Google has acquired Nest Labs, a US start-up that designs and distributes smart home technology hardware, namely thermostats and smoke detectors. The deal has been reported to be worth $3.2bn, which equates to about just under 6% of Google’s cash.
Nest was founded by Tony Fadell, one of the leading minds behind Apple’s iPod. The engineer thought that the deal with Google would allow his business to grow in scale and expand in infrastructure, while he could then focus on what he does best, design new user friendly products and services.
While the deal looks very good on paper and will more than likely give existing Nest backers a nice exit multiple, Nest consumer sentiment over data privacy could backlash now that Google is the owner of Nest. This is already a sensitive area in the smart meter sector where consumers are not comfortable with their data being used by third parties. However, now that Fadell will be focusing on new device and service development, that pending user data privacy problem could be solved or even turned into a solution with a new product. The father of the iPod, he will have to get Google and its core agenda on board to make that happen.
Nest is no stranger to hefty-sized fundraisings, nor Google Ventures. In January 2013 Nest raised $80m in a round led by Google Ventures, with Venrock also participating in the round. At the time of that round, the company was valued at about $800m.
At that time the company was selling up to 50,000 thermostats per month with an annual sales target of one million units. The thermostat, which costs $250, tracks its user’s operating behaviour through smart algorithms so that it can turn the unit on and off when users are not at home, or be programmed to turn on just before users arrive home, which can cut electricity and heating bills by cutting up to 30 per cent of energy used to heat or cool the home. Nest has also introduced a smoke detector that uses verbal and light cues to tell you when the detector’s batteries are low and also alerts you when carbon monoxide levels are dangerously high.
Nest recently raised $150m with a valuation of $2bn, according to reports from Gigom.com. Nest backers include Kleiner Perkins, Google Ventures, Al Gore’s investment fund Generation Capital, Lightspeed Venture Partners, InterTrust, Venrock and Shasta Ventures.