Investor Confidence Rises As Venture Capital Funds Start To Flow Into IIoT Market

“We’re seeing an upswing into the market with a particular emphasis from strategic investors,” says Michael Kanellos, an IoT analyst at industrial IoT data management firm OSIsoft.

“The general feeling among venture capital firms was that industrial technology takes too long. The big success stories in the sector were Tesla and Nest, which sold to consumers. What is changing is that large industrial companies – oil companies, utilities, chemical makers – have come around to the idea software can in fact turbocharge their operations.”

Andrea Siviero, research manager at IDC, says the uptick in IIoT mergers, acquisitions, and alliances shows the market’s early maturity and new sophistication.

“Most IoT vendors today recognise the benefits of partnering with different area experts in order to build a solid and holistic IoT offering. At the same time, the fact that analytics providers are on investors’ radars, is a clear indicator of the evolutionary direction IoT solutions are taking towards a specific use cases analytics infused specialisation,” says Siviero.

This week, Sigfox operator UnaBiz has raised over $10 million in Series A funding to develop ‘internet-of-things’ (IoT) infrastructure and services in Singapore and Taiwan. The funding included investments from Japanese operator KDDI and French electric utility ENGIE.

Among other notable investments, Seattle based IIoT analytics firm Seeq raised $23 million in Series B funding in July, led by Colorado venture capital firm Altira Group, with support from Chevron Technology Ventures, Siemens-backed global venture firm next47, and Second Avenue Partners, among others.

The summer saw rush of activity. California based Falkonry, another industrial analytics company, raised $4.6 million in June in a Series A round led by Presidio Ventures, the early-stage venture capital arm of Japanese conglomerate Sumitomo Corporation. To date, Falkonry has secured $10.9 million in venture funding, in total.

Software AG bought Belgian data analytics scale-up TrendMiner the same month, building on its acquisitions of artificial intelligence (AI) specialist Zementis in 2016 and Cumulocity IoT platform in 2017.

In January, San Francisco IIoT analytics firm Element Analytics secured $19.5 million from the venture capital arms of GE, Honeywell, ABB and Mitsui, alongside funds from Aster, Blue Bear Capital, and Kleiner Perkins Green Growth Fund.

Nokia bought California IoT analytics firm SpaceTime Insight to help it develop IIoT applications for markets such as manufacturing, energy, logistics, transportation and utilities. The move, in May, coincided with its disposal of its expensively-acquired consumer digital healthcare business.

Meanwhile, chip design company ARM snapped up IoT data management firms Stream Technologies and Treasure Data either side of the summer, in June and August. Its parent, Japanese telecoms giant Softbank, has a $100 ‘Vision Fund’ to support start-ups developing new IIoT-related technologies.

Softbank, which owns Sprint, is a common thread. Last year, it invested in Kanellos’ employer, OSIsoft, with a brief to collaborate on IIoT services and solutions for various industries.

OSIsoft works with Seeq and Falkonry, among others, which deploy its PI System, which captures hard-to-reach data from sensors and manufacturing equipment and makes it available with business data for rapid IIoT insights.

OSIsoft has teamed up with ARM, as well – pairing a company that’s expected to deliver a trillion chips for IoT devices with a software provider that delivering operational intelligence to two-thirds of the industrial companies in the Fortune 500.

Kanellos says: “There’s a lot more investment flowing into IIoT than many realise, especially since it’s often in the shadows, behind consumer IoT. It’s actually a much larger market though, and one where a single day offline could mean massive revenue losses.”

The promise of digital technology, often achievable just by retro-fitting sensors and over-laying data management dashboards, is delivering attractive gains, he says.

It’s cheaper than building new plants and can pave the way for things like automated supply chain. We’ve seen people cut energy by two per cent – in your home, that’s meaningless, but across the plants of a large paper manufacturer, say, that comes to $35 million a year.”

Siviero at IDC says IoT has become “a key accelerator” for many organisations. “The next wave of IoT will require higher industry specialisation, deeper industry knowledge, and advanced analytics capabilities. This raises the bar across IoT applications,” he says.

These factors are leading major IoT players to carefully look at their partnership and acquisition strategies. This trend is even more evident in IIoT scenarios, where the maturity level is more advanced and end-users are eager to move beyond basic deployments.

“Major IIoT players are investing in industry-specialists and top-notch analytics startups to scale-up their expertise.”

Ian Hughes, senior analyst at 451 Research says the IIoT market has advanced to the extent companies are required to buys in expertise, notably around edge computing and analytics.

“The past few years have been getting that connectivity but now the real work comes in understanding and acting on that data. We are also seeing the more natural place for some of the analysis and machine learning to happen is at the edge, where the bulk of the data is generated,” he explains.

At the edge tactical choices can be executed with analytics and machine learning, a natural evolution from existing machine controls, whilst plant wide meta data can be sent to the cloud for analysis, which in turn will adjust the edge algorithms further.

Companies focused on industrial machinery and processes will not typically have this sort of edge analytics and machine learning in house, but need it to provide tangible results for their customers, hence this wave of investments.

“With many operational technology (OT) companies becoming software companies or partnering with them we are seeing the adoption of modern IT techniques into both brownfield IIoT implementations and into greenfield facilities.”

Kanellos says the big funding rounds that have followed the likes of Peleton and Uber will not be replicated in the IIoT market, simply because the addressable market is closer 10,000 customers than five billion.

“And those customers are stringent and demanding. Still, they see the value and will invest in technology. In some ways, it will be similar to the investment pattern we saw in B2B investing in the 1990s – slow steady growth, but very good futures for the companies that make it past those first stages of life,” says Kanellos.

“In some ways, it’s a great market for entrepreneurs because the customers here value and can test differentiation. Your ‘brand’ will be based on product and execution, not so much advertising.” – Enterprise Iot Insights