Russ: Welcome back to The BusinessMakers Show, coming to you today from Station Houston, a community platform promoting innovation. You can kind of feel the, uh, innovation ambiance in the room, can’t you?

Adrian: I can; absolutely.

Russ: Good deal. And my guest is Adrian Fortino. He’s a partner with Mercury Fund and their Ann Arbor office. Adrian, welcome to The BusinessMakers Show.

Adrian: Thank you very much, Russ. Happy to be here, thanks guys.

Russ: You bet. Now, you are also a, uh, start up entrepreneur with three startups that, one that’s exited, or two that’s exited?

Adrian: One that’s exited, yes.

Russ: The other two are still out there?

Adrian: Yes, one was self-exited (Russ: Ok), and then the other one continues to, uh, to operate, and, uh, and grow.

Russ: Ok, now the one I knew about, uh, quite a bit, in fact, was Sidecar. Tell our audience about that a bit.

Adrian: Yeah, so Sidecar, um, was actually the first instant rideshare company, uh, and so we, uh, we started off a company called Shepherd IS, which was, uh, one of the first fleet management solutions for, um, your, uh, transit bus, your shuttle fleet, things like that. In Michigan, got some good traction, good business there, and then my partner and I decided that we wanted to, uh, build something more consumer facing. And so we took some of that technology with Shepherd and created it with another partner into what became Sidecar in San Francisco, and raised some money, built a good sort of community around that, and uh kind of there it goes.

Russ: Well it’s a happening space right now. I mean, where were you in the Uberization of America?

Adrian: Yeah, yeah. So, we were, so Uber had uh, this is back in 2011, end of 2010 in Shepherd, and moving into 2011 with Sidecar. Um, and, Uber was doing a little bit of UberBLACK at that time. Sort of, this is toward the end of 2011 (Russ: And you saw them), and we saw them doing BLACK and uh, UberBLACK, and we said, uh, you know, what can we do with what we have, because when we originally raised some of the venture capital money, we said we wanted to replace your car with your iPhone, right? Which is a pretty big endeavor, like it’s a big thing (Russ: I would say so.) right? And some people believed in us, for some reason, that we could do that. And we made some good headway, but then we realized, you know, we should really focus on one vertical, right? So my early learnings as an entrepreneur; focus, right?

So, we focused on a single vertical and we saw interesting things happen with the limos at Uber, and we said, you know what? We think that we can do something even more interesting from a peer to peer perspective. So, we created the first peer to peer donation based instant ride share. The way that worked is just how they all work now in that you have the ability to pick up someone, and we gave them, the riders, the ability to donate based on a suggestion that we, you know, that was built into the system.

Russ: Real interesting. I am curious, what was the ratio of income compared to the suggestion?

Adrian: So, it, yeah, so it’s really interesting. So, we, um, it was always about 20% over (Russ: Wow.), right? And so people think, oh, I’ve got to do a little bit over, I’ve got to tip, I’ve got to do this.

Russ: But I’m curious, Adrian, were the donations such that, you know, I mean the money came into Sidecar and you decided what part went to the driver?

Adrian: No, it was absolutely pre-set, um, and as in 80-20. So, 80% driver, 20%, uh, to Sidecar.

Russ: Ok. I mean, a whole lot of that sounds like Uber today.

Adrian: Uh, yeah. I mean, look, yeah, in that aspect of it was there. The big part of, sort of, you know, question that we answered was, will people donate, uh, at the time, you know? And you remember, there was certain regulations that, that, you know, things, you know, Uber was beginning to fight. And we said, you know, we want to stay away from some of that regulation work. We just want to go exclusively peer to peer.

Russ: I don’t remember his name, what’s the Uber CEOs name? (Adrian: Travis.) If he walked in here, would he say, “Hey, Adrian, how you doing?”

Adrian: Oh, no. God no.

Russ: Well, I just thought maybe because you had Sidecar. So you’re here, we’re talking to you not only because you’re a startup guy, you’re a venture capital guy too, but you have some expertise in the Industrial Internet of Things. Uh, the whole IoT thing is just unbelievable. I think they should start calling it the Internet of Everything, not just the internet of things. I mean, but from your perspective, I mean, is it all kind of just hype? I mean, I know at the consumer level we’ve been talking about the smart house for about 50 years it seems like, and nobody seems to be interested in putting their coffee pot on the internet. But, uh, but overall, industrial and commercial individuals, is it hype or is it going to turn into what we think it could turn into?

Adrian: Right, so, um so I’m fairly bearish on the consumer IoT, right? A piece of it. Obviously, wearables have taken a substantial position, but when you talk about some of the smart home, I don’t see that. And it’s not an area that we spend a lot of time, right? Um, you could have moved that over to the industrial side and most research that you’ll read will say that, Industrial IoT will have multiple orders of magnitude more, sort of, effect on the global economy than consumer IoT, given how much it can actually be leveraged within manufacturing, oil and gas, supply chain, whatever it might be.

