Will Cell Phones Replace Swiss Army Knives?
February / March 06
Volume 4 Number 1
The venture capital community's job is not to follow the pack, but to anticipate trends a few years before they become real. If they do this right, they can lead investors to the right startups that can capitalize on those trends when they become reality. We asked seasoned venture capitalists what the big idea would be for 2006. What was the hot trend for the year? What do consumers or the rest of the world need, but don't really realize it yet? Here are some of the answers we got.
Janice Roberts, a managing director at the Mayfield Fund in Menlo Park, Calif., has been investing in a variety of networkingsystems, mobile communications and consumer-oriented investments since 2000. She serves on the boards of companies such as Pixim, PlayFirst and Ubicom.
The first trend I see changing in the venture world is geography. The whole concept of Silicon Valley as a state of mind is coming true. We're concentrating our efforts in the rest of the United States, Europe, China and India. That's an obvious trend, where everyone is going further afield into China and India. Driving five minutes down the road from Menlo Park isn't the answer anymore. The other change is coming off the Consumer Electronics Show in Las Vegas. With broadband penetration and wireless phones reaching so many people, the consumer is much more important. The big players are all paying attention here, but there is a role for venture to play. News Corp. has said it will invest billions in wireless. Media companies are buying a lot of properties. There is a lot of merger and acquisition activity. Some venture players will get the big win. Moving content to mobile devices will be hot. The phone is going to be the most important entertainment device and it is only going to get more important.
Jason Matlof joined Battery Ventures, Wellesley, Mass., and San Mateo, Calif., as a partner in early 2005 and focuses on networking, security and energy technologies. He is on the board at Advent Solar, and before joining Battery he spent a decade in management roles at a variety of companies including Cisco Systems.
An exciting trend that will undoubtedly reward savvy entrepreneurs and venture investors in the coming years resides in the area of clean energy. When you consider the forceful macroeconomic and geopolitical shifts driving change in the global energy market, it's clear that the decades old forms of electricity
production and petroleum-based transportation fuels must be augmented and/or replaced with new technologies. Over the last five years, we've seen symptoms implying that global energy demand growth is outpacing the ability to find new reserves. The lack of slack in the petroleum and natural gas industries and the hyper-growth in energy demand taking place in India and China are just two examples indicating that the supply-demand balance is reaching a very precarious state.
We believe that the market is ready to adopt breakthrough technologies that can utilize fuels more efficiently or that can eliminate the need for traditional fossil fuels altogether. We believe that the future of energy will look very different than it has over the last 50 years.
Todd Dagres is a general partner at Spark Capital in Boston. The company debuted in October with a $260 million fund aimed at taking advantage of the convergence of media, entertainment, and technology industries. Dagres most recently served as a general partner at Battery Ventures.
Over the years, government research has been the source of revolutionary changes; 2006 will be no exception. One new visible product area, resulting in part from government-sponsored research, is the goggle monitor or TV glasses. The emergence of cell phone video, video iPods and mobile media players will drive demand for ways to see and hear video content beyond 2.5-inch liquid crystal display screens.
Goggle monitors will initially enable a mobile user experience that approximates a 37-inch TV or computer screen at eight feet with stereo audio. The innovation is the integration of tiny monitors into special-purpose goggles delivering stereoscopic vision. The result is a monitor that looks good, appears much larger than a small screen on a portable device, and doesn't cause headaches or disorientation.
There are several vendors poised to deliver such monitors including MicroModule and iCUITY, both of which are involved with government research for head-mounted displays. The new goggle monitors will be available in 2006 on some cell phones and media players such as the iPod. The goggles will retail for $200 to $500 per set depending on picture quality, screen size and features. Besides portability and ergonomic benefits, the goggle will enable private viewing. Prepare for a new era of content viewing on the go, thanks in some part to Uncle Sam.
Nate Redmond is a senior associate at Rustic Canyon Partners in Santa Monica, Calif. He specializes in open-source software, information services and digital media. Before joining the company, he evaluated venture investments for Harvard Business School Professor Clayton Christensen.
I think the most important trend is a move away from —€”starting with enterprise and involving consumers too—€”customers focusing on buying technology. Much more they will be looking to purchase solutions and services around technologies. We will see businesses that truly scale and expand rapidly here. They are enabled by technology, but really bring new services. What Amazon.com has done with Alexa, the technology behind their A9 search engine, is an example. It's a search engine that collects data on web site traffic and provides opportunities for businesses to launch new services. We are going to see a new set of business and information services companies emerge. They will bring new business models to old markets. Lastly, water is the new oil. It's our most precious commodity. We'll start to see more and more conservation and investments around the economics of clean water creation and delivery.
