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IoT Investment Overview
- 1. Internet of Things (IoT) Investment Overview Larry Chao The Westly Group June 2017 @lpchao #IOT 1
- 2. The IoT Opportunity • IOT is a major opportunity – IDC predicts it will become a $1.46 trillion international market by 2020 – Gartner, IDC, IHS all predict there will be 20-30 billion connected devices • IoT has evolved beyond the consumer household, businesses will use data from sensors and other streams to – Predict customer movements and decisions in real time – Manage infrastructure and resources in industries and cities – Optimize their operations and improve performance – Better compete and differentiate themselves in the market • CVC funding into IoT has grown substantially in recent years – 5 of the top 12 IoT investors in 2016 are corporate venture arms (Intel #1, GE #2, Qualcomm #4, Cisco #11, Google #11), up from 3 in 2015 @lpchao #IOT 2
- 3. Agenda • Background • Market Segments • Incumbents • Startups • Conclusions @lpchao #IOT 3
- 5. Internet of Things (IoT) • Originally described as a technology for the unique identification of objects within a network – Connected/Smart devices • Has evolved to include applications of the technology, including – Wireless sensor networks – Machine to Machine (M2M) – Physical Computing – Connected Environments @lpchao #IOT 5
- 6. IoT Opportunity •IoT opportunity will be one of the largest, rivaling mobile Internet and cloud technology •IoT can drive revenue through value to end customer, redistribution, and productivity improvements •IHS forecast that installed base of devices will grow from 15B in 2015 to over 75B in 2025 @lpchao #IOT 6
- 7. IoT Installed Base @lpchao #IOT 7
- 8. Why now? • Cheaper: – Sensors – sensor price dropped from about $2 to $1.30 in the past 10 years – Bandwidth – cost declined by 40x in the past 10 years – Processing – processor costs down 60x past 10 years • Ubiquity: – Smartphones – personal gateway to IoT – Wireless – cheaper or even free Wi-Fi and 3G/4G connectivity – Big data – ability to perform analytics on voluminous amounts of unstructured data – IPv6 – support of 128-bit addresses translates to 10^38 devices (IPv6’s 32-bit addresses allowed 4.3 billion addresses that are quickly becoming exhausted) @lpchao #IOT 8
- 9. IoT and The Hype Curve Key Takeaways: • IoT and related areas are all at the peak of the hype curve right now • Mainstream adoption still viewed as 5-10+ years away @lpchao #IOT 9
- 10. Criticism and Controversies • Platform fragmentation and confusing terminology • Privacy, autonomy, and control • Security • Environmental sustainability • Intentional obsolescence @lpchao #IOT 10
- 11. IoT Potential Economic Impact $6.2T @lpchao #IOT 11
- 12. IoT Revenue Opportunities @lpchao #IOT 12
- 13. IOT MARKET SEGMENTS @lpchao #IOT 13
- 14. IoT Applications • Industrial – Manufacturing – Logistics • tags, trackers – Agriculture – Smart City – Energy / Utility • Enterprise – Healthcare – Retail – Telecommunication – Transportation • Automotive @lpchao #IOT 14 • Consumer – Wearables • Fitness – Toys – Home • Automation Today Next 5 years 10+ years
- 15. IoT Taxonomy IoT Platform Analytics Infrastructure Data/Storage Software/Services User Interface Algorithm/Learning Systems Security Hardware Computation Sensors Connectivity Platform Provider Component Manufacturer Service Provider Infrastructure Provider Application Developer @lpchao #IOT 15 Device Manufacturer
- 16. IoT Opportunity Key Takeaways: • IoT opportunity for software and services already creating a disproportionate amount of profits for vendors and will continue to grow at a CAGR of 44% to 2019 • Enterprise-focused IoT software and services reached over $40B in 2015 Software and services are expected to create disproportionately more profits for IoT vendors Majority of IoT devices connected will be in Enterprise, Government, and Infrastructure and growing exponentially McKinsey estimates 70% of the $11.1T annual value generated by 2025 by IoT will be captured by B2B solutions. @lpchao #IOT 16
- 17. IoT Transaction Volume @lpchao #IOT 17 Key Takeaways: • Mirius identified over 200 IoT M&A transactions from 2013 to 2016 despite an overall decrease in transaction in other domains, including technology
- 18. Category Segmentation Strategic Mandate vs. Financial Attractiveness @lpchao #IOT 18 Strategic Mandate Financial Attractiveness Analytics Platform Management Platform Edge Computing Connectivity /Sensor Module Network Infrastructure App/Developer Platform Industrial Apps AI Engine Business Services Security Hardware Device
