🏒 πŸš™ πŸ€– The Physical World Tech Newsletter

By Sam Cash // Physical World Technologies Newsletter

🏒 πŸš™ πŸ€– Issue #37: tech themes, and a DTC startup studio?

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🏒 πŸš™ πŸ€– Issue #37: tech themes, and a DTC startup studio?
Welcome to my newsletter, where I discuss thoughts and news on the intersection of the built world and technology #retail #mobility #realestate #tech
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One Quick Thought
Why do VCs invest in what they invest and founders build what they build?
Whilst it may seem irrelevant to analyse how a certain tech theme came to be, looking at the historical trends of technology entrepreneurship might provide a glimpse into whats to come.
Early-stage venture capital as a financial instrument historically has worked to finance enterprises with high upfront costs (headcount + R&D), expansive margins and outsized potential payback realised through a liquidation event.
The key underlying unit is return on investment; in other words which investment opportunities are going to return the most on a per dollar basis. Thus, VCs must ask themselves which companies within which industries or themes at this moment in time has the highest future upside potential? Value creation can be two-fold: either creating a new market (new market disruption) or disrupting an existing one (low-end disruption).
Through in the recent (last 25 years) evolution of technology venture capital, we’ve seen entrepreneurs and financiers tackle β€œlow hanging fruit” problems. Initially these weren riffs existing consumer business models which could be improved by reducing friction in the value chain using technology. We saw an explosion of these execution based business models starting in the mid 90s, such as Amazon and Craigslist. The late 90s saw some web based business model innovation such as Ebay (marketplace) and Paypal and Napster (P2P transactions). Subsequently the late 2000s saw an increase in new market creation, as the web + mobile began to create online-native businesses which leveraged a deeper tech stack such as the mobile web, GPS and the camera sensor.
1990s: internet infrastructure + e-commerce + consumer marketplaces
2000s: social + mobile
2010s: mobility + real estate + fintech + fintech
2020s: ? healthcare + education + energy + construction ?
Many of the aforementioned β€œlow hanging fruit” problems, especially in a saturated consumer market, have been tackled, from ecommerce (Amazon) to search (Google) to marketplaces (Alibaba) to social (Facebook) to content (Youtube/Netflix/Spotify).
Today, we find that a marked increase in venture dollars, as well as the saturation of many of these consumer models, has turned the attention of founders and VCs alike to asset-heavy, capital-intensive industries such as mobility and real estate. We’ve also started to see heavily regulated/protected industries such as healthcare, education and energy emerge into the line of sight.
Will this trend extrapolate out indefinitely? Unlikely. If the disruptive technology has taught us anything, it’s that disruptors will at some point be disrupted. This point is well illustrated by the current average age of an S&P company which is 18 years v 60 years in the 1950s - whilst many of the large-scale pre-2000 companies enjoy incumbency, we can expect their business models to come under attack as new emerging technology paradigms emerge.
With a continued rise in information technology companies who require funding for intangible assets (IP v fixed assets), I believe we’ll see a continuing increase in venture dollars (VC as an asset class is still relatively small compared to its societal impact: in 2018 VC was $130bn v Hedge Funds $3trn+ v Private Equity $3trn+). This may mean we see founders and VCs alike tackle bigger, heavier and more expensive problems!
Vague Scientist
πŸ™ Real Estate
Xiaomi bets big on smart homes - the newly public hardware company is putting $1.5bn into AIot (AI + IoT), smart connected sensors
Transforming US malls to retail fulfillment centers - just became an investment strategy. Case Equity Partners are looking to turn vacant malls into part retail shopfronts with backend fulfillment centers - this is perfect for retail looking to redress their online/offline sales mix
πŸ›΄ Mobility
Uber is developing autonomous scooters - well, actually they’re developing autonomous LEVs. Whilst this seems like a logical step due to the high expense of charging and rebalancing - autonomous vehicles would partially solve this - the challenges are numerous. It will be interesting to see how Uber will look to integrate LIDAR / computer vision / sensors / GPUs and will give the units the physical ability to stand upright, whilst doing so on such small units and in a cost effective way. This is likely to an additional story for the pre-IPO narrative
More scooter mega-rounds - both Lime and Bird are purpordetly raising big financing rounds. Lime is rumoured to be raising $300m at a $2bn valuation and Bird is raising $300m at a flat pre-money valuation. Both these rounds indicate that their is still ample capital to pursue the micromobility thesis, though irrational exhuberance has cooled from 2018
πŸ› Retail
The two paths for DTC brands, as per Walmart and VCs - Walmart and some venture investors believe that DTCs brands will either be breakout, like Warby Parker, or should belong within a larger portfolio of companies. This, I believe, is a worthy conclusion - I’ve previously written at length about the challenges of finding venture-scale DTC brands - amongst the many issues are often low barriers to entry coupled with low consumer switching costs (this can be a proxy to LTV:CAC), providing a cap on scale. I believe we’ll start to see more of the portfolio of DTC brands such as Assembled Brands, Hut Group, Brandable (this isn’t pure-play DTC) and more recently Iris Nova - where shared centralised resources can be used to bring cost down. >> Might I add, that I think a DTC startup studio would structurally work very well to solve many of these issues
The fight against Amazon Go (and Alibaba) - the majority of physical retailers will struggle to build a tech stack akin to Amazon Go’s now infamous cashier-less retail sites. Though increasingly we’re seeing parts of the tech stack being atomised and offered as single product solutions. Caper - is just that. It’s a smart shopping cart, which allows shoppers to scan their own items and pay via credit card, the company will soon release a model which automatically scans items in the cart using computer vision. Whilst there are off-the-shelf (pun alert) autonomous retails providers, such as Standard Cognition and Inokyo - Caper is hoping that the comparatively low installation cost of their units will give them a larger initial install base
Thanks for reading!
Sam
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Sam Cash // Physical World Technologies Newsletter

The intersection of the physical world and technology; with a focus on future mobility,real estate, retail and cities.

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