June 11, 2009

The May Report: 6/11/2009: M2M conference draws 500 at the Hilton and active
discussion about the field and venture capital: Is M2M more like nanotech, AI
or cell phones?

Editor and publisher: ron@themayreport.com, ronaldmay@aol.com,
www.themayreport.com, 773-525-3944.

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TABLE OF CONTENTS

The Scoop section:

— Briefly noted, by Ron May

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The Scoop section:
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Briefly noted, by Ron May

* I literally have ten to twelve minutes to write this and get to dialysis. I
want to attend an 11:15am talk at the BMA and then I have a 2pm appointment in
Dr. Leventhal’s office at NMH to discuss what they want to do with my fistula,
and then I have a meeting with Terry Flanagan and Bob Lepkowski at 3pm or
3:30pm at Panerra Bread at Franklin & Ontario.

Yesterday, with my own wheelchair in hand, I made it down to the M2M conference
at the Hilton sponsored by M2M Magazine. Laura Billingsley wheeled me around.
She works for M2M Magazine. The magazine has 50k subscribers and puts out an
issue every other month. They have 14 employees and one other magazine they
publish for the construction field.

Irv kaplan said that he thought there were mostly vendors and not that many
corporate users. I don’t know, but Irv, you can’t make such judgements on how
people are dressed.

I tossed and turned all night thinking about what was said in the VC panel at
M2M so it must have been important. It was thought provoking.

The really short version is this.

— There is not much VC funding in M2M.

— Relative to VC deals, there are more angel deals and PE funding in the
space.

— The incumbents and especially the utilities control the structure of the
field and they are reluctant to give up their control.

— The M2M space is fragmented and may not really represent a single unified
technology. The field breaks down into about five or six subcategories,
including telematics, telemetry, and I have to look up the others. Remote
signalis are big, so is monitoring and the smart grid.

— Recurring revenues are a good thing, but they also accompany lower costs and
the field is always fighting commoditization. Also, there is a lack of
standards and too much proprietary software/hardware.

— There is some VC that flows into M2M, but the big payouts are not there and
it takes a lot longer to get results than most people think.

— As Jeff Smith, the CTO of Numerex, www.numerex.com said, there are not many
deals which can reach a $1B market and an exit in three years with a 40% IRR
and an initial investment of $10MM to $15MM. Diana Propper de Callejon, a VC
who concentrates on clean tech, echoed this view. “Where is the demand?” she
insisted. Also she pointed out, “Where are the pain points?”

— Much of what goes on in the M2M world is a matter of cost reduction and
increased energy efficiency due to sophisticated monitoring devices. That does
not constituted necessity in many cases.

— As the panelists were talking I kept thinking about the parallels to
nanotechnology, which is also highly fragmented, and was in many ways a
marketing concept for the purpose of getting research funding. Also, nanotech
got its start with the tools used for analysis. As with many fields, the guys
selling the shovels got rich. The tools are the thing.

But nanotech had a bigger sex appeal than M2M seems to have.

— I think Jeff Smith hit on it. The appropriate analogy is to the field of
Artificial Intelligence which was quite popular in the 1980s but which never
developed as a separate field for investing. As Jeff pointed out, AI has become
standard fare, and most systems have some AI embedded in them.

Look, I have to go. But the discussion was so intriguing that I dreamed about
it, possibly a sign that I am so far behind in reports it is not funny.

BTW, Steve Pazol of nPhase which was bought by Qualcomm in 2006 has kept his
group of 15 together and he is moving to San Diego.

Of all people, Les Minkus was there. His firm, www.kidsdadsmoms.com has 18
people now and is quite stable, but what they have to do with M2M I have no
idea. Les must have conned his way into the confrerence because I am sure he
too cheap to pay the $1,500. I heard that Ron Kirschner was there Tuesday
night. Greg Scott from Wisconsin, and a few others I know.

So, I wanted to get this out. Much more to come. The DOE communications
director, Brian Quirke, admitted to me after the meeting that technology coming
out of Argonne has not been much to write home about. During the talk, he had
defended Argonne as a center for basic research that has benefited all of us.

