The Emerging Venture Capital Opportunity in 5G

G is emerging as a foundational technology for the Internet of Things Revolution and Industry 4.0. As such, it is increasingly attracting the interest of the venture capital community. Uniquely, corporate venture capitalists are at the forefront of this highly capital-intensive industry. 

The venture capital arms of prominent corporations such as Qualcomm and T-Mobile have actively supported innovation in this emerging sphere of opportunity. But innovative newcomers such as Cloud City Venture Capital are also working to shape the dynamics of the 5G future. The potential impact is immense. 

5G is of strategic importance to many different industries because it enables faster, more reliable, and lower latency connections between people and devices while also making new products and services possible. Stakeholders in myriad industries can use 5G to reap the benefits of higher productivity, energy efficiency, agile production, greater flexibility, increased worker safety, and the capacity to leverage the data gathered in real-time to iteratively improve business processes. 

The value proposition of 5G is enhanced by the critical role that it will play not only in enhancing wireless connectivity but in advancing other adjacent technologies such as edge computing, the IOT, artificial intelligence, and mixed reality.

WHAT IS 5G?

5G is the most recent global wireless standard and radio protocol. The 3^rd Generation Partnership Project (3GPP), the industry consortium setting standards for 5G, defines it as any system using 5G New Radio (5G NR) software. The 5G network is specifically designed to connect almost everyone and everything including machines, objects, and devices. 

As such it is a critical enabler of the emerging Internet of Things Revolution via which billions of devices will intelligently interact with each other through the cloud. It is estimated that by 2025 every person in the developed world will have at least one interaction with the cloud every 18 seconds of their lifetime. The deployment of 5G along with advances in cloud technology will be the foundational technologies for this constant interaction between the digital and physical worlds.

What does 5G do? 5G offers dramatic advances in speed, latency, connection density, throughput, spectrum efficiency, capacity, and network efficiency:

Aside from its general importance as an enabler of the Internet of Things Revolution, 5G offers three specific types of communication services or use cases—enhanced mobile broadband services (eMBB), ultra-reliable, low latency communications (URLLC), and massive machine type communication (mMTC):

• eMBB improves the mobile broadband experience of the everyday user by generating a more reliable and consistent experience for media rich apps; improving support for high definition video quality such as HDTV, 4K and eventually 8K; enhancing streaming of games to mobile devices; facilitating the emerging market for augmented reality and virtual reality; and improving uplinking/enabling the live sharing of video on social media from crowded places.

• URLLC is the application of 5G to devices such as autonomous vehicles and drones that require highly responsive data connections to facilitate intelligent interaction.

• mMTC, which is directly applicable to advanced manufacturing, leverages 5G to support ubiquitous low-power devices such as sensors and other tools for smart manufacturing that must be deployed precisely while leveraging data delivered in real time. 

mMTC is the killer application for smart factories and the digital transformation of manufacturing. However, an intelligent 5G strategy will also leverage eMBB (i.e., workers on the factory floor using mobile devices to communicate robustly and accurately with both other workers and machines) and URLLC in as yet unrealized use cases such as fully automated warehouses staffed by robots and enhanced tracking of supply chains. 

Overall, 5G technology is an enabler for myriad distinct user experiences that impact both consumer and industrial markets: 

An important aspect of 5G that heightens its capacity as a catalyst for innovation is that the technology simultaneously advances not only wireless connectivity but also adjacent domains such as edge computing, the IOT, artificial intelligence and mixed reality. Collectively, these five technology disruptions will have a broad and deep strategic impact on the direction of the business community going forward:

As cloud applications move closer to users to enhance their effectiveness via edge computing, 5G will also be a critical enabler of this technological shift as it is a powerful tool in reducing latency. 

Likewise artificial intelligence and machine learning will benefit from 5G as it makes it possible to iteratively orchestrate the complexity that AI/ML are designed to imbue machines and ubiquitously deployed devices with. Finally, augmented reality and virtual reality have failed to achieve mass adoption because they still require wires and cumbersome devices. 5G will untether these devices and facilitate the massive data transfers that are required to bring their full capabilities to market. This will enable AR/VR to be used more effectively not only in product design but also deployed in the field.

