Silvair, a Polish-US company, has created a pioneering system for lighting control that could end up being installed in buildings around the world. We chat to Rafal Han, co-founder and president, about the appeal of doing business in Silicon Valley, the arduous debut on the Warsaw Stock Exchange and the revolution of the Internet of Things.

This interview was originally published in the Sep’18 issue of Forbes (Polish edition)

Silvair, a Polish-US company, has created a pioneering system for lighting control that could end up being installed in buildings around the world. We chat to Rafal Han, co-founder and president, about the appeal of doing business in Silicon Valley, the arduous debut on the Warsaw Stock Exchange and the revolution of the Internet of Things.

Interview by Krzysztof Domaradzki

 

Forbes: Is it difficult to sell the future?

Rafal Han: It depends to whom and where. In the US, particularly on the West Coast, we found many kindred spirits with whom we had great conversations about how our business and the world will look in a few years time. The conversations weren't just about fund raising, but also with people who have achieved quite a bit of success with technology see the future. People who can ask difficult questions and give convincing answers. It was a great learning experience and each meeting moved us forward, even if we left without financing.

 

How does it work in Poland?

Here, people mainly listen to us.

 

What do you mean by "they mainly listen"?

During our road show before the debut on the Warsaw Stock Exchange, we met potential investors. Our presentation was educational and was geared towards people who wanted to find our more about the Internet of Things, the lighting market or the Bluetooth mesh standard. We told them about something that was new, unfamiliar and, according to us, a complete breakthrough. Some were excited by our vision, but they were also wary. Maybe it's a question of the market, or maybe it's about the current state in the development of the technology, but for me it's a completely different world.

 

Why does an American company, which up to now has been developing according to the traditional path followed by startups, turn to the WSE for subsequent financing rounds?

Until quite recently, the idea of an IPO was pretty abstract for us. We found our investors - initially business angels, then VC funds - and this seemed to be the only sensible path for our developments. We had over a dozen investors on board, from the US, Japan and also Poland with people like Piotr Wilam, Andrzej Targosz and the business angels from the Hedgehog Fund. Then we got our Series A funding where the lead investor was a local company, Trigon TFI (which led a $12mn round, one of the largest in the history of Polish startups, ed.) and soon after that, Ryszard Czerwinski from DM Trigon suggested an IPO. Initially I rejected the idea, as it seemed crazy, but then I realised that I was boxing myself in, whereas I like breaking patterns. We looked deeper into the advantages of entering the stock market - increasing our presence in the B2B sector, strengthening our brand as an employer as well as our credibility as a company - and then we thought, why not?

 

You wanted to raise 45m PLN but you only raised 20m PLN. You fell short of the goal.

There were a few factors that influenced this. Firstly, there was little general awareness of what we have achieved - we are the first company in the world that has created a product based on the Bluetooth mesh standard. Secondly, Silvair is a US company, which is something new for the Polish stock exchange. Thirdly, we are still pre-revenue and fourth, we were constantly hearing that the market is difficult.

 

So to avoid misunderstanding, what does Silvair do? The simplest explanation that I could find is that you create software for managing lighting.

That's right, but lighting control is only part of a larger mission. Silvair is a company in the Internet of Things space, which is based on the idea that devices are able to communicate with each other. This ability to communicate is the foundation that allows services to be built on the basis of these devices, services that will enable many spheres of life and business.

 

For example?

Well, hospitals have a huge problem with tracking medical equipment - nurses lose an hour a day searching for the equipment they need to do their job and the same goes for finding free beds or medical personnel. Airports have a huge problem with finding wheelchairs. Companies spend a fortune on cleaning services in office buildings, which often waste time cleaning rooms that haven't been used, as well as wasting a lot of energy lighting areas that don't need to be lit as they already have enough daylight. The ability to communicate allows these devices to improve the operation of practically every building as well as building many services based on the data they generate. When we started this business we knew that we wanted to use technology to allow devices to communicate. That was it. Then we had a revelation; it hit us that the key to this whole business is lighting, which is found in every building, and that we need to put this technology into every lamp. We also realised that lighting control in commercial spaces together with the gathering and analysis of the data, will usher in a change like the one we saw introduced by mobile phones: the ability to call someone is now only one function of a mobile, and not even the most important one.

The next shock came as we were analysing the lighting market, as it became clear that it was itself undergoing a revolution. Everyone is changing their halogen and fluorescent lighting to LED, while the regulators are introducing energy efficiency codes that require companies to monitor lighting systems and control their energy consumption. For us this is a dream situation.

 

Not only for you, but also for Philips, Osram and General Electric. Aren't they developing similar technologies?