Russ: Ok, and so and Industrial IoT, I mean, are you including robotics in that?

Adrian: Sure (Russ: Ok.), yeah. Absolutely. You know, when, and it’s a good question, this question of like, Industrial Internet, Industrial IoT, you know, the way that we see it is that, you know, so the Industrial Internet is more of the software piece of it, right? How software gets implemented within the industrial environment. Industrial IoT is sort of components of software plus hardware, right? Um, and so absolutely, you know, connected robotics, uh, and implementation of more robotic systems within, you know, any of these kind of various industrial environments.

Russ: Ok, well only recently I had an interview, uh, with a guy that’s just a disrupter specialist about, you know, describing what’s going on (Adrian: That’s a great title.), and, yeah it is. And, uh, and he was talking about, uh, you know, Industrial IoT in China, and robotics, you know, completely wiping out 20,000 employees at a shot. In fact, his discussion about it was leading people to think, oh my god, there aren’t going to be any jobs left after Industrial IoT takes over. I mean, do you ever look at that side of the formula?

Adrian: Um, so from a perspective of, you know, it’s it’s 100% accurate. There are a lot of industrial IoT, um, uh, sort of, you know, investments being made outside this country, right, that absolutely are kind of going that way. You know, we’re obviously focused on companies that enable, um, you know larger companies to make things better, uh, faster, cheaper, and you know, sometimes, you know, that doesn’t always translate to, you know, a huge, you know, workforce.

Russ: Right. And that doesn’t mean that we need to stop innovation, but it’s going to be an interesting, uh, sociological time as we go down the adoption curve.

Adrian: Now, you know, the flip side of that, of course, is that, you know, that leads to the opportunity for a lot of resourcing back to the US, right? Because plants are now coming back, right? And, it’s not the same sort of workforce, right? But it still is a workforce that wasn’t there previously, and so we see that as an interesting opportunity more economically.

Russ: What is, you know, what are the international implications of Industrial IoT? I mean, do we expect America to just be a dominate leader and player, top to bottom?

Adrian: Um, I don’t know about top to bottom. I certainly see us having a even more substantial manufacturing footprint. Um, and operational sort of leadership. More so than we have in the past couple decades. Um, you know, I see, I personally see Industrial IoT as a huge boon for US manufacturing. Which is where I spent most of my time in manufacturing supply chain.

Russ: Where are we now on the adoption curve?

Adrian: Very early (Russ: Ok.). Very, very early.

Russ: Like in a nine inning ballgame, what inning are we in?

Adrian: We’re in the, you know, we’re in the first half inning, and there’s, you know, maybe two outs.

Russ: Oh wow, ok. Anybody on base?

Adrian: Yeah. Yeah, a couple guys on base. Um, sorry, so no, uh you know we are very early, but man, are we at a point where the velocity of it is gaining, right? So, only the biggest companies in the world are really embracing and investing in true Industrial Internet and IoT. You know, you’ve got the GEs, the Siemens, um, you know, uh, some of the bigger manufactures; GM, Ford, folks like that. Um, so what we are not seeing yet, although I think that we will, is we’re not seeing the middle market, you know, adopt, right?

Russ: You mean the smaller companies.

Adrian: The smaller to middle sized companies that are doing, you know, whether they be manufacturing or supply chain. Those folks, generally speaking are still in the education phase. What does it mean? I think I might need this, I’m not sure if I need this. How do I figure out if IoT is good for my company? Um, do I need it as my core competitive advantage to sustain and grow over the next decade, right?

Russ: What’s a company that you’ve worked close to that you can talk about (Adrian: Yeah.) in IoT?

Adrian: I’ll use Sight Machine as a great example. So, Sight Machine is one of our portfolio companies, and they are squarely at the center point of Industrial IoT within manufacturing. So, they solve that, one of the biggest adoption barriers for, in that market, which is interoperability. They basically are the connection point of all the disparate systems and sensors within an environment to sort of pull that up into a cloud manage layer; make sense of it, because the data coming off some PLCs, and other automation equipment is dirty, right? And there’s very little context to it, right? And so, you kind of pull that up, do the cleaning, understand it, manage it, and then do predictive analytics to be able to improve throughput, improve quality, produce cycle times.

Russ: Ok, and so, I mean, they’re thinking that they can be a supplier to this brain for operating Industrial IoT in different types of manufacturing.

Adrian: That’s right, and they’re already in, uh, they’re in automotive, they’re now in some medical imaging systems, um, apparel, um pharmaceuticals, med device. So they are, they are actually active in many verticals within manufacturing.

Russ: Ok. So, uh, you know, Mercury Fund, headquartered down here; oil and gas capital of the world. Uh, IoT, Industrial IoT is going to play a big role in oil and gas too, right?

Adrian: I, I think it will. I don’t profess to be an expert in oil and gas, but yeah.

