How Smart Money VCs Are Betting On Wearable Computing

Venture funding to wearables startups surpassed $2.2B across the past five years, accrued over 195 deals. With such a competitive investing landscape for wearables, it’s important to know where to top VCs are placing their bets.

On average, smart money VC activity in wearables has stepped up since mid-2013. There have been an average of ~4 wearables deals involving smart money between Q2’13 and Q3’15. In Q1’10 through Q1’13, there was less than 1 such deal on average per quarter. That said, deals are down from their peak in Q2’13 and Q3’13, when deal count reached 6 and then 8 deals, respectively.

Last year’s huge uptick in smart money VC funding was driven largely by the $542M Series B raised by Magic Leap, Florida-based developer of head-mounted augmented reality displays. Magic Leap raised capital in that round from a wide range of investors including smart money VCs Andreessen Horowitz and Kleiner Perkins Caufield & Byers.

Q4’13 saw the next highest activity in dollar terms, with investment reaching a total of $180M. The major deals in Q4’13 went to pre-acquisition Oculus VR and Misfit Wearables‘ $15.2M Series B, backed by top VCs including Founder’s Fund and Khosla Ventures.

(For more on how we selected our top 20 VCs, see the note at the end of this post.)

One useful way to visualize smart money strategies is to use CB Insights’ Business Social Graph, which shows how top investors and target companies are related. The graph, pictured below, shows that the most active smart money VCs in wearables are Andreessen Horowitz and Khosla Ventures. They had 7 and 6 wearables startup investments, respectively. Both firms were investors in Jawbone and Thync.

We identified 8 different wearables categories that smart VCs are targeting.

• Health and fitness bands: These may be products developed for adults, children, or pets. Firms include fitness band maker Jawbone and Sproutling (baby wearables).
• Smart Watches and jewelry:  Firms in this category include Ringly (smart jewelry), as well as smartwatch makers Pebble Technology and Olio Devices.
• Smart apparel: OMsignal (smart workout apparel).
• Frontier wearables sensors: Startups on the frontier of wearables, often with highly advanced biometric sensors. For example, Thalmic Labs‘ wearables read muscle electricity, InteraXon wearables read brainwaves and Thync transmits mood-elevating neurosignals.
• AR/VR: Developers of augmented or virtual reality hardware, often goggles or head-mounted displays. Firms in this category include Magic Leap (AR wearables), Survios (immersive gaming), and VR headset and platform Oculus VR, which saw investments from 3 smart VCs before being acquired by Facebook.
• Medical devices: Health and wellness applications to poised to address the healthcare market. Companies in this category include Misfit Wearables and Quanttus (wearables for hypertension).
• Industrial/enterprise wearables: Wearables tailored to heavy-duty industrial work. APX Labs and Wearable Intelligence were examples here.
• App development: Software studios aiming to power the wearables revolution. One such startup with smart VC investment is Little Labs.

Note: To analyze smart money trends, we looked at the activity of the top 20 VC firms, selected according to portfolio valuations and investment outcomes. Some of the investors are linked to relevant research briefs. Here’s our full list of 20 smart money investors:

1. Accel Partners
2. Andreessen Horowitz
3. Battery Ventures
4. Benchmark Capital
5. Bessemer Venture Partners
6. CRV
7. Greylock Partners
8. Kleiner Perkins Caufield & Byers
9. New Enterprise Associates
10. Redpoint Ventures
11. Sequoia Capital
12. Union Square Ventures
13. Spark Capital
14. Index Ventures
15. Khosla Ventures
16. Founders Fund
17. Google Ventures
18. Felicis Ventures
19. Floodgate Fund
20. First Round Capital

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Photo credit: Dan Taylor, https://www.flickr.com/photos/heisenbergmedia/12900810124. Creative Commons license Attribution 2.0 Generic.