There’s no denying that the Internet of Things market is constantly growing, although according to CB Insights, investment with IoT start-ups is on the decline.
By the end of this year, the connected tech market will have seen a five percent decline, particularly around the number of IoT start-up investment deals. That said, the amount of money firms get will actually grow by four percent by the time 2016 ends, up from a year ago. So the value is up, but the amount of deals is declining.
The third quarter (Q3) of this year proved to be one of the most turbulent periods for IoT companies. Deals declined by 34 percent, while there was a 17 percent fall in overall spending.Internet of Things market is constantly growing; investment with IoT start-ups is on the decline. Click To Tweet
The report also indicates that big firms appear to be taking hits. Fitbit, a household brand that creates activity trackers and wearable technology, experienced a decline in its market capitalisation. It dropped below $2 billion, from $4 billion.
Series A still in the lead
For the deals that are successfully completed, they tend to be seed and series A investment. Early-stage rounds account for over 50 percent of IoT investments, a sign that more connected tech ideas are coming to fruition.
Although investment appears to be slowing, there have still been a plethora of high-profile deals. Thalmic Labs raised $120 million in series B, while Chronological Therapeutics completed a $48 million C round and Ecboee with $35 million in series B.
There were a number of companies that managed to raise even more money, sometimes hundreds of millions in some cases. Jawbone managed to raise $165 million in its E round, and Thalmic Labs mounted a $120 million series B campaign.
IoT start-ups see investment slump
As well as this, the market is seeing a gradual growth of series B deals, rising from 10 percent in 2012 to 13 percent this year. This demonstrates healthy growth in firms securing initial funding and convincing investors to stay committed.
The United States is still the biggest market for the Internet of Things, and it’s where most of the deals have been taking place. Countries like Canada, the UK and Germany follow closely, which boast 2 percent of overall deals.
Paul Shepherd, CEO of tech agency Coup Media, says the entire IT sector has seen a spending decline in the last year so it’s understandable that IoT has been hit in some shape or form. He thinks wearable tech is the most uncertain area.
“There’s an overall decline (c. 0.5 percent, according to Gartner) in IT spend from 2015-2016 so naturally IoT might feel a ripple effect. But ultimately I think there’s still so much uncertainty around who will really crack the wearables market, and what does that look like,” he says.
“We’re still seeing innovations from big companies like Snap Inc (previously known as Snapchat – Ed), and no-one really knows if watches are the wearable device that will take it mainstream. Google Glass bombed and now Snap is launching Spectacles.
“IoT in the home is still reserved for early adopters, but with things like Nest and even great leaps like Amazon Echo and Jibo, that could start to change. I think we’ll see a bounce after the initial rush.”
Lack of consumer confidence
James Saye, a technology analyst at Roke Manor Research, believes that the investment slump in IoT start-ups stems from the fact that it’s still a relatively new area and consumers are yet to build significant confidence.
“This drop in spending is largely due to lack of confidence in IoT from consumers. The wide range of standards (ZigBee, SIGFOX, LoRa, WiFi etc) makes it difficult for consumers to decide which products to purchase,” he says.
“Combine this with the lack of standardised platform meaning that consumers need to choose either Apple, Google, Samsung, Amazon as a platform to host their devices. This is of course presuming that consumers want IoT devices in the first place.
“For many consumers there is no clear use-case or requirement for many devices on the market or in development. Reason security issues also highlight the immaturity of the IoT market.
This immaturity is clear in the investment market too with the majority of funding being in seed rounds. It’s also of note that while the number of rounds has decreased this year (520 projected vs 550 last year) the amount of $ is projected to increase ever so slightly.”
No real worries
Although many voice concerns, there are others who reckon IoT offers investors a unique opportunity. Lord Drayson, CEO of Drayson Technologies, is one of them.
He told Internet of Business: “We’re entering a period of consolidation in the IoT market. If you look at Qualcomm’s recent acquisition of NXP and Softbank’s purchase of ARM, you can see that the IoT opportunity is at the heart of the strategic rationale behind those deals.
“We can expect to see more strategic M&A across the IoT value chain and not just between the big players. No clear leaders and standards have yet emerged to dominate the IoT market and as such M&A will play a key role in determining who wins.
“In our recent conversations with customers and investors, interest lies less in IoT tech itself and more in the evidence of business impact the technology can offer. It’s all about the use cases showing real business value. We have focused on building complete end-to-end IoT sensor networks across digital health, smart building and smart city applications, to prove the business value of the data insights that can be provided.”
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