Russ: Well, it’s kind of interesting, we had a guy on The EnergyMakers Show about a year ago, Mark Mills, who is with the Manhattan Institute, says he spent his whole career at the intersection of energy and technology, and he wrote a paper called ‘Shale 2.0,’ and it was all based on, you know, when oil and gas plummeted, uh, the thought was, particularly from the naysayers, the anti-fossil fuels, well that’s over, because it doesn’t work unless it’s $100 a barrel. And he says, not so fast. And, essentially, he talks and argues a pretty good argument that there was so much sensing used, and technology used, when we first started drilling through shale, but we didn’t really use it. You know, we captured all this data and we didn’t need it. $100 a barrel, the game was to get it out and sell it. So, now that it’s gone down, it’s really being looked at.

There’s a lot of big data guys, which I guess is on the peripheral of IoT that are really going to town nowadays thinking that we are going to be able to very selectively figure out which hydrocarbons to pull out of the ground and sell that we can get out cheap. And there are a lot of people that think that’s going to be huge in oil and gas.

Adrian: Well, hey, our friends that are Arundo just down here think that, uh, for sure.

Russ: Well, yeah absolutely. You know, they were on the show not too long ago, too as a matter of fact, too. So, where do you see, I mean, the biggest impact of Industrial IoT, what sector is it going to impact more than any?

Adrian: You know, so combination of manufacturing plus supply chain. So, you know, and most people will kind of throw in supply chain inside manufacturing. Um, that’s, that’s where we see the biggest, though, certainly in oil and gas, um, it will be substantial, but, um, when you think about what, and the sort of furthest path of this, uh, maturity for this technology, you can get to a point where you have, you know, totally intelligent products, engineered products, right, that have a failure rate that is sort of so very low relative to where we see it now, um, that it could be just an amazing time, right? Um, a time that I’m excited about.

Russ: Well, it sounds exciting, I guess, unless you were a repairman, and then it might not be so exciting anymore, too. So, I’m curious though, because, you know, with your Sidecar experience, with Industrial Internet of Things, it seems like you must hover around the autonomous vehicle space some too. It’s kind of a combination of those things (Adrian: I do. I do, yeah.). and so, what’s going on there?

Adrian: It’s such an exciting time, and what we’re going to end up seeing is, uh, this sort of convergence between the heaviest, uh, software companies and the heaviest hardware companies. Um, between, you know, the GMs, and Fords, and GEs, right? Into you know, Google’s, and Apples, although they’re going to stay in their own ecosystem, um, sorry Apple. Um, but uh, and, to the point that they will have to kind of lean into each other to be successful, right? In my opinion, right? You look at some of the manufacturing issues that Tesla has and will continue to have, you know? Um, it’s not, it’s not like the easiest thing to do to build a car in mass and scale profitably. That’s actually really hard, right? And in my, before all these startup companies I was a mechanical engineer for the automotive industry, designing and developing engines.

I just think it’s so interesting, and, yeah, with Uber, you know, it seems like buying half of Carnegie Mellon to do their AI, right? And obviously GM buying my company and putting a substantial position in Lyft, um, so so exciting. I mean, the part I’m most interested in is like, you’re hearing bits and pieces anecdotally about how people coming out of college are not buying cars because they’re moving to city centers and saying, I can get around with Uber and Lyft, and I can do Zipcar. I hear that little bits and pieces. What I’m really interested to see is at what point does that get past that super early adopter into this sort of, kind of more kind of heavy early adopter, early majority segment, um, where, you know there’s a lot of people who don’t buy cars, you know? Because it’s all right there in front of them.

Russ: It’s such a dramatic change, though, in the way we’ve lived forever.

Adrian: So, what I think we’ll soon see is the incremental adoption of it, right? So, initially what we’ll see is, um, full AI, full driver autonomy, or vehicle autonomy within the city, right? When the speeds will be relatively low, um, and you’ll have the opportunity to, uh, pop in and out, and this is sort of the Uber model, right? We’re then on the flip side of that, we’ll see, um, sort of driver enabled autonomy. So, effectively, driver, kind of, monitored, but they’ll be able to sort of take less of a full control system, or I should say control responsibility, um, in some of the vehicles that get higher speeds, right? But that won’t be kind of fully autonomous for quite some time.

Russ: Like how long? You’re the expert, what would you say?

Adrian: Oh, I’m not the expert, but, uh, (Russ: We’re calling you the expert.) but but I think that we are, um, I think we are at least 15 years away from full, high speed, vehicle autonomy.

Russ: Right. Well, I have really found this fascinating. You, uh, you must enjoy what you’re doing because you’re kind of in a really (Adrian: Oh, it’s great.) exciting nexus right now.

Adrian: Oh, this is fantastic. I’m having so much fun. Um, and yeah, I would not want to be any other place, from an investment practice perspective, certainly my, with my partners at Mercury Fund, and geographically I think the upper Midwest for this market is just perfect.

Russ: Cool. Well, Adrian, I really appreciate you sharing your perspective with us today.

Adrian: Thank you, Russ.

Russ: And that wraps up my discussion with Adrian Fortino, and this is The BusinessMakers Show.