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A guide to IoT funding and investment

IoThings can only get better

Thinking about investing in the IoT sector? It’s easy to see the attraction. 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 forecast that $9 trillion will be spent on IoT solutions between 2015 and 2020, whilst McKinsey has calculated the annual economic impact of the IoT to be $3.9 to $11.1 trillion by 2025.

That’s a dynamic space to be part of. Crunchbase data has shown venture capital funding in US-based IoT start-ups going up and up, albeit with a slight drop in the actual number of deals in 2017.

However, the IoT sector is also a highly complex and fast-moving one, and so funding and investment in this space can take some unpacking.

A complex ecosystem, multiple sectors.

The IoT sector is a fundamentally interdependent and interoperable one. There are five broad elements of the overall ecosystem, with very different investable businesses operating in each.

First, there is the hardware – the connected devices or sensors which are perhaps the best-known elements of the IoT from a consumer perspective. Think about the profile of devices like Nest thermostats and Fitbits – although, as reported on Investopedia, since Nest is ultimately owned by Google and Fitbit is now being faced with challenger brands on all sides, neither may be a rewarding investment now.

Next, there are the communications networks which connect the IoT implementation to the user. Clearly, this is a less tangible side of the overall IoT ecosystem, but nevertheless vital, with plenty of growth potential.

Then are there are so-called ‘remotes’ – that is, the computers, tablets and smartphones which provide users with the interface for connecting with IoT devices and managing their activities.

Then there are the platforms and applications which provide the messaging, data analytics, data storage and customised services associated with the IoT solutions.

And finally, there are the security protocols which protect IoT implementations from outside intrusion. As with so many areas of digital technology, security is becoming an increasing concern as the IoT grows in profile and scale and therefore becomes a more tempting target for cybercriminals.

So that covers the devices, platforms and infrastructure which make up IoT deployments. But it is also important for funders and investors to understand the myriad different sectors within the IoT, from the industrial IoT (IIoT) to retail, healthcare to utilities. Ultimately, as the IoT matures, we are building towards interoperable, highly intelligent and multifaceted deployments, underpinning smart homes and even smart cities.

“PwC has forecast that $9 trillion will be spent on IoT solutions between 2015 and 2020”

The drive to data

So, it’s a complex picture. And successful IoT funding and investment means homing in on specific parts of that picture where the growth potential is particularly impressive. At Tern PLC, we are particularly excited by IoT data analytics, and the growth potential of the vast amount of information being generated and analysed by IoT deployments.

As reported in CIO Review, ‘data analytics progresses in four stages of maturity, each building on the one before it’. These stages are descriptive analytics, which seeks to understand exactly what has happened; diagnostic analytics, which seeks to understand whythat happened, predictive analytics, which seeks to forecast what will happen in the future, and prescriptive analytics, which makes recommendations.

By understanding these different forms of analytics, you can start to understand the real value driven by different IoT deployments. To return to Nest, the smart thermostat learns how a home’s central heating is typically used, and is then able to make predictions for how it will be used in the future, so as to save the owner on their energy bills – it runs through all four stages of data analytics.

All forms of corporate funding and investment are ultimately about understanding where the value potential lies – and the IoT is no different. Understand the drive to data – understand that information is where the IoT can generate truly industry-changing value – and you can unlock truly outstanding opportunities.

“All forms of corporate funding and investment are ultimately about understanding where the value potential lies”