Maybe your company has figured out a way to connect refrigerators to smart phones to notify people when they're out of milk.
If so, your business is probably on the right track, and big time investors think so too. Venture capital money is flooding into the so-called Internet of Things, as well as wearable smart devices, and other hardware companies. Both the industry and investor interest are nascent, so if connecting light switches and ovens to the Internet is your thing, go for it now.
"The interest in hardware investment is really in the larger context of macro trends around mobile digital health, connected devices, and the Internet of things," says Michael Yang, managing partner at Comcast Ventures in Palo Alto, California.
More than $1 billion flowed into 153 venture deals for companies creating products and services in the "IOT" space for the full year 2013, according to CB Insights, a venture capital and angel investment research company. Deals grew 11 percent compared to the full year 2012, and funding increased nearly 50 percent.
Comcast invested $8 million in BodyMedia, a health and wellness monitoring company, in 2012--shortly before the digital health device maker Jawbone acquired it for more than $100 million in 2013. Comcast continues to have an ownership stake in the company.
The investment momentum in hardware stems from a confluence of trends, Yang says. Those trends include the pervasive use of smart phones, more extensive and faster network coverage, a greater ability (and interest) in crunching sets of big data, and the cheaper cost to mass-manufacture certain essential components, such as sensors and accelerometers.
Startups Stake Their Claim
Startups in particular are reaping the benefits of investor interest in the sector. Two thirds of companies received Series A financing over the past two years, CB Insights reports. And the number of Series A deals rose 52 percent in 2013 compared to the previous year.
Early stage companies that have received financing recently include SmartThings, August, Lark Technologies, SoundHawk, and Netatmo, which make devices ranging from sensor enabled homes and kitchens, to sleep trackers and air quality sensors.
"Three years ago companies like these barely existed, so it's an exciting time for investment and the iteration time is so fast," Ross Fubini, partner at Canaan Partners in San Francisco says. "You might meet an interesting enptrepreneur and six months later they have a dozen prototypes and a dozen applications they have started to build."
And the sector is gradually moving from devices that focus broadly on consumer health--for example bands that track patterns like pulse and range while running--to products that amplify and connect experiences consumers have in their cars and homes.
"Home, car, and the body, these things are so close to us, yet we know so little about them," Yang says.
IPOs Out of Reach
Still, investor enthusiasm for hardware devices has yet to migrate to the public markets in a meaningful way.
"There is very little happening in the tech hardware space," says Kathleen Smith, principal at Renaissance Capital in Greenwich, Connecticut, though with one notable exception. Wearable camera startup GoPro is planning to have an IPO at some point in 2014.
"In 2013 [there were] only nine tech companies, focused on storage and networking," Smith says.