This guest post was written by Navin Chaddha, the managing director and managing partner of Mayfield Fund, a Silicon Valley venture capital firm investing in the consumer, energy tech, enterprise, semiconductor and telecom sectors.
By Navin Chaddha

A few years from now, morning will break on a weekday and a cadre of work ers will file into a modern office building in an American city. When they first walk through the front door, an array of sensors will detect their presence and bring the lights up, adjusting levels throughout the day based on the time, angle of the sun and the weather.

Light-emitting diodes, or LEDs, will be at the core of these energy-efficient smart lighting systems – chips built into light assemblies connected to a network of other lights and sensors, and controlled by host software that optimizes electricity use.

As these systems are adopted, each of the subcomponents – the chips, the lighting fixtures, the sensors, the network and the software – will likely become the domain of different companies to develop and produce. These emerging firms are the key opportunities for savvy investors as the lighting world verges on the next generation of green technology.

Lighting is nearly as essential to us as air and water. But we take its presence for granted even as its use depletes our resources. Flick on that old, reliable incandescent bulb and you’re one of millions of households using a technology that wastes 90% of the energy it consumes, while only converting 10% into visible light. Add your home lighting use up with the rest of the residential, commercial and government users, and you’re looking at one of the single largest consumers of energy – accounting for one-fifth of the nation’s power.

Higher efficiency LED lights require less electricity, and less electricity – 68.7% of which was produced last year by burning coal and natural gas – means less demand on our energy-producing natural resources. As efficient lighting technologies, like LEDs, go mainstream they become almost like a new source of green energy.

The era of LEDs for general-purpose lighting really began last decade, but the technology has been around since the 1960s. Much like the decades it took for the incandescent bulb to go from a scientific novelty to Thomas Edison’s workable commercial prototype, LEDs are just now hitting their stride. The technology follows a principle known as Haitz’s law: Each decade, the lighting output of these LED chips will improve by a factor of 20 while prices will decline by a factor of 10.

The intersection of new energy efficiency regulations and the maturation of the technology mean LEDs, which are more efficient than even compact fluorescent bulbs, are the future of lighting. And as this technology develops, you can expect to see the $80 billion plus lighting industry evolve in much the way the information technology sector has: with a few vertically integrated companies giving way to a more horizontally oriented value chain.

One can envision these new players in the industry will assume leadership in specific roles within the value chain: Intel-like semiconductor companies building the LED chips, and equivalents of a PC motherboard manufacturer like ASUS packaging the chips into devices that will be used in a variety of end-use lighting applications. The PC and peripheral OEM equivalents will assemble the packaged LEDs in various form factors that will be ready for mass adoption.

A budding Cisco-like company will provide the networking infrastructure to manage and control the lights. And up-and-coming software companies will provide applications that can sit atop the network to manage the information and control for personalization, design, comfort, and efficiency.

Finally, we will see a host of new service providers emerging in the industry. Some will provide turn-key lighting solutions, including the design and seamless integration into existing systems; while others might provide financing alternatives.

Green energy is a growing—and complicated—sector. But investors comfortable with the IT world don’t have to wander through the arcana of biofuels or wind turbines to find a place in it. By going a little further down the energy tech value chain and viewing the nascent LED industry through this familiar lens, they can walk in and let the lights come on.

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Image Courtesy of: Pixomar

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