The Internet of Things
The Internet of Things (IoT) sector has grown incredibly over the past few years, a trend that has only shown signs of continued growth, with the pandemic of 2020/2021 only increasing that growth.
What are some of the key characteristics of the IoT (Internet of Things)?
The term IoT encompasses a large group of physical objects that contains sensors, processing units, typically connected to the internet, and more. Though the term itself isn’t young, the modern-day interpretation of it is considered by CISCO to have been created between 2008 and 2009. In that sense, the IoT sector is extremely young and filled with great opportunities for innovation, and in turn, investment.
A unique factor for this sector is that the foundational components that affect the capabilities of what can be achieved are largely external and in sectors that have been innovating rapidly, such as connection speeds with fiber optics and processing power with the commercialization of the 5 and 3-nanometre processes.
This allows for the IoT industry to capitalize on the innovation of a young and established sector to push it forward at higher speeds with greater reliability. A great example of this can be seen in the commercialization of 5G, something that was very much expected to occur on a predictable timeline in the sector yet still something that was an incredible opportunity for the company that developed it to generate returns.
What makes the IoT startups so appealing from an investment standpoint, and what possibilities exist inside them?
The IoT start-up sector has also shown steady growth year on year. Nearly 200 IoT companies are founded each year. We expect IoT startup funding will reach $30 billion in 2021, recording an annual growth rate of 22% per year since 2017. We project investments to surpass $66 billion by 2025. Even though the number of new start-ups has remained near 200, the exponential increase in funding and change in the understanding of the market will continue to drive returns to their highest levels over the next few years.
This exponential growth is largely reflected in the forecasted revenue generated by IoT products globally but on a much larger scale. The revenue was estimated to hit $210 billion in 2020, with it growing to $400 billion by 2025, growing at a very similar rate to the predicted funding, a rate that has signs of exponential growth, suggesting that the increase in funding will be met with similar rates of return. This growth has not only been spurred by an increase in consumer adoption of IoT products such as Google’s “Nest”, Amazon’s “Echo Dot”, Ring Doorbell, and Philips “Hue Smart” lights but also by adoption from businesses. McKinsey & Company reports that IoT leaders deploy 80% more IoT use cases on average than laggards.
Due to the young age of this sector, there is an inherent lack of data and thus a track record to generate reliable predictions. However, this allows for incredible opportunities for returns that when combined with a careful selection process, can have their risks minimized.
A great example of this IoT start-up success can be seen in the company with an up-and-coming IPO, Samsara. Back in 2015, Andreessen Horowitz funded a Series A Samsara with $25 million and a further $15 million a year later at Series B. Today in late 2021, Samsara has filed for an IPO and was last evaluated in 2020 at $5.4 billion, providing an incredible return on investment. Samsara is not the only IoT company that has proven itself to be a unicorn in just the last year. Verkada, an IoT security company that received seed funding of $3.9 million in 2017 was evaluated at $1.6 billion in 2020, as well as Armis Security, another IoT security company that received an undisclosed amount for seed funding in 2015 was evaluated at $2 billion in 2021. Though you can’t expect all IoT start-ups to be unicorns, there is certainly no shortage of potential in the sector.
