Mission-Critical IoT: The Missing Link

‍We were very interested in delivering IOT, but we just felt that the approach that a lot of companies were taking was missing a key part, which was getting close to the customer and getting close to the actual problem and making sure that they were developing technology that was actually solving a problem. Rather than throw up another satellite constellation, which we could have done, because that's what we did, helped other companies do that at cloud space, we decided to focus on the ground segment and also on the cloud infrastructure layer and really focus on enabling and leveraging all this new technology, which was going on to orbit and making them really accessible to enterprises in organizations all over the world.

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Welcome to the Space Capital podcast. I'm your host, Chad Anderson, founder and managing partner at Space Capital, a Seed Stage venture capital firm, investing in the space economy. We're actively investing out of our third fund with a hundred million under management. You can find us on social media at Space Capital. In this podcast, we explore what's happening at the cutting edge of the entrepreneurial space-age, and speak to the founders and innovators at the forefront.

This is the Space Capital Podcast and today we're speaking with Alan Cannon, founder and CEO of R3 IOT, a Scotland based company which combines satellite and cell technology to deliver mission critical communication services to several different industries. One of the key investment themes for us at Space Capital is applications in the satellite communication stack and R3 is leveraging the billions of dollars of investment in new SATCOM infrastructure structure by players like OneWeb and SpaceX. We led the company's seed round earlier this year and we're incredibly excited about what R3 is building. Alan has experience delivering complex defense and aerospace systems. Prior to founding R3 he led the spacecraft operations design and mission analysis as the head of missions at Clyde Space. Before that Alan was with European missile systems company MBDA for close to 11 years as the principal engineer. Alan has a master's degree in high power radio frequency science and engineering from the University of Strathclyde, and an engineering doctorate from the University of Bristol. And all of this makes him uniquely qualified to help us understand the opportunity and the need for mission critical IoT. Alan, it's great to have you on. Thanks for joining us.

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Alan Cannon:

Great to be on, Chad. Thank you for the opportunity.

‍Chad Anderson:

First off, is there anything else that you'd like to add to your intro that the audience should know about you?

‍Alan Cannon:

Keen rugby coach, rugby player, keen cyclist. I love to take the analogy from high performance teams in sport and apply that into business context, but yeah, you got me spot on in terms of experience.

‍Chad Anderson:

That's great. Very, very Scottish activities, cycling and rugby.

Alan Cannon:

Yeah, absolutely. Absolutely.

Chad Anderson:

Great. What made you want to start R3 IOT? What was the pain-point in the market that you identified?

Alan Cannon:

Well, I guess we were made aware of the challenge of moving data from remote areas. Our times, myself and Kevin, my business, this partner, and co-founder, while we were working a client space and our RVAC client, what we were seeing was we were seeing a lot of businesses, startups specifically, building the infrastructure layer of the space segment, lots of investment and lots of investor money going into the space side.

We realized that there was a lot of activity, which meant that there was a couple of bits in the value chain, which wasn't necessarily being serviced. We decided that we were very interested in delivering IOT, but we just felt that the approach that a lot of companies were taking was missing a key part, which was getting close to the customer and getting close to the actual problem and making sure that we're developing technology that was actually solving a problem. Rather than throw up another satellite constellation, which we could have done, because that's what we did. We helped other companies do that at cloud space. We decided to focus on the ground segment and also on the cloud infrastructure layer and, and really focus on enabling and leveraging all this new technology, which was going on to orbit and making it really accessible to enterprises and organizations all over the world.

That's really where we started. We started with a vision that was like, let's make it really easy to move data. Let's leverage this incredible ecosystem that's building. This was in 2018 and we were seeing the plans for the mega constellations starting to come to fruition. It came a lot quicker than we expected, but still, it was fantastic to see. We saw a lot of activity in the tech stock in terms of the really interesting developments on antennas. Then obviously all the incredible work that's been going on in the data analytics side of things. Really what we wanted to do was really bring all that together and make it really easy for customers then to extract the value and get the insight from this data.

Chad Anderson:

Your mission critical IOT, so your potential customers are in need of data and many of them are in remote locations or what?

Alan Cannon:

Yeah, absolutely. Yeah. I would say our key customers are customers that they essentially have distributed assets across large geographic areas. What that means for them from an operational perspective is that they have essentially an open operational burden. They have to send people to collect data into rural areas where there's no connectivity. As a consequence, that data can become lagged and its low quality. It really means that they don't have access the data now, either previously, the data was economically inaccessible, or it was physically inaccessible, but all that's changing now and the infrastructure layers, they're making the connectivity problem is being solved by the mega constellations.

