Near instantaneous, long and short distance communications are the backbone of the global economy and are enabled by the wires, waves, hardware and software that make up the communications infrastructure.
Communications infrastructure doesn’t sound like a natural space for disruption and VC investment. Despite being an undeniably big and growing market, the ‘infrastructure’ bit sounds slow and expensive with low reliable returns, which pretty much embodies the anti-Venture Capital investment thesis. But does that mean there’s nothing there for entrepreneurs or VCs?
There are definitely things to like about the space. It is technology that encompasses numerous, multi-billion dollar markets; it has large, cash rich businesses who could be acquirers of start-ups and it has a problem; and as every entrepreneur knows problems = opportunities.
The problem is passing more data around the world than the infrastructure can handle, and the source of the problem is an increasing number of connections and an increasing intensity of data.
The global connected population is growing and the number of ‘things’ we’re bringing online is increasing even more quickly. Problem number one is that there are a lot more people and things wanting to communicate. BI Intelligence predicts 18 billion connected devices by 2018 including 4 billion Smartphones and 2 billion PCs.
BI Intelligence Estimates – The Internet of Everything: 2014
So what opportunities does this open up?
Well, there are some areas which are not so VC back-able, like:
- Communications hardware (the return profile doesn’t normally work for VCs)
- Most things that rely on setting or using emerging standards (you don’t want to get caught on the wrong side of a Betamax vs. VHS fight)
- New telecoms businesses (too much competition and too much regulation)
- Most things that involve having telecoms companies as acquirers or your only customers (these businesses, including the mobile operators, have become utilities and VCs and entrepreneurs are normally wary of interacting with utilities because they’re risk averse very slow moving)
Latency in particular is a really interesting problem. In an age with lots of choice and limited differentiation, when you open a website or mobile app, the speed at which a page loads makes a big difference to whether you keep using it. And when you’re streaming lots of data like HD pictures and video over communication channels that aren’t getting bigger quickly enough, this causes problems. Over a decade ago, Akamai started building Content Distribution Networks (CDNs) to make sure that websites with data rich content load quickly for users across the world. According to MarketsandMarkets, today the CDN market is worth upwards of $5bn and Cisco estimates that in 2016 almost half of all global internet traffic will go over CDNs. We believe that companies running smarter, faster, capital efficient peer-to-peer CDNs, or networks and protocols that can handle video (and in particular video on mobile) will be valuable and we’re on the look-out for unusually talented entrepreneurs building, or aspiring to build, big businesses in the space; so if you are one or you know of one, drop us a line…
This blog is for information purposes only. Nothing in it constitutes an invitation to buy or sell any Octopus products. Octopus products will place investor capital at risk. The value of investments, and any income from them can fall as well as rise, and investors may not get back the full amount invested. Past performance is not a guide to future performance. Personal opinions may change and should not be seen as advice or a recommendation. We do not offer investment or tax advice. Investors should seek advice before deciding making any investment decisions. Issued by Octopus Investments Limited which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: July 2016