When Richard Linger, the energetic Technology Gateway Manager at Nimbus, invited to me to speak again at Beyond IoT 2019, he posed a question and challenged me to provide some insight, writes Stuart Hillston
Richard asked, ‘Are investors really interested in Internet of Things technology investment?’
Just as still waters run deep, so this question seems innocuous yet hides a deeper truth. Surely the answer is a resounding “yes!”?
If only it were that simple. As I set aside my cognitive biases which leapt to the obvious conclusion, I did some meta-research on the topic.
Then, like Alice in Wonderland, things got curiouser and curiouser.
We know that statistics are generally presented to suit the presenter. And two people can see the same event and describe it very differently. So I should not have been surprised at the wildly varying opinions on the state of play for investment in the Internet of Things.
For the most part, observers seemed to agree that venture capital investment in Europe in technology start-ups and scale-ups was around €20bn in 2018, give or take a few billion.
I would not exactly call it a consensus, but the research numbers generally seem to be coherent and consistent, which is somewhat reassuring.
When I then teased apart these numbers to look at investment sectors, accepting that the numbers are not yet in for 2018 as a whole, VC investment in IoT technology was surprisingly low.
In fact, the numbers for 2017 suggested that total investment in IoT technology in Europe was ranked 15th at somewhere around €900m.
I am using VC investment here as an indicator of total investment. Very early companies tend not to attract VCs as they come in to play a little later in the company’s story.
All the early investment money (so excluding grants, awards, donations and charity) tends come in four distinct phases. These phases are broadly the same around the world, what changes is the scale of money available and the parameters that define the phases.
We start with the four Fs – founders, family, friends and fools – the only people
entrepreneurs can convince to part with cash at the very genesis of their business. As the idea becomes a plan, and the plan becomes action, so the action becomes a business.
All the while requiring cash to come into existence. Then more cash to survive and finally even more cash to thrive.
By this last stage, what is generally called “Series A”, the main players are the venture capitalists, the VCs. All that has come before will sooner or later most likely require this level of funding – somewhere in the €1-5M range.
Where the 4Fs and angels will bring potential opportunities to life and discover whether they can fly or are destined to crash and burn like most start-ups, so the VCs give them the opportunity to soar high in the sky.
Back to the plot. Investment in Europe in IoT looks suspiciously low. Even accepting that the best numbers I could find were for 2017. Estimates for 2018 were few and far between, so I did my own calculations and came to the conclusion that the total was around the €2bn mark. If I am right this would life IoT to about 10th sector ranking of investments.
Should we conclude from this that investor appetite for IoT (a phrase that was coined 20 years ago) is not actually as significant as first assumed? I say no, we should not conclude this. We should dig deeper.
Let us ask a couple of simple, innocuous questions and see if we can shine some light on this. I’ll give you two questions to ask a handful of people you know who might have some insight.
Start with “What is IoT?” and when they have finished talking about connectivity of, and communication with, things that didn’t used to be connected, you can follow up with "what is its target market?”
And here we start to see something interesting. For the most part, professional investors focus on companies that bring technology to life by finding a market opportunity to exploit.
Ideally a very big market. The technology gives the company an edge, a differentiator and a barrier to competitors thinking of doing the same thing. This, in turn, requires an understanding of the compelling needs of the chosen market and identifying a way of delivering value.
In simple terms, most value propositions boil down to either saving a customer money, or making a customer more money. And often both at once.
We should embrace the fact that IoT is not a single technology addressing a single market. It is an aggregation of fast-moving new technology combined in new ways to powerful effect.
This technology has the potential to save money (time) and make money (efficiency, effectiveness, responsiveness and awareness all speak to better relationships with more customers).
And IoT has the potential to do this across just about every business sector we know of, and I have no doubt that some new sectors will emerge having been enabled by IoT Technology.
So if we go back to our league table of technologies that European VCs were investing in during 2017 we find Transportation at number 12; Manufacturing at 9; Analytics at 6; Artificial Intelligence (itself a shorthand term for a broad range of technologies) at number 5; Healthcare at 3; and Deep Tech at number 1 with €4.5bn of investment.
Deep tech is the application of new technology, scientific discovery and innovation to solve real problems that the whole world faces.
This is the very thing that CIT and Nimbus do and it is of course, heavily involved in IoT.
In amongst those other sectors I just listed, there will be IoT investments. When the World Economic Forum and McKinsey & Company joined forces to publish a white paper entitled “The Next Economic Growth Engine” in 2018, they were describing the Fourth Industrial Revolution – the application of IoT Technology to the manufacturing and supply chains that make the world of commerce tick.
In fact, it takes very little research to find applications of IoT in every sector. The investment league table that ranked IoT 15th in 2017 had “Home” at 16th.
I will suggest that much of the €800m invested in “Home” technology in 2017 was actually in automation, connectivity and some form of intelligence – a combination we would call IoT.
So beneath the quiet and still waters that seem to suggest not much is happening, there is a torrent of investment into the technologies that make up IoT.
There is investment in the application of this technology in every sector. The really interesting statistic I am looking for, but so far have not found, is what proportion of ALL investment is, in some way shape or form, in IoT Technology wearing a different mantle?
I think it is very big indeed. I tried to look at some sample data that might indicate an underlying trend. Something that is useful, indicative of the real situation and not wishful thinking.
The number I came up with was over 40% of all investment. That would be €10bn in 2018. Some five times larger than current estimates.
Where Internet of Things has become an umbrella term describing a confluence of scientific research, innovation and technology across a broad range of disciplines, it is not a “thing” in its own right. It does not just solve one problem, in one industry or in one market.
So let’s stop thinking that IoT is a thing, it is much more important than that.
Let’s just call it The Future.
Something I would hope we all want to invest in.
- Stuart Hillston is an entrepreneur, investor and coach to entrepreneurs based near Oxford. He was among the speakers at the second Beyond IoT conference in Páirc Uí Chaoimh, which explored the latest innovations within the Internet of Things and provided insights on how this new technology is impacting on commerce and industry.