VCs try on wearables

The past eight months may have signaled a turning point for wearables investing, sister publication VCJ reported.

Money has begun to flow and interest has exploded as investors pan for gold on the leading edge of vast new markets just now beginning to show themselves. Imaginations have been sparked by a wave of new apps that could span the gulf from consumer to enterprise, and the tone of pitch meetings with founders is far more welcoming than just 18 months ago.

Startups have translated this new excitement into a boom time for capital.

* Health and fitness monitoring pioneer Fitbit, perhaps the biggest money raiser, took in $43 million in an August deal that attracted backers Qualcomm Ventures, SAP Ventures and SoftBank Capital, along with existing investors, True Ventures and Foundry Group.
* Smart watch developer Pebble cashed a $15 million check from Charles River Ventures in May.
Basis Science brought in the second tranche of a $23 million Series B funding in October from a syndicate that included Norwest Venture Partners, Mayfield Fund, DCM and Intel Capital.
* Sproutling turned enthusiasm over its baby monitor into a $2.6 million round with backers, such as First Round Capital, Forerunner Ventures and FirstMark Capital.
* And Avegant received seed funding and smart glasses maker Recon Instruments won the support of Intel Capital.

“It’s still a minority of VCs that are drawn to hardware,” said Jef Holove, CEO of Basis. “[But] everybody sees wearables coming or sees that they are here. The gravity around this category seems to be bending the rules.”

It is easy to see why VCs have overcome their traditional reluctance for hardware. The potential for wearables is enormous. Initially, consumers might use smart watches to keep track of email and alerts and Google Glass-like headsets for gaming. Emergency responders might receive help from experts monitoring through connected goggles, and doctors may collaborate remotely on surgeries. More creative uses are emerging.

“I actually think [the opportunity] is underfunded,” said Jon Callaghan, managing partner and founder of True Ventures, which, in addition to Fitbit, has backed lifelogging camera designer Narrative.

“There aren’t enough people taking big bold risks,” he said. “For the first time in history your average three-person startup can address markets that number in the billions.”

Clearly there is no shortage of shoppers. One firm with an active interest is Draper Fisher Jurvetson.

“We’re looking at a lot of platform companies and applications that are trying to simplify our lives by pushing a deeply personalized experience to the user,” said Managing Director Andreas Stavropoulos. “It is something that is very interesting.”

Kleiner Perkins Caufield & Byers is another firm on the prowl, Partner Trae Vassallo said at the Glazed Conference on wearables in September.

This story first appeared in Reuters Venture Capital Journal. Subscribers can read the entire original story here. To subscribe to VCJ, please email [email protected]

Photo courtesy of Shutterstock