Investors Back IoT Startups

Total private funding was more than $1.35B in 2H 2017, but investors also are showing more caution about where they put their money.


Internet of Things startups took in more than $1.35 billion from corporate and private investors during the latter half of 2017, for a total of about $2.2 billion in the full year.

Chicago-based Uptake Technologies, an Industrial IoT startup, had the biggest haul of the year, with $117 million raised in a Series D round, on top of a $90 million Series C round earlier in 2017, bringing its total funding to more than $250 million. It strengthened its position as an IoT “unicorn,” which is now valued at $2.3 billion.

“We’re on a growth trajectory now where there is virtually nothing standing in our way from being the predictive analytics market leader across every heavy industry, from oil & gas to mining and beyond,” Uptake CEO Brad Keywell said in a statement. “The opportunity is too significant for us to not double down right now.”

Another IoT unicorn, C3 IoT of Redwood City, Calif., reported raising another $100 million in mid-January of 2018. Given the timing of that announcement, it’s almost certain that all the checks going into that round were signed by the end of 2017. C3 IoT has added artificial intelligence technology to its software product portfolio, no doubt pleasing existing investors TPG Growth, Breyer Capital, and Sutter Hill Ventures, while also attracting a new backer, The Rise Fund.

“C3 IoT is focused on running a rapidly growing, profitable, cash-positive business driving digital transformation at many of the world’s leading corporations. This capital will be deployed to substantially increase service and distribution capacity globally,” Thomas M. Siebel, chairman and CEO of C3 IoT, said in a statement.

Fig. 1: Who got what. Sampling of recent IoT funding. Source: Semiconductor Engineering/company reports

Other big rounds in the second half of 2017 included $95.4 million for Preferred Networks, $89 million for Cradlepoint, $88 million for ForgeRock, $60 million for Ayla Networks, $50 million for TrackR, €40 million ($49.33 million) for Cubic Telecom, $40 million for Globetouch, $38 million for VitalConnect, $34 million for Automile, $33 million for Iguazio, $30 million for FogHorn Systems, $28 million for Maana, $27.9 million for Sixgill, and $27 million for Bastille Networks.

2017 was also a good year for IoT-related companies to cash out in big paydays.

Late in the year, Marvell Technology Group announced its plans to acquire Cavium for about $6 billion in cash and stock, bolstering Marvell’s IIoT offerings. The chip vendors expect to complete the transaction in mid-2018.

Silver Spring Networks was bought by Itron for about $830 million, net of $118 million in Silver Spring’s cash. Deere & Company purchased Blue River Technology, an agricultural IoT startup using machine learning technology, for $305 million in cash.

On the semiconductor side of IoT, Dialog Semiconductor acquired Silego Technology, a supplier of configurable mixed-signal ICs, for $276 million in cash, plus another $30.4 million in contingent consideration. Silicon Labs is buying the Z-Wave business of Sigma Designs in an asset sale valued at $240 million.

August Home raised $25 million in a private funding round during 2017. A year earlier, Amazon reportedly offered $100 million to acquire August Home, according to The Information, a bid that the startup declined. For its patience, August Home was acquired by Assa Abloy of Sweden last year for $150 million.

ForeScout Technologies, a cybersecurity startup, completed an initial public offering in October, raising $133.6 million.

According to PitchBook, the leading investors in IoT technologies are New Enterprise Associates (NEA), Intel Capital, Kleiner Perkins Caufield & Byers, True Ventures, Right Side Capital Management, GE Ventures, Techstars, and Qualcomm Ventures, in roughly that order.

Deloitte notes that venture-capital funding of AI-focused IoT startups picked up last year, with such startups raising $705 million in the first eight months of 2017. There were 21 acquisitions of AI-focused IoT startups during the first eight months of last year, compared with 24 in all of 2016 and 11 in 2015.

More AI, silicon photonics, IIoT
Meanwhile, Gartner forecasts that 80% of enterprise IoT projects will have an AI component by 2022, up from 10% at present.

“When you look at IoT, the AI is a big component of that,” says Dean Freeman, chief analyst at Freeman Technology and Market Advisors. “Now with the idea we can go out on the edge, start to do artificial intelligence right on the edge, you’re now starting to see a lot more interest or a lot more startups targeting the artificial intelligence market. You’re seeing a strong boost there. But you also still have quite a few companies still looking at the MEMS space, companies looking at the communications space, to see if they can come up with a better mousetrap. 5G is going to provide some opportunities for more Bluetooth-type applications and things along those lines. The real focus is going to be split between communications and developing the right type of microcontroller. You build that yourself, or you can buy it, because it’s so easy to purchase these days and get all the pieces put together.”

Much of the investment is centered around data. “The AI is, in part, how you’re managing data,” Freeman notes. “When IoT first started getting kicked around, you said, ‘Okay, we’re going to collect a lot of data that’s got to then go back and get analyzed, and then we’re going to create algorithms to create things that are smart so that they will react to the data in the sense.’ Well, AI is a major part of that-creating silicon specifically to address that rapidly on the edge, versus going from a remote sensor to the cloud to the server farm, whether it be Google, Intel AI, or the Nvidia AI chip, running all the data, figuring out where it needs to go, and then sending that information back to the edge. Well, you can imagine, if you’re running an automobile, an autonomous vehicle, and you need instantaneous reaction time, you don’t have time to send it to the cloud. So, you got to create silicon and other devices that react to that immediately, as to what’s going on. When the IoT first came out, you saw all the server guys’ eyes get big and wide. But as it matured, the realization is, ‘Where do I want to have my intelligence? Where do I want to have my data? And how do I work that spectrum in between to get the best performance at the best economic value for my company?'”

Silicon photonics is emerging as an enabling technology in IoT, according to Freeman. “For the VC guys, silicon has kind of lost its sexiness, so to speak. Artificial intelligence is bringing that back, a little bit. You’re going to see photonics bring that back from a data storage perspective. Communications, probably not so much. With communications, a lot of these small startups will probably end up getting picked up by somebody pretty quickly. That says that’s a good idea, let’s go ahead and implement it. One case in point – Intel has kind of been on the prowl with a lot of these smaller communications companies as they take a look at 5G. You’ll see what NXP and Qualcomm continue to do actually now that they’re going to be the same company. They’re still going to be active in that same market with respect to investing and bringing those companies on-board if they think the company’s got a valid product,” he says.

IoT startups could possibly get the ear of venture capitalists if they are developing a software application to keep autonomous vehicles from colliding, or a smart city application. And with the industrial IoT, the key issue is how to leverage data that is already being collected.

“Many of the engineers that work on, say, a paper factory or pulp mill – they get data, it goes into a data lake, they then go and pull that data output on an Excel spreadsheet, and try to make sense of it,” Freeman says. “Now, if we can get some software to go in and start to look for the anomalies in that data, and then develop the algorithms for that, then maybe we can create situations where that pulp or paper mill will run smoother. Paper mills run on a very thin margin. But the question is, ‘Am I going to keep operating the way I’m operating and keep that thin margin, or am I going to go spend money on an IoT product that’s not a sure bet and potentially reduce my margin?’ That’s some of the decisions that the industrial side is having to make on implementing IoT solutions into their offerings and into their factories,” Freeman says.

Investors may be putting more money into IoT startups, especially those specializing in Industrial IoT, but they are being much more selective about where to place their bets than in the red-hot days of 2014 and 2015. There still are profits and return-on-investment to be made in the Internet of Things, but it’s becoming more obvious which investments will pay off, how quickly and in which areas.

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