This potential for catalytic impact across technologies has attracted the interest of a new breed of venture capitalists who are keen to finance innovations at the intersection of 5G, AI, and edge computing. One of these is a VC firm called Cloud City Venture Capital that was recently established in 2020 by Jim Brisimitzis and Kevin Ober. Ober is a veteran of Vulcan Ventures, the venture capital firm that was founded by the late Microsoft co-founder Paul Allen and Brisimitzis is a veteran of Microsoft who also serves as the founder and general partner of the 5G Open Innovation Lab, a Washington state entity that is supported by T-Mobile, NASA, and Intel amongst others. The firm is avowedly bullish on the future of 5G as it states on its website that:

“Over the next 10+ years enterprises will continue digitally transforming their businesses relying on real time data insights using 5G connectivity, future edge networks and artificial intelligence. We’re investing behind this transformation and the bold founders pursing the opportunity.”

Although their vison is bold, investing by new VC funds is likely to prove difficult in the current tech market downturn. This is one of several reasons that well-financed corporate venture capitalists have an advantage in the 5G sector. 

That said, the 5G Open Innovation Lab Rolling Fund which launched in January 2022 has the active support of major institutions and as such has the potential to have a salient impact on the financing and support of innovation in the 5G sector. This is a multi-stage venture fund that focusses on 59 select startups that have participated in the Open Innovation Lab’s formal program. 

These startups are prime candidates for additional venture funding as they have already raised over $1.3 billion in invested capital, $870 million prior to joining the program and an additional $444 million since graduating from it. Notable companies include:

• Proximie ($38 million raised post-program)
• Blue White Robotics ($37 million raised post-program)
• GenXComm ($20 million raised post-program)
• LatentAI ($15 million raised post-program)
• Expeto ($10 million raised post-program)
• Teal ($9.1 million raised post-program)
• iUNU ($7 million raised post-program)
• Taqtile ($5 million raised post-program)

The investment focus of the 5G Open Innovation Lab is on the most promising companies developing applications enabled by high-throughput, low-latency networks (5G) and edge computing:

• Industry verticals: Manufacturing, Logistics, Healthcare, Agriculture, Energy and Utilities
• Stages: Seed through Series A focus (some later stage where appropriate)  
• Investment Amount.: $50 thousand to $1 million
• Frequency: 2+ Deals Per Quarter
• Geography: Primarily North American-based

This is a model partnership that demonstrates how VCs along with institutional partners such as NASA and corporate actors such as Intel can have a catalytic impact in supporting 5G startups.

THE 5G MARKET

Due to the aforementioned trends and its robust capabilities, the 5G market is growing rapidly. According to Precedence Research, the 5G services market size is projected to grow at a CAGR of 44.6% from $67.5 billion in 2021 to $1.87 trillion by 2030.

What is notable about this growth is that it will occur in many industry markets.

According to a study by Ericsson, the time to act is now as the probability of being successful in capturing parts of this growth potential will be higher over the next 5-7 years when roles and market shares are being established rather than in later years.

VC FUNDING FOR THE 5G MARKET

Funding

Total Funding: $34.79B

2022 Funding: $2.39B

10 Highest Funded Companies

NVIDIA - $4.04B

Syniverse - $3.69B

Zayo Group - $2.17B

Virtusa - $2.06B

Accenture - $1.7B

Ericsson - $1.34B

VMware - $1.32B

Happiest Minds - $837.86M

SenseTime - $790M

Graphcore - $682M

Of the firms attracting funding, at present, among the most significant are Syniverse and NVIDIA. 

5G AND INDUSTRY 4.0

5G technology is also a critical enabler of Industry 4.0 or the Fourth Industrial Revolution. Industry 4.0 is the trend towards automation, data exchange, and ubiquitous intelligence in manufacturing technologies and processes which includes the IOT, the Industrial Internet of Things, AI/ML, cloud computing, Big Data, and wireless communications. As noted earlier, 5G facilitates all of these technologies which will dramatically advance the efficiency, productivity, and sophistication of manufacturing. 5G enables the intense networking that is increasingly required to produce value under Industry 4.0. 

The advantages or value proposition of Industry 4.0 are that it enables:

• Effective digitization and integration of vertical and horizontal value chains: Industrial processes—design, product development, structuring, and manufacturing—are integrated vertically, across the entire organization, and horizontally including internal operations from suppliers to customers and key value chain partners. 5G is a powerful tool for linking people and devices throughout the enterprise in novel ways that can also extract the data required to make sound strategic decisions.

