“There are a lot of places where Asia will be the first,” observed Nicolas Sauvage, president, and founder of TDK Ventures. For Ken Forster, executive director and founder of Momenta Ventures, Asian hardware manufacturers will have a large role to play in a future characterized by edgeware – software that runs on hardware at the edge.
In a sense, the latest session of Asia Venturing jointly powered by DIGITIMES and Anchor Taiwan already captured the dynamics of the coming decades. East is meeting West, as the global hardware industry converges with its software counterpart. The recent rise of industrial technology particularly testifies to this trend. In 2021, a record US$45 billion funding went into industrial and supply-chain startups. The COVID-19 pandemic has especially accelerated this trend as the rising need for visibility, predictability and efficiency dominates the manufacturing and logistics industry.
Against this backdrop, the 7th Asia Venturing webcast brought together two leaders in the industrial technology investment sector for our latest topic: The Great Convergence – Why Industrial Tech is the Next Big Thing, interviewed by Elisa Chiu, CEO of Anchor Taiwan.
TDK Ventures, the VC arm of the Japanese electronics conglomerate TDK, was founded in 2019 by Sauvage to focus on industrial sectors related to digital transformation and energy transformation, including clean energy, next-generation material, connectivity, and manufacturing. Momenta Ventures, a Switzerland-based VC founded by Ken Forster in 2010, was likewise dedicated to the digitization of manufacturing, supply chain, smart spaces and energy. In 2021, Momenta partnered with Advantech, a global industrial computer leader based in Taiwan, in launching AIoT Ecosystem Fund.
A new pattern on the horizon
Both well-versed in the industrial technology investment landscapes in Asia, Europe, and North America, Sauvage and Forster are in fact seeing similar patterns when it comes to industrial technology investments. “All of TDK’s investments are hardware, and all require integration with software,” Sauvage pointed out. Metalenz, a TDK Ventures portfolio company that designs and sells meta-optics, serves as a good example. The US startup, according to Sauvage, uses semiconductor technology to do optical solutions. However, it has to work with module makers as well as software companies to provide the needed solutions.
Forster, meanwhile, has come up with the term “hyper-converged edge” to describe the hardware-software convergence he sees in the industrial sector. Citing the EU Commission’s estimation that by 2025, 80% of data processing will take place at the edge, Forster noted that data would no longer be sitting in US hyperscalers once this happens. In this context, Forster believed that hardware providers would see a promising future if they considered themselves “a part of an edgeware stack.”
A different investment strategy needed?
“Operational Technology (OT) is a very different game from IT,” Forster pointed to the fundamentally different challenges faced by industrial technology startup companies in comparison to the software startups that defined the technology industry of the previous decade. Apart from the strict safety standards expected in the OT industry, the overall landscape is also dominated by a handful of regional OT players such as Siemens, Rockwell, Honeywell, and ABB.
Consequently, according to Forster, it becomes hard to grow a company, find partners and investments, and even get acquired, without getting these major OT players involved. “In some sense, this is a closed market with high friction,” observed Forster. To obtain the necessary domain knowledge, partnering with these players becomes absolutely critical for any young company in the industrial sector.
Complementary to Forster’s observation, Sauvage also gave a piece of advice to the entrepreneurs in the audience. “If you are looking at this big challenge and you are looking at a go-to-market that requires these big brands, don’t just think about financial VCs,” Sauvage remarked, “think about the corporate VCs that can actually help you with these partnerships.” As Sauvage indicated, half of all the startups’ investments made during the pandemic came from corporate venture capitals (CVCs) born during the crisis. “They didn’t exist before April 1st, 2020.”
The challenge of Industry 5.0
The latest rise of industrial technology also ushers in the newest wave of the industrial revolution. Since the concept was first brought up in 2015, Industry 4.0 has continued to guide and shape the industrial landscape with its emphasis on connectivity, AI, and big data. Industry 5.0, an idea mostly pioneered by the EU, envisions a new paradigm that aims beyond efficiency and productivity as the sole goals. Instead, it seeks to reinforce the industry’s contribution to society.
“Every industrial revolution brings a new level of value to society,” Sauvage observed. For the TDK Ventures leader, Industry 5.0 is a call of duty. Ultimately, it is about “what type of insights do we want to get from all this data, and do good.” In accordance, TDK Ventures also focuses on startups that know how to leverage data for Industry 5.0 goals.
“I do not believe that you are going to make an investment in the future without having a balanced scorecard of profit and ESG (environment, social, and governance),” agreed Forster. For the Momenta Ventures founder, Industry 5.0 represents a shift from one P – productivity – to three Ps, namely productivity, people, and the planet.
While Sauvage finds the “governance” aspect of ESG relatively challenging, pointing to the need for different governance levels for startups at different stages, Forster believes that governance is primarily about transparency – done via digitizing a process.
Asia leads the way
Side by side with Industry 5.0, the ongoing convergence between East and West, driven by hardware-software integration, is also reshaping the global industrial landscape. For Forster, Momenta’s partnership with Advantech already showed how the process of co-creation had benefited from the convergence between East and West. Forster pointed out how senior executives in Advantech had observed certain patterns in their operations in China, and how they had suggested applying such patterns in Europe and North America. “That ability to pattern match is what co-creation is all about.”
As for Sauvage, geographical advantage has always been a key determinant of startup success. As East meets West, Sauvage noted how one of TDK’s portfolio companies, Autoflight, had successfully combined the advantages from both hemispheres. Based in Germany, but founded by a Chinese drone engineer, Autoflight has been developing electric vertical takeoff and landing airplanes (eVTOL). Sauvage noted how the company merged the drone-design disciplines from its Shanghai-based team with the airplane-design disciplines from its Germany-based team. “When you combined the two, it ended up with a beautiful and elegant design.”
“Whether it is a new business model, whether it is a new type of technology, there are a lot of areas where Asia is going to see things earlier than other places in the world,” Sauvage further observed. “When this happens, that’s when we want to invest in Asia.”
About Asia Venturing
Asia Venturing is a series of monthly roundtables with roadmaps to the future focusing on the hype v.s. the reality of Asia’s supply chain-boosted innovation ecosystem, jointly powered by DIGITIMES and Anchor Taiwan. We bring together leading industry luminaries, corporate strategists, experienced investors, and entrepreneurs to expand your network and redefine the possibilities of cross-border opportunities. The replay of the latest session can be seen on DIGITIMES or Anchor Taiwan)