Everyone's noticed this trend, but when we started to meet the big players four years ago to find a business partner and told them about wireless solutions, lighting control and data gathering, the market was very polarized. Some thought we were crazy, others said "wow". While lighting control isn't anything new and other manufacturers created similar solutions a long time ago, they are all based on heavy communications protocols and don't work in large spaces. Apart from that, they re proprietary and belong to one manufacturer so it's as if you bought one brand of wireless headphones but couldn't use them because they only work with a specific manufacturer's mobile phone. For it all to work, a worldwide standard is needed - something like Bluetooth mesh. And we helped create it.

 

How did that happen?

Initially we created our own mesh solution - a system that allowed our devices to communicate over Bluetooth. Seeing the huge potential in this product, with great excitement we took it out into the market only to hit a wall. We were told that such a system can only work within a closed system belonging to one supplier. It was only then that we worked out that we need to build a universal, global standard. But how? We were in Krakow, scratching our heads. In the end we came to the conclusion to join the 30,000 member strong Bluetooth SIG organisation. I remember the meeting in Palo Alto with the SIG representatives; we presented our vision and they said "great idea, come over and we'll set up a working group as there are a few companies that are thinking along the same lines". That's how we started. We were probably the smallest company of those that built the mesh standard, but despite this, Szymon Słupik, one of my co-founders and CTO of Silvair quickly ascended to become Chair of the working group.

 

When did you meet your co-founders?

A while ago I created an educational games service for kids, Ciufcia.pl, which was used by over 50% of Polish families with internet access. I tried to take this concept over to the US under the Duckie Deck brand and got the support of the Satus Venture fund where Adam Gembala worked. He joined the board of directors of my company. Our expansion turned out to be more difficult than we expected but we got a lot out of it, and we found we worked together really well. I met Szymon Słupik a bit later, at an industry event. We talked for a long time and I was inspired by his vision of the world. He already had a smart home where he had over 100 devices working together. Szymon, Adam and Maciek Witaliński developed a project that they called HomerSoft, and brought together a team of very smart engineers in Krakow. This was the beginning of what was to become Silvair. At that time I was helping Jakub Krzych and Łukasz Kostka from Estimote (a beacon manufacturer, ed.) build a beachhead in Silicon Valley. One day the guys from HomerSoft invited me to their home lab to show me what they had built. It gave only a small hint of the capabilities of their technology but when I saw how far they had advanced by the time of our second meeting, I was speechless. We quickly came to the conclusion that we wanted to develop it together and I knew that with my scientific education, business experience and familiarity with Silicon Valley, I could help this company.

 

That's interesting. It's usually economists or humanities graduates who join engineers, not biologists.

The education I got at the Department of Chemistry and Biology at the Jagiellonian University in Krakow allows me to understand technology, but I'm not confined to this world. I always try to look more widely at what surrounds me. I took photography classes at the Krakow School of Fine Art where my teacher, Professor Zbigniew Łagocki RIP taught me to observe people and the world carefully. And what is business? It's the satisfying of needs at a price that people are able to pay. This approach needs social awareness and maybe this sounds stupid, but it also needs the desire to change the world. We solve people's problems with the help of technology and they pay us for it. We are at the forefront of the Internet of Things revolution and the fact that we like to swim upstream - each one of us has a bit of a rebel inside - means that creating new solutions generates in us an almost childlike excitement.

 

Let's come back to now. You say that you are the only company in the world to have a finished product based on the Bluetooth mesh technology.

That's right. We sell the Silvair Lighting Firmware to manufacturers of lighting components. It is software that is certified as compliant with the 1000-page standard documentation. It allows lamps and sensors to become aware of their state as well as the state of devices nearby.

 

So you inject them with consciousness and the ability to communicate with other devices. What about intelligence?

No, that only happens at the level of the whole network. Imagine an ant's nest that knows how to behave even though there is no central brain that controls it. It's the same with a swarm of bees, a shoal of fish or a flock of birds. Thanks to communication and the ability to draw conclusions, the smartness of a single device turns into intelligence at the system level.

The whole beauty of it depends on the ability of multiple manufacturers' lighting devices to work together in this network and understand each other which is why we are building relationships with some of the largest component manufacturers in the world, such as Murata, Fulham, Danlers and McWong. They may not be well known in Poland but for example, our Japanese investors were shocked when we told them that we had started working with Murata, a company with a market value of around $35bn. Their sensors are like iPhones for lighting: beautiful, very advanced technical devices. Our software is currently integrated into six manufacturers' product ranges but we are in discussion with dozens of other players in the industry.

 

So the software for components is the first element of your business, and the network that allows them to be managed is the second?

