What Is Industry 4.0 And Where Did The Name Originate?
"We stand on the brink of a technological revolution that will fundamentally alter the way we live (…). In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before."  These are opening sentences of the World Economic Forum’s article on the Fourth Industrial Revolution by Klaus Schwab, a chairman of the organization and an economist. Though quoted statement might be a bit of an exaggeration, undoubtedly, we live in the era of rapid technological advancements. The Internet of Things, the rise of additive manufacturing or advanced robots powered by computer vision and artificial intelligence are truly transformational. Not only do they significantly increase the efficiency of our factories but often completely redefine them.
This has led various prominent economists and engineers to declare that we have entered a new era of development. As outlined by K. Schwab in his famous “Fourth Industrial Revolution”, it is characterized by an enhanced cognitive power that is augmenting human production . K.Schwab concepts were then encapsulated with the term “Industry 4.0”, first coined during the Hannover Messe, a large industrial fair held annually in Germany, where the phrase tried to convey how digitization in the manufacturing sector is achieved by bringing together novel technology trends.
Industrial Revolutions 1.0 To 3.0 Through The Lenses Of Manufacturing.
Making predictions about the future firstly we should look back at how the manufacturing sector was reshaped by three industrial revolutions which took place in the past. The first one was based on learning how to convert heat into useful work using steam. First-ever in the history of mankind people managed to utilize the unlimited fuels around us and move into mass manufacturing.
The next one revolved around understanding and harnessing the properties of electricity and magnetism. The main difference it exerted on manufacturing was that factories no longer needed to have their own internal power source as the transfer of energy was conducted through the electricity cables from bigger, more efficient and shared power plants.
The third revolution is widely associated with the incorporation of computer techniques into the workflow of the manufacturing plants, reducing human error, speeding internal processes and making plants more efficient.
The fourth industrial revolution is harder to pin down, though there are some distinct characteristics it shares with the formes ones , mostly the innovation it promises in the field of advanced automation and analytics.
Industry 4.0 Sector And Players.
How did this wide-reaching change is reflected by the VC investors? Last year, 2021, was a record year with more than $45.1 billion raised by industrial start-ups. It is an evident increase from a combined $34 billion raised in 2021 (according to the data from PitchBook ). Experts point to the increase in the innovation surrounding the technologies aiming at enhancing supply chains, which in turn, incentivised venture capitalists to invest in industrial tech start-ups with such offerings. This is, however, only the top of the iceberg.
In “Leading Industry 4.0 Vendors 2019” combined with IoT analytics, a leading provider of market insights and strategic business intelligence within the industrial tech space, we can see the current landscape of the sector . One can observe that the innovation is occurring simultaneously in many distant sectors such as sensors, systems integration, collaborative robots or additive manufacturing.
Source: IoT Analytics
Though the space is dominated by recognizable players (both digital and industrial alike) of the likes of Amazon, Google, IBM or Siemens, ABB and GE there are many startups that try to compete. Companies such as DJI, developing state of the art drones, or Grey Orange and providing advanced warehouse automation, present completely a new dynamic approach to manufacturing.
To understand it let us look at Relativity (not presented in the graphic) startup that aims at building the first-ever fully autonomous rocket factory and stating to “disrupting 60 years of aerospace”. At its core, it uses metal additive manufacturing with large robotics arms to print most of the components of the rockets (see below, the image taken from the Relativity webpage). Thus using nearly 100 times fewer parts than a stand propulsion system and having up to 10 times faster production time. Starting ground up enabled them to challenge the very approach to how such systems are created, something that simply does not happen on this scale within the large industrial companies.
Industry 4.0 Through The Eyes Of The European VC Investor.
In a great interview for Forbes magazine Barry Eggens, the veteran VC investor and founder of Lightspeed Venture Partners VC fund discuss the current landscape of the investment in the Industry 4.0 related companies.
To answer the question, of whether it is a viable field for investment returns, he provides an interesting estimation stating that “with the Industry 4.0 revolution (…) between 40 to 50 per cent of machines will have to be replaced or upgraded” originating from the need to embed sensors and connectivity into them. Given the need to change, he mentions the lack of dynamics for innovation in the big manufacturing companies to do so.
On the other hand, he emphasises the large capital pools these organizations possess. Given that nearly a third of the global economy in 2020 is industrial (manufacturing, mining, construction, or utilities) surprisingly this sector has experienced very little digitalisation up to date .
All this makes for a compelling argument for supporting the companies within it. That is exactly the case in Europe more than anywhere else in the world. With Germany, Italy, France, and the UK being in the top 5 of the global rank of manufactured exports per capita (with 17K, 8k, 7.8k and 5.5k euro consecutively) and Germany, France and UK spending a combined 2300M euro since 2015 within the industrial Tech VC , unusually, Europe is spearheading innovation on a global scale. On top of this, the current trend is highly increasing with nearly 9 times increase from 2014 to 2020 in the industrial tech.
Where Is The Innovation Taking Place Within The European Industrial Tech Sector?
In the interview, Barry Eggers mentions that there are four paramount technologies fuelling this next industrial revolution namely: connectivity (by a combination of data, computational power), analytics and intelligence (think ML and AI), human-machine interaction (touch interfaces, voice interfaces, augmented, and virtual reality) and finally digital-physical conversion (manufacturing process that enhances the speed of production e.g. robotics). Roughly speaking that is the case in Europe, where the warehouse and industrial robotics (with 1.8B euro VC investment allocated from 2015 to 2020) is leading the way followed by the IoT related technologies with 0.6B euro invested over the same period of time. Notably additive manufacturing, with 239M euro invested, takes 7th place but taking into consideration the pace at which the field is expanding (especially in terms of using different materials and speeding up the process) it may be more pronounced in the future.
Manufacturing is slow, complicated, and expensive. It takes decades to transform, far slower than other sectors. Start-ups willing to provide for manufacturing giants often need extensive expertise and specialists within their teams. All this hampers the innovation and raises the risk profile.
However, this is only one side of the story. For those that are willing to endure this sector offers great opportunities. Start with a simple fact that every single good? we interact was manufactured at some point. Great capital pools of these companies and the large scales they are operating at ensure these specialized start-ups high and stable growth.
All in all, though less flashy than software of consumer enterprises, future VC investors should actively follow the current industrial affairs and developments. Otherwise, they may find themselves investing in a mechanical workshop in the electric world.
 Klaus Schwab, "The Fourth Industrial Revolution: what it means, how to respond", World Economic Forum article
 Klaus Schwab, "The Fourth Industrial Revolution ", World Economic Forum
 Igor Sadalski, “On the Nature and Opportunites of 4th Industrial Revolution”, Future Industry Leaders 2021
 Seema Mody, „Venture capitalists are chasing industrial tech start-ups as supply shocks widen”, CNBC 2021
 Matthew Wopata, „The Leading Industry 4.0 Companies 2019”, IoT Analytics 2019
 Peter High, „Industry 4.0 Explained By A Leading Venture Capitalist”, Forbes 2018
 Freya Pratty, “Can Europe lead Industry 4.0?”, Sifted 2020