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Why Tern invests in the IoT success stories of the future

Funding the future

The IoT is, as we know, one of the most dynamic, diverse and potential-filled sectors of the technology industry right now. Little wonder that many investment firms and venture capitalists are key to make inroads into the sector.

Our IoT journey

Tern PLC is an investment company which specialises in the Internet of Things (IoT). We seek out technology companies throughout the UK which are involved in specific aspects of the IoT sector; we invest in those companies and provide appropriate management assistance and resource; and ultimately, we help drive them to new growth and new successes.

We’ve built a core portfolio of some of the most exciting and innovative IoT companies around, and have our strategy firmly set on broadening that portfolio over the coming years. In this blog, then, we’re reviewing what we’ve learnt so far, what we see as the most exciting developments and possibilities in the IoT sector, and why we think this is the best part of the broader technology industry to be investing in.

Potentials and possibilities

The IoT might still be a fairly new market, but it is rapidly growing – hence our belief that it is the best space in which to invest. By turning ‘dumb’ standalone devices into ‘smart’ connected ones which can receive real-time operating instructions, the IoT can genuinely upend traditional practices, across a wide range of settings.

According to Gartner, there were 6.4 billion connected devices worldwide in 2016, and this number will reach 20.8 billion by 2020. PwC has forecastthat $9 trillion will be spent on IoT solutions between 2015 and 2020, whilst McKinsey has calculatedthe annual economic impact of the IoT to be $3.9 to $11.1 trillion by 2025. McKinsey also picks out several market segments, with a particular focus on smart factories – that is, the industrial IoT (IIoT), smart cities and the human body and healthcare. Such calculations and forecasts vary a great deal, but the core message is the same – the scale of the IoT is enormous, its pace of growth is rapid and as such the economic opportunity for business operating in this field is massive.

Combine the IoT with other advances in digital technology, such as machine learning and AI, to big data analytics, to robotics and drones, to augmented reality and VR, and it is easy to see why the IoT has in some quarters been hailed as the power behind another industrial revolution. It can increase productivity and efficiency, transform business models and ultimately reshape the relationships between individuals, organisations and the public sector. That’s a transformation we want to be part of.

Homing in on sectors and specialisms

Where are the biggest transformations taking place? Where is the most growth potential? To dig into this, we have to take a closer look at the IoT ecosystem, and the different segments within this huge, diverse and interdependent industry.

There are five broad elements of the overall IoT ecosystem, as follows:

1. Hardware (the IoT devices themselves in any installation or solution)

2. Communication Networks (that connect the IoT implementation to the user)

3. Remotes (such as computers, tablets, or smartphones, that provide users with the interface for connecting with IoT devices and managing their activities)

4. Platforms and Application Enablement (which provide the messaging, data analytics, data storage, and customised services associated with IoT solutions)

5. Security protocols (which protect IoT implementations from outside intrusion)

And at Tern, we have a sharpened focus on three specific segments within this ecosystem, as follows:

1. IoT security, whereby different tools and solutions ensure that IoT-powered operations can take place without malicious intrusion or accidental data loss.

2. IoT analytics, which focuses on harnessing the data generated by IoT deployments to generate tangible value.

3. IoT enablement, which covers development platforms and integrative approaches to roll out IoT solutions.

Why have we chosen these three segments? We believe they are characterised by innovative software solutions and unique technologies, where customers will continuously require upgraded applications, security and device capabilities; this provides a strong pipeline for future growth. Short development time frames and rapid scalability are required, which again means a high demand for growth, as well as speed and agility. Fragmented markets ensure no single firm or group of firms dominate these areas; and capital requirements are low and ROI’s high, particularly when compared to hardware-based aspects of the IoT ecosystem. Furthermore, large, well-established, technology firms are seeking reseller or co-promotion partnerships with young companies to provide customers with end-to-end IoT implementations.

In short, then, there are numerous growth and development opportunities within these segments, particularly for start-ups and SMEs. Innovation and ambition are well-rewarded here. We believe that companies in these spaces have the potential to create entirely new revenue streams for clients, meaning that the pricing of unique services has the potential to capture a portion of the value created for clients (either directly or through partnerships), as opposed to confronting other constraints.

A maturing market

As the IoT market matures, we believe that those three segments – IoT security, IoT analytics, and IoT enablement – are set to create an outstanding environment for investors.

On the security side, we have seen an array of widely publicised security breaches and ransomware attacks, as well as growing industry recognition that the proliferation of IoT initiatives means far more opportunities for cybercriminals. In particular, the integrity of data communications is being recognised as critical to the overall success of IoT deployments.

IoT data analytics is proving a particular attractive investment area as we enter the era of zettabytes. In one study, the Mckinsey Global Institute concluded that 99% of the data generated by 30,000 connected sensors on an oil rig remained unexamined, indicating just how much potential there is here for forward-looking companies.

From the IoT enablement perspective, it is possible to take a broader view than merely IoT development platforms. Short time frames for IoT implementations require specific use case expertise, whilst the shift to the cloud and growing specialisation mean a continuous evolution in enablement supporting services and integrations.

We can see evidence of these factors within our own portfolio of IoT businesses. Consider Device Authority, which is building a powerful ecosystem of partners and customers as it develops an outstanding security platform for the IoT industry. Or InVMA, which is an established and growing player in the market for IoT enablement. It has built on the underlying IoT trend within the industrial and facilities management sectorsto move towards a proactive performance and maintenance strategy for assets.

In short, Tern PLC believes that the IoT is an enormously fruitful investment space today – and has massive potential for the future. The IoT is transforming everything from individuals’ management of their health and wellbeing, to the management of thousands of assets across factory floors.

We are always on the lookout for tomorrow’s IoT success story.