The Strategist

Can private investors make money on Industry 4.0?

01/16/2019 - 11:50

Industry 4.0, or, in other words, the fourth industrial revolution, implies not only the further development of technology, but also the digitalization of all spheres of life. This is a fundamentally new approach to production and consumption, a new ecosystem in which physical processes are integrated into a single information space.

As for specific areas, Industry 4.0 includes automation of production and services, introduction of the Internet of Things, use of big data, blockchain, 3D printing, virtual and augmented reality, as well as many other technologies conducive to the fusion of real and digital. Prospects for development of these technologies are amazing, so investing in them makes sense in any case.

According to the forecasts of the consulting company PwC, annual investments in Industry 4.0 will amount to $ 907 billion by 2020 only in nine industries, including automotive and chemical industries, logistics and the defense sector. Technology companies themselves are particularly actively investing in this area. According to Factset, the total investment of American corporations in research activities amounted to $ 76 billion last year, while the top 5 largest investors included only IT companies.

The leader was Amazon, an online retailer which is constantly working to diversify its business. The company invested $ 22.6 billion in technology development. It’s about developing Amazon Web Services cloud service, continuing to work on Alexa voice assistant, and Amazon Go’s stores of the future without cashiers and cash payments, and delivering goods by drones.

The second place in terms of investment ($ 16.6 billion) was taken by Alphabet Corporation, which owns the search engine Google. The company develops a variety of areas, from unmanned vehicles and contactless payments to smart home technologies. Next come Intel ($ 13.1 billion), Microsoft ($ 12.3 billion) and Apple ($ 11.6 billion).

Not only technology companies invest in their own R&D activities. They also like startups that are engaged in promising technologies. So, according to RS Components, Alphabet has poured $ 3.9 billion in artificial intelligence startups since 2006, Amazon - $ 871 million, Apple - $ 786 million, Intel - $ 776 million, Microsoft - $ 690 million, and Uber - $ 680 million .

Alphabet alone has invested in several dozen companies, including the British startup DeepMind, engaged in developments in the field of artificial intelligence. Alphabet has its own venture capital unit, which manages assets of $ 2.4 billion and seeks to invest $ 500 million annually. At the beginning of December 2018, the corporation along with Salesforce created a $ 100 million fund to invest in Japanese cloud-based startups, and also put money in a Japanese project, ABEJA, specializing in AI and machine learning.

Investment funds and large private investors remain important players in the new technologies market. According to PwC and CB Insights, in 2017 the volume of venture capital investments in Industry 4.0 amounted to $ 164 billion. The market has already got some outstanding players, such as Sequoia Capital, which invested in Apple, Google YouTube and Instagram and promising newcomers - for example, the $ 100 billion Vision Fund, launched by Softbank, a Japanese corporation, created specifically for investment in technology projects.

Government money is also flowing to the technology market. For example, this summer, the Chinese state-owned corporation China Merchants Group together with the British company Centricus created a $ 15 billion investment fund called China New Era Technology Fund, the purpose of which is to invest in promising technologies.

According to Bloomberg, the Chinese government dominates in the venture capital sector. There are about a thousand public investment funds in the country that control about $ 750 billion. In early 2018, Chinese authorities announced plans to build a giant technopark in Beijing in the next five years. It is planned to invest $ 2.1 billion in the project, which will specialize in startups connected with AI and cloud technologies. Chinese authorities have already created several such technology parks, including Zhangjiang Hi-Tech Park in Shanghai and Shenzhen Hi-tech Industrial Park in Shenzhen.

As for private investors, there are many tools that allow people with limited capital to invest in technology startups. These are, for example, startup accelerators, that is, companies involved in supporting and promoting startups. Accelerators choose start-ups that are promising from their point of view and work on their development, provide expert support, and look for investors in exchange for a share.

One of the industry leaders is the American accelerator AngelPad. Other American accelerators include Techstars, 500 Startups, SkyDeck Berkeley. TBesides, there are accelerators that specialize in specific industries, for example, FinTech (Barclays Accelerator or FINTECH Circle), EdTech (among them, British Emerge Education and Finnish xEdu).

Microinvesting is rapidly gaining popularity, especially in Europe, primarily through various equity investment platforms. Unlike venture financing, when funds are usually invested in a small number of promising startups, crowdfunding allows you to invest small amounts in a large number of projects in exchange for a share in them.

Such investments are less risky, do not require much experience and knowledge, and are accessible to almost anyone. The minimum amount of investment here is extremely small, usually from $ 100 to $ 1000, and the main requirements are the age of maturity and availability of a bank account. According to forecasts of the World Bank, by 2025 the volume of the equity investment market will reach $ 95 billion.

One of the popular crowdfunding platforms is the American AngelList. A private investor can invest through it from $ 1000. The most well-known sites also include SeedInvest and LendingClub. There are many similar services in Europe, too, for example, the British platform Crowdcube, one of the largest on the continent. The minimum investment in it is only £ 10 ($ 13). There are similar platforms in all European countries, so the choice depends on which country you want to invest in. Among investors, the most popular are German Companisto, French WiSEED and Spanish Startupxplore.