They were ORIC constellations. Really what we wanted to do was build an enterprise product that allowed our customers to just focus on the value that is provided by this data. Yeah, we've taken an approach that we've built resilience into the stack. We haven't designed our technology on a single satellite back call or cellular back call. We've got multiple ways of getting the data back from a sensor, and that just allows us to go to our customers and say, "We are going to get your data back from anywhere we can. You don't need to focus on that anymore. We're just going to get your data back and really just focus on getting the value from the insight that that data provides.

Chad Anderson:

How big of a problem is this? I mean, are we just talking about rural areas here? Is this an agriculture play, mining, remote operations, or is it bigger than that?

Alan Cannon:

It's much bigger that actually Chad, Yeah, all those markets that you mentioned clearly have an aspect to it. If you think about an energy network or utilities network, they tend to be distributed in nature and they tend to operate in areas where there's good cellular coverage, good connectivity, easy to connect IOT to the cloud. At the same time, those networks spread out across and into areas where there's black spots and there's no connectivity. At the same time, resiliency is a big part of the enterprise technology stack.

Now, you look at some of the recent storms across the US and Europe, which has caused massive challenges for businesses in their infrastructure. Having a connectivity platform that builds resilience, and to make sure that when one network goes down, the other networks are available and that's really what we're, looking at here. Our product is very well suited towards rural and remote industries. However, it's equally applicable to those mission critical use cases, such as the infrastructure critical national infrastructure and those distributed networks such as the utilities.

Chad Anderson:

Got it. This is, what three years ago, or so 2018, I think, you identified this pain point. You were seeing new satellite mega constellations coming online, providing an unprecedented connectivity in all of the places around the globe where we didn't have connectivity before, rural and remote areas. You saw an opportunity to provide really valuable data services to enterprise customers. You were with Kevin at Client Space at the time? Can you tell us about that, the origin story and how you decided to quit your job and decide to start something up yourself?

Alan Cannon:

Yeah. Kevin was head of Spacecraft Design. I was head of missions at the time, working closely with various different startups and various different organizations such as NASA and the European space agency. It was clear that there was huge opportunity in the space industry. For us, there was some really exciting progress happening in the connectivity space. That's where we identified it. It took us a while to pluck up the courage to move away from what were quite secure and exciting jobs. But we decided that, after a bit of work and a bit of research and speaking to a lot of really good advisors across technology and in the space industry, as well as in the IOT area, we realized that this was an opportunity that we wanted to get ahead of and wanted to get involved in.

Yeah, summer of 2018, we started the company. We started just the two of us and actually spent a long time not building technology. As technologists, that was a bit of a challenge. What we realized was we knew what we wanted to build. We knew the technology was we could do that side of things, but the better we wanted to do was really just understand the market, understand the value, speak to potential customers, and make sure we got our requirements right.

We started with a set of assumptions, and we spent the first nine months of the business really validating those assumptions or discounting them and moving on. That, I think, helped us. It was in a really strong position because we knew there was a market, we knew there was customer need. We knew that there was customers out there willing to pay for the technology. Then after about nine or so months, we started building technology with support from some of the organizations that we worked with, such as Scottish enterprise, who are one of the economic support organizations in Scotland. That was where we started from.

We quickly managed to identify an enterprise customer at Salmon Producer in Scotland who had a real challenge. They had tried to digitize a salmon farm up in Shetland, which is an island off the north coast of Scotland. Their challenge was they were sending someone a 50-mile round trip every day to collect a water sample to see whether they had an issue. That was expensive and time consuming, and they tried to digitize operations using the technology that was available. They had been speaking to the local telecom providers. They'd spoken to the likes of British telecom to put in fiber, which is extremely capitally expensive and CapX heavy.

The data that they were getting was really, really poor because it was one data point every day. They came to us, realized that we had a technology that could help them and worked with them over an extended period of time on a pilot program, which essentially helped inform our product, but also solve the big problem for our customer, which was helping them digitize where there was no local infrastructure such as power and connectivity, and that essentially has saved them a lot of money, has saved them time and increased the quality of data coming back from their operations.

That first pilot has really reinforced the benefit and the value that our product and service could bring to, not only to aquaculture, but to industries that have those same challenges with a lack of reliable infrastructure.