- 20. Corporate IoT Players Company Strategy Assets Acquisitions and Investments intelligent network and services footprint, channel partners cloud platform (Jasper), app maintenance (AppDynamics), security, analytics horizontal software analytics Industrial roots, Predix platform cloud platform (Pivotal), equipment tracking and scheduling (ServiceMax), diverse projects around specific verticals AI, Android operating system, cloud services, Home automation (Nest, Dropcam, Revolv), robotics (Boston Dynamics) platform for data and applications Watson IoT platform, Smarter Planet weather data (The Weather Company), cloud platform (SoftLayer) higher power compute and cloud solutions advanced compute and communications chips cellular network (SigFox), high- performance devices (Grand Chip Micro) Integrated IoT platform OS from device to cloud Windows for PC, Azure for cloud IoT services (Solair), cloud-as-a-service (CloudSimple), analytics Internet of Customer Einstein AI, Thunder for AI, cellular network (SigFox), data
- 21. Most Active Investors in IoT @lpchao #IOT 21
- 22. Corporate Investments in IoT Key Takeaways: • 5 of the top 12 IoT investors in 2016 are corporate venture arms (Intel #1, GE #2, Qualcomm #4, Cisco #11, Google #11), up from 3 in 2015 • Majority of US Corporate IoT deals in California at 59% (#2 Massachusetts at 7%) Corporate participation in IoT investments has grown at a 89% YoY pace. Number of early-stage investments deals have trended down since 2013. Dollar share by deal skews much more toward middle and later stages for corporates. @lpchao #IOT 22
- 23. Corporate Acquisition Landscape • Cisco – Acquired: Jasper (2016) $1.4B, NDS (2012) $5.2B, Parstream (2015), Lancope (2015), MaintenanceNet (2015), OpenDNS (2012), SourceFire (2012), Lancope (2012), Neohapsis (2012), ThreatGRID (2012), Portcullis (2012), Virtuata (2012) • Google – Acquired: Boston Dynamics (2013), Nest (2014) $3.2B, DeepMind (2014) $625M, GreenThrottle (2014), Titan Aerospace (2014), MyEnergy (2014), Skybox Imaging (2014), Dropcam (2014), Jetpac (2014), Revolv (2014) • Intel – Acquired: Recon (2015) $175M, Yogitech (2016), Saffron Technology (2015), Altera (2015) $16.7B, Arynga (2016), itseez (2016), Nervana Systems (2016) $408M, Movidius (2016) $400M, • GE – Acquired: ServiceMax (2016) $915M, BitStew (2016) $207M, Wise.io (2016), Meridium (2016) $495M, ShipXpress (2016), Daintree Networks (2016) $100M, Wurldtech (2014) • Qualcomm – Acquired: NXP (2016) $47B, Cambridge Silicon Radio (2015) $2.4B, Ikanos (2015) $47M, Atheros (2011) $3.1B, • Samsung – SmartThings (2014) $200M, Joyent (2016), Harman (2016) $8B • Apple – Acquired: Workflow (2017) • Microsoft – Acquired: Solair (2016) @lpchao #IOT 23
- 25. @lpchao #IOT 25
- 26. Global Investments in IoT Key Takeaways: • IoT VC funding grew at a CAGR of 38% from 2010-2015 • IoT Funding went from $1.2 billion globally in 2011 to $2.9B in 2015 • In Q4’2016 alone, $1.5 billion in investments in 100 funding events VC funding into IoT has grown substantially in recent years In Q4’2016, there were 100 IoT funding events providing $1.5 billion in capital, majority were early stage. @lpchao #IOT 26
- 27. IoT Startup Investments Notable IoT investments in Q4’2016 Most Well Funded IIoT Companies Investments in Internet of Things in 2016 Key Takeaways: • In 2016, 564 investments averaging $7.8M • Majority of deals were early stage, averaging $1.1M • Series A averaged $10M, Series B $17.2M, Late stage $50.6M led by Magic Leap • 127 investments thus far in 2017, averaging $11.2M @lpchao #IOT 27
- 28. IoT Exits Key Takeaways: • Top tier IoT startups can be purchased out of stealth mode for a modest $50-200M, but M&A deals in the billions are increasingly common IoT exits continuing to increase since 2009 Major IoT acquisitions in Q4’2016 Software largest category of IoT exits @lpchao #IOT 28
- 30. IOT Investment Strategy • Startup exits are largely corporate acquisitions currently – Corporates are acquiring platform companies to become relevant fast and adding capabilities such as AI and security to their portfolio • Most of the profits made will be on IoT software platform and services – Focus on startups that deliver value up the stack through horizontal software platform and services versus hardware devices and components • Opportunity is around business (industrial and enterprise) versus consumer devices – Target focus on sustainability use cases such as smart meter, smart building, smart grid companies versus energy harvesting or mobility @lpchao #IOT 30
