The "Internet of Things" (IoT) category is starting to mature in terms of startup investments, according to a new report from Silicon Valley venture capital firm Wing.
Why it matters: Like any other trendy area of tech, IoT is in the midst of its own hype cycle, so it's important to get a more detailed picture of how the money is flowing.
In short: More money into fewer companies, with an emphasis on automotive and health tech. Investment in security-related IoT startups remains lacking.
Data: wing.vc; Chart: Lazaro Gamio / Axios
Fewer but bigger deals: Wing identified 760 deals in 2016, down from 829 the prior year. Yet total dollars invested continue to grow ($6.2 billion in 2016), suggesting that dollars started to concentrate into a pool of more established startups that were raising bigger rounds.
Wing's analysis also shows an uptick in funding mid-sized rounds between $5 million and $30 million, also a sign that "these young startups are starting to prove themselves and are attracting follow-on investment," as Wing VC partner Martin Giles told Axios. In 2016, these rounds made up 26.3% of total deals, up from the roughly 19% they represented the previous three years. Giles added that there was a recent dip in sub-$1 million rounds, suggesting either a decrease in early stage investment, or that early deals are now bigger in size.
Category standouts: While most subcategories saw a decline in number of deals, two continued to grow and even exceeded Wing's forecasts—automotive and health tech.
- The automotive category is no surprise with the recent boom in autonomous driving startups. Companies working on various sensors and software attracted a lot of investor attention last year. LiDAR maker Velodyne, for example, raised $150 million last summer from Ford and Baidu.
- As for health tech, tracking devices continue to get a lot of investor attention, though these devices a more specialized—to track asthma, sleep, etc.—and less about general fitness or health.
Deficiency: Security startups focused on IoT devices and networks continue to see much less investment activity than the security category at large — just 47 out of a total of 1,432 since 2013. This, of course, means that there's a massive opportunity for entrepreneurs in that area, said Giles, adding that 2017 may be the year we see more of these startups crop up.