Interest in the Internet of Things projects seems to be fluctuating as more companies become concerned about the tech’s security.
According to GlobalData venture capital (VC), funding and mergers and acquisitions (M&A) activity in the IoT marketplace witnessed fluctuating fortunes during 2014-2018.
After registering growth in 2015 and 2016, VC funding in IoT space declined in 2017 in terms of value. However, in 2018, the deal value again registered an 8.3 percent growth, despite a drop in volume. Overall, VC deal value increased at a compound annual growth rate (CAGR) of 10.4 percent. However, deal volume declined at a CAGR of 9.9 percent during 2014-2018, suggesting the growing average deal size.
Of the top five VC funded companies during the review period, the US and Chinese companies accounted for two positions each. While the US-based Magic Leap and Carbon3D collectively raised US$2.8 billion, the two Chinese firms Xiaomi and Horizon Robotics accounted for a total disclosed funding value of US$1.8 billion. Spotify, a Swedish company, also made it to the top five list with a total disclosed funding value of US$526 million.
Aurojyoti Bose, Financial Deals Analyst at GlobalData, says: “Amidst the rosy picture for IoT technology and its implementation across different areas, several project failures in the recent past have made investors wary.”
As per a study by Cisco in 2017, the success rate for companies implementing IoT is as low as 26 per cent, primarily due to serious concerns over cybersecurity. In October 2016, a massive distributed denial of service (DDoS) attack by Mirai botnet malware using insecure IoT devices made Internet inaccessible in the US for some time.
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.”
On the other hand, M&A volume increased at a CAGR of 5.1 percent during the review period, with growth witnessing across all the years, except 2017. Meanwhile, M&A deal value declined at a CAGR of 38.6 percent during the period. In 2014 and 2015, high M&A deal value was mainly due to big-ticket acquisitions such as the US$37 billion acquisition of Broadcom by Avago , Intel’s acquisition of Altera for US$16.7 billion and Google’s US$3.2 billion acquisition of Nest Labs.
With more than a half share of deal volume and around 75 percent share in the total disclosed deal value, the US accounted for the major share in M&A deals during 2014-2018 followed by the UK, France and China.
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. Moreover, industrial Internet of things (IIoT) space has also started gaining traction in recent times.”
