Scott Miller Talks Dragon Innovation’s Winding Journey to Avnet Deal

It’s funny how relationships can come full circle in the business world.

The seeds of Dragon Innovation’s sale to Avnet, announced Tuesday, were planted over a decade ago in China, says Dragon co-founder and CEO Scott Miller.

At the time, he was running iRobot’s operations there alongside his future Dragon co-founder Herman Pang, he says. Avnet (NYSE: AVT)—a global distributor of electronic components—became an iRobot partner, helping to secure the software for the chips embedded in the company’s fledgling robotic vacuum cleaners, Miller says.

Bedford, MA-based iRobot (NASDAQ: IRBT) was still a small company, and the Roomba wasn’t a hit yet. “We were doing a crazy vacuum cleaner thing,” Miller says.

But Avnet showed it was “passionate about having their customers succeed,” he says. “I just love that mindset,” he adds.

Now, Miller gets to work with Avnet again, in a much closer way. His hardware consulting firm will join Phoenix-based Avnet’s group of wholly owned subsidiaries, which it says offer a mix of product design and supply chain services. Cambridge, MA-based Dragon will keep its brand name, Miller says.

He declined to disclose the acquisition price, or share Dragon’s revenues. The company raised at least $2.5 million from investors, according to SEC filings. Its backers include Amazon’s Alexa Fund, Flybridge Capital Partners, and the Foundry Group.

Avnet plans to give Dragon more resources, including expanding its team, Miller says. Dragon currently employs 10 people at its Massachusetts headquarters, and another 20 people in China. Miller says it will hire more employees in software development and sales and marketing, but he declined to say how many.

Miller is excited to tap into the global reach of the much larger Avnet. The 96-year-old company generated $17.4 billion in sales in its most recent fiscal year, and it employs more than 15,000 people worldwide. Miller sees Dragon’s industry relationships and expertise in mechanical engineering and manufacturing as complementary to Avnet’s strengths.

Avnet, meanwhile, has been transforming its business from a “pure distributor” into an “enabler of hardware,” Miller says, “which lines up with what we’re trying to do.”

Last year, Avnet acquired San Francisco-based Hackster.io, an online community that helps people learn how to design, make, and program Internet-connected devices; and U.K.-based Premier Farnell, which owns the online engineering community Element14. In May, Avnet, Dragon, and crowdfunding website Kickstarter announced a joint initiative called Hardware Studio, which will offer product developers access to expertise and resources to design, build, and commercialize their ideas.

“We thought that there’s a great value fit,” Miller says of the acquisition by Avnet. “It’s kind of like a puzzle coming together.”

Miller and Pang started Dragon in 2009, on the cusp of the maker movement and the flood of Internet-connected consumer devices. The idea was to take their experience building up iRobot’s Chinese supply and manufacturing operation, and help hardware startups get their products made. Dragon’s more than 300 clients have included 3D printing firm MakerBot and smartwatch maker Pebble.

Dragon initially used a traditional consulting business model, but its approach has taken twists and turns over the years. In 2013, it raised a small venture funding round and launched its own crowdfunding website—an increasingly popular, but sometimes fraught, method for hardware startups to raise money and generate consumer interest in their product ideas.

But Dragon shut down its crowdfunding website after about a year, Miller says. It hosted around 20 crowdfunding campaigns; he says he can’t remember how much money those projects raised. Miller didn’t share specifics about why Dragon pulled the plug, but it sounds like it didn’t generate the level of activity his team envisioned.

“We learned a lot in the process,” he says. “One of the things we learned is Kickstarter has amazing network effects.”

Since then, Dragon has shifted toward developing software to help its customers, such as tools for estimating manufacturing costs.

“It’s kind of the natural evolution of the business,” Miller says. “These journeys are never straight.”

As our conversation was coming to a close, I asked Miller—who is also a venture partner at Bolt, a hardware investor/manufacturing consultant—for his thoughts on several big tech topics. Here are the highlights:

—The Internet of Things: “Everybody is trying to figure out what it is,” he says. But he’s pretty sure that the market for connected devices—both consumer and industrial applications—will be massive.

—Connected device security: “When IoT first started … companies weren’t putting in a lot of provisions for any sort of protection,” he says. “Now, I think, from some of these [cyber] attacks, it’s a giant game of catchup.”

—Artificial intelligence: “I think that’s still in the early days, but I’d expect now that we have hardware to gather the data, that there’s a lot of opportunity to analyze the data and get really deep, interesting insights that we can do some pretty cool things with,” he says. “I think that’s a trend that’s here to stay, and it’s just getting rolling.”

Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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