- 31. Thank you Larry Chao @lpchao @lpchao #IOT 31
Hinweis der Redaktion
- There is a lot of excitement about the IoT driven by predictions that there will be tens of billions of connected devices in the next 5-10 years which will create billions to trillions of revenue over that time frame. Although initially hyped around consumer gadgets, business solutions for IoT are now dominating the conversation. Most consumer IoT applications are cool but unnecessary. They demonstrate what technology can do but don’t address a real need. Even then, the benefits need to significantly outweigh the costs, including the time and attention required to install, maintain, and troubleshoot.
- The basic concept of Internet of Things is connecting any device to the Internet and to each other. But more than connecting devices, it’s about bringing computing as well as innovation to the edges. Beyond connecting to things, IoT represents connecting devices with systems, people, devices, sensors, etc. This requires a platform to connect, orchestrate, understand, and act. This covers a variety of protocols, domains, and applications. The interconnection of these devices is expected to usher in automation and analytics. As Gartner says, the value is in the answers, not the data.
- IHS forecasts that the IoT market will grow from an installed base of 15.4 billion devices in 2015 to 75.4 billion in 2025. McKinsey estimates that the total IoT market size is growing at a 32.6% CAGR and has the potential economic impact of $2.7 to $6.2T until 2025. AT Kearny, estimates IoT will impact 6% of the global economy. The largest, $3.5 trillion is through revenue redistribution realized by moving from one player to another. The second largest is through a direct increase in productivity output per cost, enabled by IoT and reinvested in productive assets and activities. The remaining hundreds of billions are from additional revenues directly attributable to the sale of IoT hardware, software, and services and value to the end user, such as direct reductions of costs driven by IoT realized by end customers.
- The opportunity is now because technology advancements have driven down the cost of processing, bandwidth, and sensors. In addition to the ubiquity of wireless coverage and big data analytics, it allows more and more to take advantage of the voluminous data generated. Technology advancements that have facilitated the IoT movement to mainstream include IPV6 and Big Data. IPV6 was a technology change made in 2012, which result in a nearly unlimited number of IP addresses. This enabled every device with a chip to be connected to the internet. The advancements made with Big Data – the data sets revealing consumer patterns, trends and associations – enabled companies to actually manage the information coming from all the sensors attached to devices. Technical capabilities like distributed file systems across multiple nodes let companies make sense of the floor of information and take action, providing business justification for the connected devices and an optimized experience for consumers. IPv6 is the next generation of the Internet Protocol that is in various stages of deployment on the Internet. It was designed as a replacement for the IPv4 address system which has been in use since 1982 and was exhausted in 2011. The rollout of IPv6 addresses commenced in mid-2000s and is on going. As of the end of last year, Google’s statistics show IPv6 availability at approximately 12% among its users. All major operating systems in use on personal computers and servers had production quality IPv6 implementations.
- Gartner’s Hype Cycle for Emerging Technology distills insights from thousands of technologies into a succinct set of emerging technologies and trends that have the greatest impact. It tries to find the promise in delivering competitive advantage. IoT has been at the peak of inflated expectations for the past several years as most companies are still struggling to understand use cases and prepare for the integration, analytics, and security needed for success. There’s little question that IoT can help digital transformation, but it will still take another 5-10 years to gain mainstream adoption.
