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Activity fluctuates in IoT projects, deals

The fortunes within Internet of Things sector bounce around during 2014-2018, according to analysis by GlobalData


The Internet of Things (IoT) industry seems to have past the hype as concerns around the security of devices connected through IoT start emerging day by day. This reflects in analysis generated by GlobalData, a leading data and analytics company, which reveals that 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 a 8.3% growth, despite drop in volume. Overall, VC deal value increased at a compound annual growth rate (CAGR) of 10.4%. However, deal volume declined at a CAGR of 9.9% during 2014-2018, suggesting 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$2.8bn, the two Chinese firms Xiaomi and Horizon Robotics accounted for a total disclosed funding value of US$1.8bn. Spotify, a Swedish company, also made it to the top five list with a total disclosed funding value of US$526m.

Project failures have made investors wary

“Amidst the rosy picture for IoT technology and its implementation across different areas, several project failures in the recent past have made investors wary,” says Aurojyoti Bose, financial deals analyst at GlobalData.

As per a study by Cisco in 2017, the success rate for companies implementing IoT is as low as 26%, primarily due to serious concerns over cyber security. In October 2016, a huge distributed denial of service (DDoS) attack by Mirai botnet malware using insecure IoT devices made Internet inaccessible in the US for some time.

“Project failures and security concerns have slowed down the hype around IoT, as reflected in declining VC deal volume in 2017-2018,” adds Bose. “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.”

Some roadblocks for implementation of IoT

On the other hand, M&A volume increased at a CAGR of 5.1% 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% 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 Corporation by Avago Technologies, Intel’s acquisition of Altera Corporation for US$16.7-billion and Google’s US$3.2-billion acquisition of Nest Labs.

With more than 50% share of deal volume and around 75% 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.

“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,” Bose concludes.