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IoT Market Forecast: Venture Capital Funding Provides Clues

Have investors cooled on the Internet of Things (IoT)? Tracking the money flowing to IoT-related venture capital (VC) funding points to fewer but larger deals getting done, according to data and analytics firm GlobalData.

VC deal value and volume in the IoT space for 2014 – 2018 indicate a mixed bag, with VC funding growing in 2015 – 2016, dipping slightly in deal value in 2017 but recovering with a corresponding 8.3 percent rise last year despite a drop in volume. Overall, VC deal value in the IoT segment during the period increased at a 10.4 percent compound annual growth rate (CAGR) but deal volume declined at a CAGR of nearly 10 percent.

That adds up to bigger but fewer investor deals, suggesting perhaps that the segment’s shine has dulled a bit for capital infusion, GlobalData said.

Internet of Things: Mergers and Acquisitions

Merger and acquisition (M&A) activity during the period shows a transposition of what’s occurred with VC deals. While M&A volume increased at a CAGR of about five percent during 2014 – 2018 with growth every year but 2017, M&A deal value declined at a CAGR of roughly 39 percent during the period, according to GlobalData’s figures. So, more deals for less money.

For 2018, VC investments valued at less than $5 million in IoT companies grew while deal volume was inconsistent throughout the year, GlobalData said. Low value deals of less than $10 million comprised the lion’s share in the segment. In total, 230 VC deals in the IoT segment had disclosed deal value of less than $10 million, which accounted for 68 percent of the total volume in 2018.

It’s some failures in the IoT space that has spooked investors, said Aurojyoti Bose, financial deals analyst at GlobalData. “Amidst the rosy picture for IoT technology and its implementation across different areas, several project failures in the recent past have made investors wary,” Bose said. “Project failures and security concerns have slowed down the hype around IoT, as reflected in declining VC deal volume in 2017-2018. However, the growth in deal value but drop in volume is indicative of the fact that investors are looking for safe bets and prefer investing in fewer but promising companies only.”

GlobalData pointed to a Cisco study in 2017 that found cybersecurity issues were driving down the success rate for companies implementing IoT to as low as 25 percent. In addition, the Mirai botnet, which brought the Internet to its knees in October 2016 by making zombies from unsecured IoT devices, certainly didn’t help investors believe in the segment’s viability.

Magic Leap, Carbon3D, Xiaomi, Horizon Robotics and Spotify comprised the top five list of IoT-related companies with VC backing during the period, collectively accounting for roughly $5 billion in funding value, GlobalData said.

Internet of Things (IoT) Investments: Opportunities Remain

Investing in IoT technologies still is promising for the future, Bose said. “While we see some roadblocks in the successful implementation of IoT technologies, there’s a lot in store for IoT startups/investors in the future. Deal activity is expected to gain momentum in the coming years, as we continue to become more connected with improved IoT architecture and better security solutions addressing the challenges associated with successful IoT deployment.”

Another factor for investors to consider is growth in the Industrial IoT (IIoT), Bose said, pointing to the $23 billion in Series B funding secured last year by Seeq, an IIoT advanced analytics software provider, and the $20 million landed by Konux GmbH, an IIoT smart sensor systems and artificial intelligence developer.

By comparison, artificial intelligence drew more funding last year than any other emerging technology, GlobalData said. Nearly 2,000 investors funded 1,000 AI-based companies throughout the year.

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