Guest post by Scott MacDonald and Whitney Rockley, Co-founders and Managing Partners of McRock Capital.
Over coffee in 2011, my soon-to-be co-founder, Whitney Rockley, and I reflected that all aspects of our world were becoming infiltrated with sensors and that the cost of connecting things to the internet was decreasing. The explosive growth of smart phones and consumer software apps seemed to be the obvious sign to the future. We even joked that the phrase “on-line” would soon become so essential that using it would show your age by acknowledging that you lived in a time when something like banking had to be a physical outing. We took that thought one step further and predicted that software would be created to seek value from digital data being generated and connected. It also seemed logical that high-value things, such as industrial machines, would have the most attractive value proposition for early IoT adoption. A smart fridge that lets us know how many eggs we have left and maybe even orders new ones is cool but we were concerned about how much consumers would pay for that use case.
Perhaps our gravitation towards the adoption of Industrial IoT (IIoT) was not a surprise since we had spent our careers working in industrial sectors and had always focused on technology. Pushing the adoption of new technology in conservative industrial sectors had always seemed like a risky business. However, the biggest bet of our careers would come when we left our jobs to start a new venture capital firm focused on funding companies enabling the impending Digital Industrial Revolution. We were calling the sector the IIoT, but the term is obscure. We launched McRock’s first VC fund exactly 3 years ago this month with the financial backing of some industry heavy weights such as Cisco Systems and Caterpillar. A few of our assumptions exceeded our expectation, a few fell short and now we have more refined predictions for the future.
The first reality for the IIoT was that imagination preceded the adoption of reality. It had to. Industry needed a story of exciting possibility to get it started on the journey of hard work. The promise of predictive maintenance, zero unplanned downtime, and new recurring revenue streams were phrases we heard in every meeting because that was the type of killer app that everyone wanted. Since our conversation in the coffee shop six years ago, we have always mapped IIoT technologies into three buckets: things (data generation), connectivity, and analytics & applications. As it has turned out, the use cases with the fastest adoption were ones that had existing data, connectivity was easier and moderate levels of software analytics were creating instant value. For one recent example, McRock’s portfolio company RtTech Software sold its cloud-based edge connectivity software called Cipher to Aspen Technologies (NASDAQ: AZPM) earlier this month. Cipher made it incredibly easy to connect isolated machines, which is still part of the adoption challenge.
While we set our sights on IIoT investment activities for 2018, we are excited by the growing activity around smart cities. We are witnessing trends towards intelligent traffic infrastructures, vehicle-to-infrastructure connectivity, and real-time availability of municipal services such as police services, hospital beds and parking spots. McRock Capital expects to be very active investing in more IIoT entrepreneurs and companies as the Digital Industrial Revolution becomes even more obvious.
Scott MacDonald and Whitney Rockley are Co-founders and Managing Partners of McRock Capital, a venture capital firm focused exclusively on the Industrial Internet of Things (IIoT). Scott has played an integral part in building many of today’s leading Industrial Internet companies, and Whitney has over 20 years of investment, operating and strategic planning experience from the power, water and oil & gas industries.