With so much interest in the wearable category, VCJ asked a handful of top venture capitalists for their thoughts on the investment climate. What follows are comments from Jon Callaghan at True Ventures, Rob Coneybeer from Shasta Ventures, Eric Klein at Lemnos Labs and Ajay Chopra from Trinity Ventures.
Here is an edited transcript of their views.
Q: Venture capitalists have shown a lot of interest in this early, hard-to-read market of wearables. Is the sector overfunded given the uncertainties?
Callaghan: I actually think it is underfunded. There aren’t enough people taking big bold risks.
What I mean by that is venture capitalists want the safe deal. That doesn’t exist in hardware and wearables. It is such an early market and there are so many unknowns.
To invest in it, you need to be a venture capitalist, meaning you’ve got to embrace risk. When we funded Fitbit, people told us we were crazy to do hardware. When we funded 3D Robotics a year ago, people told us drones were a hobbyist market.
Our industry needs to take a whole lot more risk.
Q: Would you say the capital doesn’t yet match the opportunity?
Callaghan: I can’t sit here and say wearables will take over the world. I don’t know if that will be the case, and not all investments are created equally when it comes to any industry, let alone this one, which is so far out in the future.
Having said that, this is an enormous trend that venture capitalists need to be putting resources behind because these markets are huge.
For the first time in history your average three-person startup can address markets that number in the billions. We’ve never had that before. MakerBot (now acquired), Fitbit, 3D Robotics, these companies are scaling like we’ve rarely seen before.
Q: Wearables investing appears to have picked up steam. How is Shasta approaching the space?
Coneybeer: We think it’s a really interesting area. But we think that what you’ve seen so far is a lot like the early pre iPhone days. The iPhone moment for wearables, [when they take off as a category], is still a year or two off.
Q: Where are you spending your time today?
Coneybeer: Were looking at it with an open mind. It’s really that simple. We’re spending time getting to know people on the components players side to see what they are saying. They’re the ones who are going to start to get a sense of where people are getting volume.
We are also thinking about the applications where we think the technology is well suited. On the consumer side, somebody is going to crack the code on a breakthrough wearable device. Were starting to see some interesting stuff there.
Q: Talk about breakthrough devices. What are the principal use cases for wearables?
Klein: At the end of the day what you’re really focused on is what consumers need and want to do. We use the term primal. Primal use cases. Information access is an example. Why is the watch so hot right now? At the end of the day, we’ve turned into a society of information scoopers. If you can get smaller bites on a faster basis without breaking societal norms, such as having our phones stuck in front of our face the entire time, we’re going to do it.
Q: Is information consumption the first phase of wearables?
Klein: In the first phase of any tech, it’s just a lot of display. But it’s becoming interactive and will augment the process that you’re doing. This is why I would be a little more bullish on Google Glass. If I could walk down the street and instead of keeping my phone in front of my face get walking directions from a simple arrow telling me to turn left in 500 feet, you’ve changed the way I do something.
Not that the high-end and the more amazing features won’t come, but what makes money is when the user says, ‘Wow, that changes things for me.’
Q: With new platforms emerging in the wearables space, how do you see the market unfolding?
Chopra: Eventually there will be one or two or maybe three major platforms in a few categories. There is going to be a wrist category. There is going to be a category related to facial and glasses. And there’s probably going to be a category related to apparel.
Q: Is the wrist category furthest along?
Chopra: It is going to be a pretty crowded space on the hardware side. Companies are going to have to run like hell to create differentiation.
However, the layer above that could be the place to create some pretty interesting applications related to the three categories I was talking about.
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