Strictly speaking, it's a platform for managing the lighting in buildings, specifically targeted to offices, hospitals and warehouses. Upgrading them will no longer require installation of a central lighting control system, with dozens of boxes that have to be configured. Ours is an easy to operate, wireless solution. To this end we are starting to work with ESCOs (Energy Service Company - ed.), which provide energy efficiency solutions for buildings. Our third revenue stream will be the analytics services thanks that will allow the school or hospital building owner to see how much energy specific devices are using, and to also verify how the space is being used, which can lead to significant cost savings. Finally, the fourth thing we want to sell is access to the infrastructure for companies that work on optimising the use of commercial spaces, locating equipment within buildings or beacons. Our solutions will help them deliver those services.

 

Are there any buildings equipped with your technology?

Yes, one  - our Krakow office. We have installed over 1000 devices that we use for experiments and to test different manufacturers' solution. We welcome visitors from all over the world, and all of the leading lighting manufacturers have visited us there. Undoubtedly though, the first commercial installation will be a major milestone. While we use our building to encourage the early adopters to implement this technology, we need a commercial solution so that the average person can walk into an office building and see how it works. We plan to achieve this before the end of the year and we are working with ESCos in the US and Europe to achieve it. For our business to work, we need tens of thousands of such buildings, but initially we want to show the first and promote it strongly.

 

The Bluetooth mesh standard was published a year ago. Has the gate opened and have companies thrown themselves into creating their products?

Not quite. They threw themselves first and foremost into evaluating the new standard. They wanted to check if it works, to chew it over. Thankfully, it's been a year and no one has found any mistakes in it so it is only now that companies have started to evaluate if they can build a product based on mesh communication. It's not easy, but thanks to our experience in creating the standard and our deep conviction in the value of this technology, we have an advantage over most of our competition for several months.

 

Are you not worried that a company with significantly more funding will appear over the horizon any time soon?

Our competition can come from two sides: the giants who have practically unlimited funding, but move so slowly that a change in strategy and building a team which can deliver a product will likely take them a few years, and startups. Startups are nimble and quick, but it's not that easy to find financing when you are second, third or fifth in the world. In any case, we need the competition as the more companies that make software for lighting components, the better for our business in managing lighting networks and data gathering. It's a self-fulfilling prophecy: the more components the better the system. Only about 5% of buildings in the US have been modernised with LED lighting and lighting control, so there is a lot of space still to be reached. We are at the very beginning of the process of creating an entirely new market.

 

Why should the largest players buy your technology, instead of buying you while you are still small and cheap?

Since we announced our IPO we have received various propositions. The large players know that gathering 75 intelligent people is not simple, so from that perspective it's easier to buy a ready solution. However, for a large manufacturer to buy Silvair would completely destroy the value of what we are doing. We are democratising the lighting market so that the devices that make up the lighting system no longer have to come from the same manufacturer. This is the only way to guarantee the comfort and freedom of choice for the final user of these products.

 

But aren't you worried that the Internet of Things is just one huge buzzword, which will never convert into a real trend?

It was a buzzword. Several years ago, analysts announced that any day now, 50bn devices will appear and communicate with each other in a universal language. Bluetooth mesh is that language and it removes one of the most significant barriers to the development of the IoT. So the buzzword has sounded and faded, and now the trend is real.

 

You've been a business angel, you've travelled around Poland in a campervan promoting entrepreneurship, you've built educational companies, and you helped Estimote penetrate the US. Now you talk about Silvair as a business masterpiece. Is this your destination?

There's a lot that suggests that this is the case. We are still a long way from our final destination - we want to be able to walk through the streets of New York, Boston or London and know that our software controls the lighting in the buildings we are walking past, and that the data we are gathering allows services to be delivered that conserve energy and improve the comfort of the people who work in them. The awareness that we can achieve is incredibly energising and makes us want to concentrate on this one project. I learnt this kind of focus at Estimote, for whom I obtained the first customers and investors. Then I jumped into Silvair and focused on that.

 

What is the limit for this business?

It's difficult to count all the buildings in the world; each one for us is tens, hundreds or thousands of infrastructure elements - sensors or lamps. They can generate gigantic amounts of data that we can use to create innovative services. We hope that the concept of a limit is something that will not apply to us for many years.

 

Timeline:

2007 - Rafał Han sets up HanBright, an umbrella company for internet companies (including the Ciufcia.pl education service)

2013 - Han helps the founders of Estimote - Jakub Krzych and Łukasz Kostka - develop the business in the USA, then he joined Silvair.

2016 - Silvair gains $12mn Series A financing in a round led by Trigon TFI.

2017 - Bluetooth SIG publishes the Bluetooth mesh standard. The Chair of the working group is Szymon Słupik (pictured), Silvair co-founder.

2018 - Left: Rafał Han, Szymon Słupik and Adam Gembala. The founders of Silvair IPO on the WSE, gaining 20mn from the flotation and a valuation of 200m PLN