Chad Anderson:

That's a great example. You're based in Glasgow and being in Scotland, actually is a great advantage for your particular business. I mean, the Highlands and islands are the remote areas in the north and off the coast, which are ideal place to be a test bed for your technology. Aquaculture seems like, obviously, a big initial use case. Who are some of the other customers for this? Where else are you seeing traction?

Alan Cannon:

You're absolutely right. Scotland's been a great test bed for us because it's a challenging environment. There's large areas where there's no connectivity, but there's a lot of high value industries operating within Scotland. Aquaculture is one of them, but you have the energy industry, have wind industry, oil, and gas, et cetera, but you have aquaculture as a key one as well. Our key focus initially was aquaculture, but we've demonstrated utility in a few others as well, such as healthcare, working with the Scottish government on a telehealth program, which will allow resilient digital services to be provided to communities in rural areas.

That's a large global challenge, is providing healthcare into these areas where there is no connectivity, the real industry, so transport logistics, and emergency services. Lots of really interesting big global industries that have significant challenges in running their operations because of a lack of connectivity and a lack of local infrastructure. It's yeah, quite exciting.

Chad Anderson:

That's great and so interesting to see all the different use cases for this and potential industry for this. Something else that I find really fascinating is as consumers of internet and bandwidth, it may be intuitive to us, but consumers and enterprises are hungry for data. Up until this point, enterprises have had to throttle their data usage based on the limitations of Satcom providers, but that's all really changing with these new low earth orbit constellations that are coming online.

You started off with very low data types of applications, right? Sensors that are providing some pretty basic data, which coming from a baseline of zero was a big step up. You're noticing also that with your customers, that if you provide them more capacity and bandwidth, that they will gladly use it. Right?

Alan Cannon:

Absolutely. Yeah. It's been interesting. Once that connectivity challenge is solved, then there are so many different ways in which companies can then start to apply that technology. We see our platform as an innovation platform.

What we've seen is once you make that data available to customers, they just want more. They realize we start with a single sensor, a couple of sensors that are given really interested insight into their platform. Key for us was to really focus on those high-impact parameters that company might need in aquaculture. It's oxygen and temperature, which are big environmental factors that can affect wellbeing of the fish. Yeah, you take those two parameters, initially, low amounts of data, utilizing some more traditional Satcom technology and then quite quickly they're asking for, "Oh, could you provide us with more sensors? Can you, link up more parts of our farm"?

Then they start to say, "Well, actually we'd really like some video feeds here. We'd really like some more data to feed to the cloud so we can push it into do some more machine learning on the data". Yeah, we see it. We see that again and again, over various different industries where customers start with a few low bandwidth type parameters and then quite quickly asking for, "Oh, well, now that you can do that, could you give me some more, could you give me video, could you give me some others?"

It's exciting that the technology is there. They're about to be able to provide those types of services and more value for our customers. I think the that's the key there.

Chad Anderson:

Fascinating. You've got massive industries, some that you mentioned, aquaculture, energy, environmental monitoring, telemedicine, rural health, and utilities, and then all of them are showing an interest and a need for more and more bandwidths, so you've got a massive market to start with, and it seems like it's growing pretty quickly. A lot of untapped potential there.

How do you think about the market potential for what you do?

Alan Cannon:

I think it's huge. I think given that there's a large proportion of the planet that doesn't have connectivity in a traditional sense, in terms of fixed infrastructure, cell towers, mobile connectivity, and the associated power infrastructure. I think that's a key part of this as well, is that our system is able to run completely off grid. We designed a system like a satellite on the ground, and we don't want to be sending people to update the data. Traditionally where there's no connectivity, there's no power infrastructure either.

We are seeing a huge need because the opportunities huge. If you just think about that in terms of global scale, you don't need to go very far outside of a city or a metropolitan area to get a black spot or no mobile connectivity. I think that's the exciting bit and there's lots of businesses that can benefit from our tech.

Chad Anderson:

Yeah. The dark areas are a lot bigger than people think, right? Like you said, you don't have to go far outside of city centers to run into dark spots. Can we talk a little bit more about the technology?

Alan Cannon:

Absolutely.

Chad Anderson:

Interesting to hear you say that you designed this as a satellite on the ground. Can you tell us about the technology stack? You've got a hardware product and the software product and how satellites fit in to that?

Alan Cannon:

Yeah, absolutely. Yeah. Essentially, we have what we call the smart gateway. They are three cell and that allows us to collect IOT data, aggregate that data, do some edge processing. We've got some advanced power management on there and also some intelligence in there, telling us to choose which backhoe that we send the data over.