Gus Tai is a general partner at Trinity Ventures in Menlo Park, Calif. He has led investments in a variety of companies from cell phone chip maker Amalfi Semiconductor to Kiva Software. He has focused on investments in software, communications, and enterprise systems companies. Prior to joining Trinity in 1996, he worked at Bain & Co. as a consultant for technology firms on new product development and business strategy.
For 2006, I believe it will be the year of IPTV (internet protocol) and high-definition TV streamed over the internet. That's a common trend among the suppliers showing up at the Consumer Electronics Show. Consumers are familiar with how to receive it. Cisco Systems stepped up by buying Scientific Atlanta. Microsoft is working with SBC. Large companies are ready to deliver portable TV content. Consumers are looking forward to it. Increased media distribution to cell phones is happening. Electronic Arts bought Jamdat as part of a sound strategy to lead in games on cell phones and on the web. There are next-generation games coming. We will see more virtual online and social elements to these games where communities will interact. Casual gaming is a very large trend.
Sujit Banerje is a principal of Blue Run Ventures, a Menlo Park, Calif., venture fund primarily funded by cell phone maker Nokia. He focuses on systems and component companies and runs the firm's India office. He previously worked at TL Ventures and Finaventures, and served as an investment banker at Merrill Lynch in the global technology group. Blue Run has about $1 billion under management.
There are several next-generation themes for 2006. On cell phones, you will see little projectors. It will enable you to watch films on a wall in a hallway. It could be two or three years out before it really takes off, but the technology is happening now. Camera and cell phones are very successful. But a true digital camera is still hard to find in cell phones. We will see those technologies getting miniaturized and put into cell phones. It's going to be a mass market. In global markets, we'll see things like a low-end cell phone take off in India. It will enable people in those markets to take advantage of technology. You will see things like micro displays and micro hard drives taking off in handhelds.
Gerry Purdy is on the technical advisory board of Sofinnova Ventures and a longtime mobile technology analyst.
Mobile and wireless are finally going mainstream in both enterprise and consumer markets. There are a number of big investment areas for 2006 including:
—€ Value added services to Wi-Fi (leverage the growing Wi-Fi infrastructure via new applications).
—€ Location-based services (finally location should be available everywhere)
—€ Wireless handset content aggregation and delivery (moving beyond the WAP deck)
—€ Technology (hw, sw) to take the cell phone to a new level, e.g. security, media, graphics.
—€ Mobile applications and content.
—€ Audio (music, podcasting) and video technologies for cell phones
—€ Mobile social networking (helping people get connected when mobile)
Other opportunity areas include WiMAX (stay out of Intel's way), off-portal wireless plays (get the wireless operator on your side) and security (beyond access and authentication and encryption).
Eric Janszen is managing director at Osborn Capital in Lexington, Mass.
This year Wi-Fi winds up in everything that moves and takes pictures. Millions of digital cameras, cell and smart phones with cameras will churn out terabytes of still and video digital images to choke a 3G cellular network. But Wi-Fi's unlicensed bandwidth is free and handles multiple megabits versus 3G's expensive, licensed kilobits. This development has been expected for years and finally happens this year from the convergence of key trends:
Ultra-commoditization of Wi-Fi chips. Improvements in batteries and Wi-Fi power consumption. Acceptance of Wi-Fi security catches up with standards. Most critically, ubiquity of what I call Digital Media.
Exchange Points (DMXPs) from home Wi-Fi networks to public Wi-Fi Hot Spots will replace today's clunky two-step file download process with automatic synchronization of media devices to the web via digital media communities like Fotki.These devices exit the early adopter market and go mainstream for explosive growth.
Gadi Behar is founder and managing director of Silicom Ventures in Los Altos, Calif. The venture is an organized group of angel investors who have been investing in early stage companies since 1999.
Last year we looked at about 2,000 business plans from which we have selected 80 to present to our investors. The distribution of selected companies by technology was roughly: biotech (including pharmaceutical), 25 percent; semiconductors, 20 percent; consumer media, 20 percent; storage, 5 percent; customer relationship management software, 10 percent; nanotech 3 percent; wireless, 5 percent; security, 10 percent, other, 2 percent.
These represented hot areas last year and I believe a similar distribution will continue in 2006. Like everybody else I believe that 2006 will be the "Year of the Video" and the battle for who controls the (digital) living room. I think the TV-centric integrated set-top box will win over the PC's computer-centric architecture, simply because couch potatoes are used to a five-button remote control and do not want to become network and computer administrators. The other deciding factor in favor of the "box" will be its significantly lower price.
Another hot trend for 2006 we are seeing is the globalization of investment and entrepreneurship. Many foreign governments have asked us to help them introduce their technology companies to U.S. investors and strategic partners. We are seeing very promising companies with exciting products and technologies in bio, materials science, media, etc, from the Netherlands, Mexico, Argentina, Israel, Spain, Switzerland and the list is growing.
Dean Takahashi is a reporter for the San Jose Mercury News.
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