- IoT suffers from platform fragmentation and lack of technical standards Customers maybe hesitant to bet their IoT future on a proprietary software or hardware device that uses proprietary protocols Privacy concerns due to big data infrastructure Big data – first collect everything, keep it around forever Invasion of public space Prevalance of digital surveillance Security is often biggest concern in adopting technology Cyber attacks Semiconductor rich devices Full of heavy metals and rare-earth metals, highly toxic synthetic chemicals Difficult to recycle Adding electronics to mundane devices, technological obsolence Companies can intentially disable or brick their devices Via a remote software update Revolv - Lifetime subscription rendered useless
- IoT applications for industrial and enterprise are showing investment today, largely because the investments relate to goals that can produce tangible benefits. Many sensor-laden devices have been installed in virtually every industry sector and are starting to be connected to internal networks. A survey released by Embarcadero Technologies revealed that 84% of software developers building IoT solutions this year are targeting business models. Many companies are there offering platforms and support for various aspects. Many are still hunting for their true long-term business models and revenue streams, whereas commercial end users themselves have good reasons for making IoT related investments. We’re mostly talking about vendor business models and not end user organizations. Companies can benefit by offering new connected solutions, while new capabilities will provide consumers greater convenience and control as it moves more into daily life. The movement of IoT to the consumer mainstream will be facilitated by trends including lower technology cost, technology advancements, greater consumer connectivity, and increase consumer demand. One of the main concerns for consumer IoT is who will pay for it once the initial money has been made from selling the devices themselves. It’s an issue that is far more complex than monetizing apps and web on mobile. Another challenge is with a variety of different devices, there’s a question of where the data goes. If a coffee pot does talk to a watch, fitness tracker, and healthcare provider, which gets the data and who do you pay.
- The Internet of Things was a hot term that first revolved around the hardware. Electronics, manufacturing, robotics all have become dominions of IoT. The result has been the IoT has broadened to include practically anything that is physical and involves technology. Hardware can be deployed and connected in all sorts of ways that it couldn’t before and at lower cost. This means computing can extend into many places where it couldn’t before. This has perhaps even gone too far where items like Internet-connected refrigerators are being ridiculed. But for all the romance and gratification of hardware, IoT is really about software. The hardware are just links to the Internet from the rest of the world. Large global companies are buying their own connetivity, but Low Power Wide Area Network and Narrow Band IoT networks will challenge traditional telecommunications companies for IoT business.
- Bain predicts that by 2020 annual revenues could exceed $470B for the IoT vendors selling hardware, software, and comprehensive solutions. Although hardware makes a huge portion of the revenue, the largest profits are going to be in the cloud, application, analytics, and data services. The number of B2B IoT connections will increase to 5.4 billion by 2020 according to Verizon. The Industrial Internet has the potential to deliver up to $11.1T on an annual basis by 2025, 70% of this would be captured by B2B solutions.
- Mirius Capital Advisors has been studying the developing IoT sectors. While M&A overall was on the decline, the number of transactions in IoT grew almost 20-25% annually. Recently there has been an emergence of single-source providers offering a range of products from sensors to analytics and associated services in an attempt to pull it altogether and provide a comprehensive solution across a broad range of industries. These “all-in-one” platform companies are filling a short-term gap in the market left bare by a shortfall in application delivery, as many applications are not quite market ready for mass implementation. At some point, these all-in-one shops will be replaced by commercial off-the-shelf solutions and there will be a steady-state saturation of platforms in the industry, ultimately shifting IoT transaction volume to applications from platforms and other infrastructure. On-going industry maturation driving application success.
- Hardware and connectivity for IoT is a commodity for most companies. Advanced technologies that support security, mobility, and simulation provide needed differentiation. IoT platform or middleware is the role of a mediator between hardware and application layer. IoT platform ensures seamless integration with different hardware by using a range of popular communication protocols, different types of topology (direct connect or gateway), and using software development kits. The best IoT platforms are capable of being integrated with almost any connected device and blend in with the applications used by the device. This independence from underlying hardware and overhanging software allows a single IoT platform to implement IoT features into any kind of connected device in the same straightforward way. Platform providers offer specific software for IoT enablement, usually accessed through subscription to the provider’s cloud.