Chad Anderson:

That's basically a box with some sensors in it?

Alan Cannon:

Yeah. That box essentially is like a really smart computer with some radios on it that allows us to connect to a variety of different sensors, which would be out in the field. We also have some satellite radios in there as well, satellite modems that allow us to send that data over satellite. We can send the data over cellular. We can send the data if it's available.

It tends not to be in some of the rural areas, but we can send over satellite, over geostationary satellite, or low earth orbit over a variety of different frequencies. Then that data arrives on the cloud in our IOV cloud infrastructure, which allows us to do things like device registration of the sensors, allows us to do security management, which is a huge part of tapping into enterprise market and is making sure that the system is secure and allows us to store the data. Then we have a public API, which then allows us to move that data into third party applications or into our own application where we can do all the data analytics, and really drill into the insight from the data and provide more value to our customers.

Chad Anderson:

Customers that know what they want to do with this data already, possibly they already have some workflows, some basic software systems set up and some workflows set up, they can tap into this API and get better data and for customers that don't have anything built, you can also provide the full solution to them. Is that right?

Alan Cannon:

Yeah, absolutely. We felt that was a really important thing to do at this early stage of the business was to have the flexibility in our business model to offer that full end-to-end solution where we can extract more value from the value chain. It's obviously a bit harder to manage and build out, but we also felt that there are a lot of opportunities in some of these markets that have never had access to this data. We're in a great position to be able to build the applications to leverage a lot of that extra value.

On the other side, we're seeing a lot of interest from large corporates who already have the data analytics team and they've already using their business intelligence software, but what they really need is they really need access to the data. They've got assets that they want to manage. We're talking to a really interesting customer at the moment who, big analytics company, they built models for various governments. What they really want is access to a reliable, good quality data from rural and remote areas.

They also want it to be resilient so that when there's an environmental challenge, so networks go down, they want that data to be able to come through so that their models are of high quality. Yeah, we want to operate in both those different business models. I think in some markets, we would provide that connectivity platform and then an API and move the data into customer applications, but in others, we'll build out that field solution.

Chad Anderson:

Great. Satellites are really, they're the connectivity, they're the backhaul for you, which is allowing these data silos to connect to the internet and the cloud?

Alan Cannon:

Yeah. I think the way that we look at this is the satellites and the cellular network, if it's available, that's our method of getting their data back to the cloud. We're trying to be agnostic on that side. When we're having conversations with our customers, they tend not to need to know about that. We Want to take the conversation away from the technology really and up until this point, satellite's been expensive.

There's a perception that satellite is expensive, and we all know that's now changing and it's exciting, but we want to just make sure that the customer can focus on that end value that they get from their data and really take the conversation away from it. We look at this as like, we've got a magic box, we place this on your site and it's going to save you money and it's going to reduce your risk and it's going to allow you to increase your productivity. If we can achieve that, we're definitely onto a winner.

Chad Anderson:

I love it. Okay. Who else is doing this? We're tracking 10 competitors in IOT communications, nine of which were founded within the last six years. As a group they've raised $9 billion and are collectively valued, ell, north of that. It's difficult to get a lot of data on these companies. A lot of them are new. One of them is publicly traded, Global Star. How are you thinking about the competitive landscape?

Alan Cannon:

Yeah, we also track some of our competitors, but I think some of those competitors potentially could become partners going forward as well. As I said, some of them are building satellite IOT constellations, or focusing on the space segment. Some of them are looking for ways in which to dive deeper into the value chain. I think we see a lot of the current certainly space IOT players as potential future partners. I think the key for us is that to remain agnostic on that side, to allow us to watch the space race play out on that side, because essentially, there's some of these space IOT companies, they're going to be absorbed by other, other larger organizations. I think that, from our perspective, we will partner with the ones that are the best technology and the best fitted towards our customers.

Chad Anderson:

It makes perfect sense. In terms of your business model, how are you making money? Customers can tap into your API. You are selling a full software suite. Are you selling the hardware alone? How do you make money?

Alan Cannon:

Yeah, we're selling this as a service, software service, essentially, although we have a hardware component. It's really just an enabler. In some cases, we'll essentially move everything into the service side of the business. We charge a quarterly fee or yearly free, the idea being that the product becomes really sticky, and we can really integrate the service into customer workflows, meaning that we can build long term value with our customers. Yeah, as a service model, that's definitely where we're going to be sticking, I think.