He was surprisingly candid for a communications (or PR) guy. He also said that
Excelon or ComEd has done little to modernize. And there was a mild side
skirmish about whether meters will lower the costs to consumers or not.

But Irv Kaplan of Cleveland, Les Minkus of Chicago and myself were all
surprised that Quirke kept coming back to the issue of how many jobs would be
created through the stimulus money. He never said that the technology had to be
any good, just htat the spending had to create jobs. And the money is grant
money, not loans, by and large. It is not equity. It is also without many
strings attached as most federal money tends to be.

That money is $38B total and $4.5B focused on the smart grid. More on that to
come.

They say you should live fast, die young and leave a good looking corpse. Well,
Steve Lundin who moderated the VC panel can live fast, but he will be 50 this
year, so it is too late to die young, and as far as a good looking corpse is
concerned….

But Lundin does get credit for bringing in a good panel and they were not from
Chicago!

Bruce Bharat of Elster said that there have been 2.5 million new meters
installed now, with 800k in Arizona alone and about another 800k in Ottawa.
ComEd is now contracted to install about 140k of them, but has been slow to the
game.

IBM alone is putting in $2.5B into the smart grid whereas the feds are putting
in $4.5B.

Diana said that her VC firm which concentrates on clean tech does not want
deals where the firms are getting stimulus money. She also said that they want
to invest in firms with at least $5MM in annual revenue.
www.expansioncapital.com

I still don’t understand Brian Quirke’s comment about the Mississippi River and
the grid. Maybe someone can explain that to me.

To get the stats, go to www.energy.gov and look for the section on the recovery
act. That is in the upper right and hit the “go” button, or just go here
directly.

www.energy.gov/recovery/index.htm

There is a wealth of info. on where the money has been spent so far. And the
charts break down by states.

www.energy.gov/illinois.htm

++++++++++++++++++++++++++++++++

Recovery Act Spending
Weatherization $242,526,619
State Energy Program $101,321,000
Energy Efficiency and Conservation Block Grant Program $112,175,600
Science $53,036,000
Environmental Management $98,500,000

———————————————

Total $607,559,219

American Recovery and Reinvestment Act

A portion of the funds from the State Energy Program are allocated by formula
among the states. To apply for a grant from the remaining funds, each Governor
is required to write a letter to the Secretary of Energy explaining that the
state will pursue policies to promote energy efficiency and renewable energy as
outlined in Section 410 page 32 of the American Recovery and Reinvestment Act
of 2009.
Letter from the Governor of Illinois

Latest News
05.06.09 :: DOE Selects 53 New Projects Focused on Wind Energy for up to $8.5
Million

04.30.09 :: DOE Cites UChicago Argonne, LLC for Worker Safety and Health
Violations

03.31.09 :: Energy Secretary Chu Announces $99 Million in Recovery Act Funding
for Environmental Cleanup in Illinois

03.26.09 :: Obama Administration Announces Additional $112,175,600 for Local
Energy Efficiency Improvements in Illinois

03.23.09 :: Energy Secretary Chu Announces $1.2 Billion in Recovery Act Funding
for Science

+++++++++++++++++++++++=

When I get home later today, I will probably pull an all-nighter.

* Matt Summy did return my call and he said that Dennis Sienko has left the IL
Science and Tech Coalition to go back inside to DCEO. Summy is working on
advocacy in Washington, D.C., and Sienko is working now on the inside at DCEO.
Matt said that this is a “good thing.” And he added that they have their
501(c)(6) ducts in line now.

He offered to talk further, but I was literally on the way out to the MEF
networking event in Naperville. The Sienko departure was quite recent and Jamie
Willis is Matt’s colleague, not assistant, he explained. Also, he calls himself
an advocate, not a lobbyist. Summy said his focus is on the stimulus money
right now.

Last thing. Brian Quirke asked the audience yesterday if there were any
registered lobbyists in the room and he said that he is required to do certain
things differently if there were.

It is now 6:40am and the BMA at 11:15am is looking pretty iffy.
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