TechStars Mobility-Driven by Detroit. DTX, supported by MEDC’s Michigan Strategic Fund and the New Economy Initiative, is designed to recruit and groom talent for tech entrepreneurship opportunities for Detroit-based startups.

DTX Launch Detroit is a 10-week summer accelerator for college students and recent graduates aspiring to launch a tech-based/tech-enabled startup. In its third year, the 2015 Launch Detroit application is live; more information and a link can be found at http://techtowndetroit.org/entrepreneur/labs/launch-detroit/. Participants will receive a stipend of $2,500 per individual (up to $7,500 per venture team) to test out their entrepreneurial dreams.

This year, there is a new option for selected teams: For those teams that wish to participate but do not have a well-formulated business idea, the DTX partners have been soliciting project ideas/technologies from industry partners. These projects are of known significance, provide the opportunity to work directly with an industry adviser, and offer the possibility of employment with the industry sponsor.

From the very beginning NEF has been supporting the program with pitch instruction and coaching. Some student graduates have gone on for further coaching at NEF and have even had a turn in the Pitch Pit.  Launch Detroit culminates with a public showcase, giving participants the opportunity to make that polished pitch to potential partners, advisors and investors.

 

For those entrepreneurs and researchers in the energy space, NextEnergy is a great resource.  They’ll now be offering monthly updates on funding opportunities.  See Danny Allen’s blog for more information:http://www.nextenergy.org/danny-allen-manager-venture-services-venture-for-america-fellow-nextenergy-funding-findings-staying-on-top-of-funding-opportunities

Members of the New Enterprise Forum coached the Michigan Business Challenge Semi-Finalists and Social Impact Finalists on February 13th at the Ross School of Business. Coaches met with 8 teams and provided feedback on their 15-minute presentations. In addition, members of the NEF board served as judges for Round 1 of the Challenge.

The Michigan Business Challenge is a campus-wide, multi-round business plan competition thru which student teams have the opportunity to win cash prizes totaling over $75,000, gain feedback from judges, and expand their business network. 80 teams pitched to judges on December 5 and only 22 advanced to the next round, which occurred on January 23. Eight teams were then chosen as Semi Finalists and four were selected as Social Impact Finalists. The Finals held Friday, February 20th. 

Companion, a peer-to-peer public safety app, took home 1st Place and $20,000. Blueprints for Pangaea, which sends unused medical supplies to developing countries, won the Social Impact Award and $15,000. Ben Rathi, CEO of Blueprints for Pangaea, said "The Michigan Business Challenge not only improved our ability to concisely present our business plan, but more importantly, it afforded us an opportunity to receive critical feedback on our venture."
 

Some teams, including the 2013 2nd Place winner, Exo Dynamics, go on to receive further coaching from NEF and eventually become Showcase Presenters at the NEF Forum meetings.

" With the announcement last Monday of Ned Staebler taking over as CEO of Detroit's TechTown (http://www.crainsdetroit.com/article/20150302/NEWS/150309987/ned-staeble...), and the nomination last Thursday of Betsy Creedon, TechTown Director of Entrepreneurial Services, to NEF's board, it's important to affirm how much our relationship with the business accelerator and incubator has solidified over the last few years.  At the board's retreat in 2011, we had set an objective to start participating and supporting the fast developing entrepreneurial scene in Detroit,  but it took the arrival of Charlie Moret at the head of their tech entrepreneurship program, the following nomination of Sheu-Jane Gallagher, Betsy Creedon 's predecessor, to our board,  and the continued support of Paul Riser, who replaced Charlie last year  to establish a working relationship that has allowed our volunteer coaches to support TechTown's boot camps, and other mentoring events and business plan competitions as well as seeing an increasing number of Detroit based companies participating in some of our pitch pit competitions or becoming  showcase presenters after going through our coaching process.  This has been very positive and we're excited to have Betsy on our board to build on what's been accomplished!"

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