• Effective digitization of products and services: Integrate new methods of data collection and analysis such as via the expansion of existing products or creation of new digitized products so as to help companies generate data on product use in order to refine products. 5G supercharges the power of tiny sensors in the supply chain and on the factory floor that provide feedback required to isolate waste and inefficiency.

• Strong business models and increase customer access: As 5G facilitates more personalized interactions through intimate technologies like AR/VR and richer mobile experiences, it will be possible to identify customer concerns in real time and with greater accuracy and adapt much faster. Product development lifecycles will be both reduced and dramatically improved.

• Worker Empowerment: 5G will enhance the effectiveness of factory tools and machines by imbuing them with greater speed, throughput, lower latency, extended battery life and improved reliability while intelligently and holistically connecting the entire factory. For example, worker safety can be enhanced through the deployment of collaborative robots requiring extremely low latency for safe human-robot collaboration. It can also increase productivity while requiring fewer workers to effectively operate the factory.

• Energy Efficiency: You can’t manage what you can’t measure. The accurate real-time data gathered through 5G networks and measured with smart meters will dramatically enhance the capacity of the enterprise to intelligently deploy energy-intensive machinery which will lower its operational cost while reducing energy waste. Industrial Internet of Things sensors will make it possible to track the operational health of machines, which is critical to reducing workplace accidents while also helping to determine which parts need to be replaced so as to better manage the lifecycle of the machinery.

• The deployment of new mission-critical applications on the factory floor: 5G makes factories smart by facilitating real-time factory control and automated factory work. Massive device connectivity will enhance logistics tracking and make it possible to engage in mobile robotics and the wider reliability on drones. Moreover, 5G will enable manufacturers to apply AI to large volumes of data in much faster timeframes by being able to support a high number of endpoints in a small geographical area. This will enable precision analytics and precision manufacturing. The improved analytics will allow manufacturers to perform tasks at a much more granular and precise level. 

Overall, 5G offers a very powerful general value proposition to all organizations in that it impacts two distinct areas---network performance and business and network architecture: 

The business and network architecture value proposition of 5G is as follows:

• Cellular DNA: Improved reliability, availability, and performance.
• Network Agility: Software-centric networks, cloud-based infrastructure, continuous delivery and integration along with increased automation allow 5G networks to upgrade much faster and evolve at a pace in tune with the needs of rapidly changing industries.
• Business Model Innovation: Network slicing allows for the building of dedicated networks for one or a few users or use cases. Also, the ability to deploy cellular technologies in private networks for business-critical applications is a connectivity game changer. Combined, these 5G capabilities enable new models for monetization and business model innovation beyond traditional traffic volume-based business models.

The 5G value proposition vis a vis network performance attributes are as follows:

• Speed: 5G’s dramatic increases in upload and download rates enhance the user experience and allow for service differentiation and the deployment of new, data-intensive applications.
• Low Latency: Latency reduction enables the deployment of real-time applications and improves how businesses and consumers interact with cloud-based applications. In particular, ultra-low latency along with the increased reliability and availability of 5G enables large categories of new use cases to be addressed.
• High Device Density: Enhanced connectivity and the ability to increase the density of devices in a particular area are critical to the IOT Revolution and Industry 4.0. This aspect of 5G allows for the full deployment of IOT applications in areas densely populated by either devices or people.
• Position Accuracy: 5G’s ability to position a device more accurately is salient for IOT applications where devices are not stationary as it prevents moving devices from colliding. 5G enhances position accuracy by 100x.
• Energy Efficiency: Due to increased measurement through 5G-connected sensors, dramatic improvements in battery life and overall energy efficiency are enabled.
• Velocity: 5G offers a 50% increase in maximum device velocity compared to 4G. This makes it more easily possible to connect not only cars and trucks but also high-speed trains. It also enables 5G deployment in support of unmanned aerial vehicles and air traffic use cases involving commercial aircraft.

The value proposition of 5G is deep, thorough, and profound as it enhances not only previous capabilities but produces new, unforeseen business opportunities. These unforeseen opportunities and the broad impact of the technology across the value chain are why venture capitalists, particularly in the corporate sector, are so keen to finance innovation in this sector. Few technologies are more likely to have such a tremendous impact on how we work, live and play.