- With its massive networking footprint, leading hardware technology, and rich ecosystem of channel partners, Cisco is trying to be the intelligent network tailor-made for IoT and create rich services opportunities for its channel partners to become turnkey IoT solution providers. Cisco has made major acquisitions to build an IoT platform starting with Jasper’s software in 2016 for $1.4 billion. Cisco has also acquired App Dynamics to maintain and optimize apps as well as several network security and analytics companies. Cisco’s venture group has also made a number of investments in IoT platform and analytics startups. GE is trying to turn their industrial legacy into a horizontal software analytics and help shift from a product-based world to an outcome-based world with their digital twins. The investment in Pivotal helped them build the Predix platform and as the #2 overall investor in IoT they are partnering with startups in areas that they lack domain knowledge. Google is been using its mountain of cash and diversified projects to build multiple beachheads into IoT. Their focus is largely around their IoT operating system based around Android but they have focused on a few specific verticals through acquisitions and investments. IBM is trying to become a data-based company with its Watson service as a common platform on which customers can build useful applications to take advantage of their data. The company has invested $3B to establish an IoT unit with 1000 researchers, developers, and designers to develop the Watson IoT platform. The system is still not very ell integrated with other analytics engines but the company has acquired a number of assets including The Weather company and SoftLayer cloud computing platform. Intel has been a leader around higher power compute and also more recently connectivity but is in the midst of a transformation to become a major end-to-end provider of products and services for IoT devices, largely through investment and partnerships. The company has been among the most active investors and acquirer including investments specifically into the retail industry. Microsoft has been trying to develop an integrated IoTplatform with its device OS to cloud platform. They have some gaps still around their cloud environment and have made a few investments in analytics and cloud-as-a-service startups. Salesforce was an early proponent on the potential of IoT for their customers, coining the concept “Internet of the Customer.” The company is trying to use connected products and services to tighten the level of customer engagement and create new business opportunities for the company to store and process high volumes of real-time IoT data. The company’s work though is centered around their existing customer base but the company continues to invest and acquire.
- The Internet of Things industry on track to see around $4B in funding in 2016. Five of the top 12 IoT investors are now corporate venture arms, including Intel Capital, GE Ventures, and Cisco Investments. A year earlier, only 3 of the top investors were CVCs. Intel Capital is the top most active investor with more than 40 unique IoT companies since 2012. GE isn’t far behind with recent investmetns in industrial focused IoT. The top traditional VC was Andreessen Horowitz.
- Over the past 6 years, corporate investors have funded about $3.2B in the IoT space across 266 deals. 2015 is nearly double the previous year while deal count has quadrupled since 2010. Early stage startups took an increasingly large share of deals involving corporates. Seed/Angel/Series A deals peaked at more than half in 2013 but series B deals have been growing.
- Companies are not just investing in IoT startups but acquiring a large number of companies for the technology and talent. There have been dozens of IoT related mergers and acquisitions every few months. Tech giants like Intel, Microsoft, and Cisco have splurged on acquisitions to build their portfolio.
- There are hundreds to thousands of Internet of Things startups being tracked in dozens of categories across multiple countries. Venture Scanner has over 1808 companies alone across 20 categories like agriculture, automotive, retail across 50 countries with $32 billion in funding.
- Hundreds of IoT startup companies are funded each year, the peak being 2013 and 2014 with 236 and 227 companies founded in that year alone. Correlating with that, funding was at a peak around 2014 with about $5.5B in funding.
- In 2016, there were over 500 investments averaging around $8M each. Most of these were early stage investments but there were many major late stage investments. The most well funded industrial IoT companies have received hundreds of millions of dollars in funding. Sensus and Tendril, two of the top ones, provide solutions for smart metering for utilities companies. Sendril is a giant in smart metering technology which recently received $675M of debt from Credit Suisse Deutsche Bank and Goldman Sachs. Tendril is an analytics platform for utilities industry to provide home energy reports to customers has 9 rounds of funding which has regularly received investments of around $20-40M a year every other year or so. In Q4’16, there were a number of large deals providing $1.5 billion in capital, including SigFox which operates a cellular network for IoT receiving $160M in its series E and Thalmic Labs which focuses on wearable technology receiving $120M for its series B.
- VentureScanner has found IoT exits have been steadily increasing since 2009 and that IoT Software Platforms had the most exits among all IoT companies. There have been a number of major acquisitions by corporations, particularly by semiconductor companies. The largest by far qas Qualcomm’s purchase of NXP for $47B but Intel also acquired Movidius for $400M. Interesting, both are related specifically to automotive opportunities.