The post-pandemic world is unleashing a wave of digital transformation through a wide variety of sectors. Facing a series of supply chain bottlenecks, the industrial sector has also been gripped by this wave of digital transformation, especially when a series of bottlenecks induced by the pandemic and geopolitical factors have made it even more necessary to ensure more supply chain transparency and a higher level of resilience.
Recognizing the need, venture capitalists and corporates have been pouring into Industry 4.0 startups. Last year, CNBC reported a surge of VC investment into industrial startups. Likewise, a Crunchbase report in July 2021 noted that VC investment in industrial automation already reached US$1.4 billion, on track to beat the US$1.7 billion record in 2020.
Continuation of a 10-year trend
While the post-pandemic resurgence is undeniable, Momenta Ventures' Ken Forster was unsurprised by the recent uptick in Industry 4.0 investment. "For us, it was a continuation of a 10-year trend," said Forster, founder and executive director of Momenta, in a pre-event interview for Asia Venturing: The Great Convergence - Why is Industrial Tech the Next Big Thing, co-hosted by DIGITIMES and Anchor Taiwan.
Founded in 2010, Momenta Ventures aimed to accelerate the digitization of manufacturing, supply chain, smart spaces, and energy. Since then, according to Forster, Momenta Ventures has already made 120 investments across 50 companies in Europe and North America with 7 exits. "In the first year of our investments, the digital industry space saw a total of US$176 million in investments across 28 deals. In 2021 this was almost US$3 billion across 231 deals," observed Forster, "that was a 32% CAGR over ten years in terms of dollars invested."
Back in 2014, Momenta began to note a surge of investment activity in industrial technology. ThingWorx, a Momenta portfolio company providing a software platform for IoT-based applications, was acquired by the industrial software company PTC for US$112 million, according to ABI Research. In the following year, another IoT application-related portfolio company, PLAT.ONE was acquired by the enterprise software company SAP in the latter's bid to invest US$2 billion in IoT.
As a "veteran" investor in the industrial sector, Forster noted the highly regulated and slow-moving nature of the industry. To succeed, startups and VCs alike require a deep knowledge of how the industry works. While Momenta itself is staffed by professionals familiar with the sector, Forster observed that the higher entry barrier of Industrial IoT investment was one of the reasons that early investment into the sector was dominated by corporate venture capitals (CVCs). In comparison, most VCs are not used to doing infrastructure and industrial investing, as it requires more value creation.
Away from cloud, the weight of industrial power is shifting
"The minute you choose industrial, you have to focus on a couple of investments with co-creation," Forster pointed out. Solid knowledge of how the industry works is a key prerequisite for success, especially for young companies. Consequently, apart from capital, investors in the industrial sector are also expected to bring in additional values in the form of networks, knowledge and advice.
Momenta's long presence in Industry 4.0 investment, meanwhile, has attracted major corporates to seek partnerships. "The industrial business is very small. Your investors, partners, and acquirers are probably one of those largest industrial companies like Siemens, ABB and Rockwell," Forster said. According to Forster, it is important to get close enough to these major players. Once you are close enough, oftentimes they will also ask Momenta to help with investing, executive search and acquiring companies.
In 2021, for instance, Momenta partnered with Advantech's CVC to launch an AIoT Ecosystem Fund. The world's largest maker of industrial computers with a market cap of US$10 billion, Advantech has undertaken initiatives to move beyond being a mere hardware provider, seeking to become a full-stack solution provider. Such demand for a deep level of software-hardware integration prompted the Taiwanese industrial computer giant to look toward North America and especially Europe.
Meanwhile, complementary development is underway in Europe. The EU has forecast that by 2025, 80% of data processing will take place at the edge, and 20% in the cloud. "Today is the opposite," Forster observed, "there has been a heavy dependence on a handful of US-based hyper-scaler companies like Google and Amazon who are dominating cloud computing."
The EU has always been a major player in the global industrial sector. Consequently, as the focal point of computing gradually moves from cloud to edge, European industrial players, driven by the momentum of deglobalization and data sovereignty, have been seizing the opportunity to provide more hardware-software solutions. This gives Asian manufacturers like Advantech an unprecedented chance to look westward.
Asia meets Europe at the edge
"Advantech is a world leader in industrial PCs and gateways, and there are few industrial settings where you will not find their offerings, so partnering with them was a natural fit for our investment focus and their offerings," said Forster. In the partnership, Momenta has been helping to refine Advantech's vision and strategies to build an ecosystem of edge software (edgeware) partners. "We have weekly discussions with Advantech leadership on patterns across Asia-Pacific, EU and North America to refine our investment thesis, co-creation efforts and commercial market development."
In the long term, Forster sees an opportunity for greater convergence between Asia and Europe, emphasizing the opportunities unleashed by edge computing. "Computing is the basis for this trend, with small-footprint, power, computing and communications-constrained devices positioned close to where the sensing and activation are happening," observed Forster, "This has been a sweet spot for Asian manufacturers."
Beyond edge computing, Forsters believes there are more opportunities for Asian companies to get more involved in Europe. Beyond the manufacturing and supply chain sectors, Forster also sees the possibilities of greater Asian participation as Europe moves to decentralize energy generation and speed up the adoption of renewables. Even digital health presents opportunities for Asia. "All of our digital industry sectors are transforming," Forster said.
As the shift from cloud to edge comes to grip the industrial sector, Asia finds itself at an unprecedented juncture. What is the way forward? Join us in the next session of Asia Venturing: The Great Convergence - Why Industrial Tech is the Next Big Thing (7 PM APR 25 SF | 10 AM APR 26 Taipei). Together with Ken Forster, Nicolas Sauvage, President of TDK Ventures, and Elisa Chiu, CEO of Anchor Taiwan, we will walk you through the landscape of Industry 4.0 investment and where Asia stands.
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)