Chad Anderson:

Do you think that that service model is your greatest competitive advantage, or given that others are focused more on the product and the technology and the hardware, or is it something else?

Alan Cannon:

Yeah. I think there is a combination of that chart as well as the fact that our system is highly resilient. Our platform is really an enterprise-grade platform. We're not selling a low cost IOT sensor. We're not selling a low-cost IOT service that can move data every other day and give customers weekly updates on a sensor. What we're building is the stack that allows enterprises to have that near view time insight into their data. It's a high value product, highly resilient and integrating really seamlessly into customer workflows.

Chad Anderson:

Got it. Perfect.

Alan Cannon:

I guess the key thing there is it's making it easier for enterprises to deploy IOT solutions across their asset pool.

Chad Anderson:

Got it. It really comes down to execution, which is what I wanted to ask about next. I wanted to talk about the team a little bit. I mean, you and Kevin are first-time founders, but you've surrounded yourselves with some pretty experienced folks on the board, as advisors, which is really great to see. What can you tell us about the team and those who are supporting it?

Alan Cannon:

Yeah. We've been able to assemble a really quality, quality team. I think that it was a recognition when we started the business that we're only going to be as successful as the people that we are able to surround ourselves with. As you said, we are first- time founders and therefore, we had a lot of learning to do. We still have a lot of learning to do. We wanted to make sure that the advisors and the board members, our investors all brought something to our business.

We've got the likes of yourself from the space side of things, we've also got Ryan Johnson, who's ex planner, we've got Nathan Kuntz from Koneta and Loren Padelford who was a general manager at Shopify. We've got some really good people around us, which has helped us navigate and actually think a lot bigger about our business.

We graduated from creative destruction lab, as you know, Chad, and we were exposed to, I guess, a thinking about our business in a slightly bigger way than we had been, which was fantastic. I think they really appreciated that when someone like Loren Padelford from Shopify says, "You guys have got a great business. This could be massive". It started to really validate a lot of our assumptions that we had about the business and started to get us to believe that we could build this global multi-billion business.

Chad Anderson:

Yeah. He was what chief revenue officer and he's looking at your business and saying, "I see a lot of similarities between R3 IOT and Shopify". That's big.

Alan Cannon:

Yeah.

Chad Anderson:

A big vote of confidence.

Alan Cannon:

Absolutely.

Chad Anderson:

How big is the team now?

Alan Cannon:

At the start of the pandemic, there was five of us and now we're up about 23. We got quite a lot of jobs open at the moment. We're bringing in some quality people into the team. We just formed our senior executive board. We're bringing a VP of sales, VP ops, and the team got a lot of high-quality people in the team that are going to, really grow in with the team as well.

We can see how that's going to play out over the course of next year. The phase of the business that we're going into now is really this commercial ramp-up. Over the course of 2022, we're building a revenue base through our commercial product, growing the capability and the team across both sales and business and marketing, as well as bringing in more capability and engineering side. It's exciting. It's been a fantastic journey so far and I'm really excited and bringing in more expertise over the course of the next year.

Chad Anderson:

Great. In terms of what next, you've got a new version of the product coming out. You're also thinking about expanding the business to other geographies. What can we look forward to from R3 IOT?

Alan Cannon:

Yeah, I think it's execution, Chad. I think that's the key is we've got a very well-defined strategy in terms of the types of markets that we're going after, and those markets are global. It looks like our first markets that we'll be into will be North America, Canada. We do have some opportunities in Scandinavia as well through aquaculture. Yeah, a lot of growth, hopefully.

Chad Anderson:

Great. How can listeners learn more about R3 IOT?

Alan Cannon:

We've got our new website, which should be kicking in the next quarter, keep in touch through our various different channels. Yeah, I think if listeners are interested in seeing us, feel free to connect with me on LinkedIn and happy to chat.

Chad Anderson:

Great. Alan, it's been great to have you. Thanks for coming on the show.

Alan Cannon:

Thanks very much, Chad. It's been a pleasure. Love the opportunity. Love chatting. Thank you.

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Thanks for tuning into the Space Capital podcast. If you enjoyed this episode, please leave us a review and subscribe to make sure you never miss an episode. If you're interested in learning more about investing in the space economy, I invite you to visit our site spacecapital.com, where you can get access to more industry-leading insights and learn how you can join the entrepreneurial space age.

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