Low-value VC investments dominated IoT segment in 2018: GlobalData

Venture capital (VC) investments in the Internet of Things (IoT) segment fluctuated during 2018, with the overall deal volume falling in the second and the third quarters before rising in the last three months, a new report from data and analytics firm GlobalData showed.

The report said that low-value deals (investment less than or equal to $10 million) continued to dominate VC investments across all the quarters in 2018. In total, 230 VC deals with a value of less than $10 million were disclosed, accounting for 67.8% share of the total deal volume in 2018.

Within low-value deals, all the four quarters registered the highest number of deals valued in the $1-5 million range, the report showed.

“Fewer high-value deals in the IoT space indicates growing cautiousness among investors, with concerns around the low success rate of IoT implementation projects at the back of their mind," Aurojyoti Bose, financial deals analyst at GlobalData, said in a statement.

However, he said that growth in deal volume and value during the last quarter means there is still optimism with innovative startups likely to continue generating investors’ interest.

The report also showed that at least 61 low-value deals were signed in the first quarter of 2018, accounting for 62.8% of the total deal volume.

The quarter recorded 38 deals valued in the $1-5 million range while two deals were valued more than $100 million.

Among all the quarters, the percentage of low-value deals to the total deal volume was the highest in the second quarter, the report said. 

"During this period, 58 such deals were announced, which collectively accounted for 74.4% of the total deal volume. Only two deals valued more than $100 million were announced during the period," the company said.

In the third quarter, deal volume declined 19.2% from the second quarter. Overall, 63 deals were announced during this period, which was the lowest among all the quarters in 2018. A total of 40 deals with a value of up to $10 million were announced during this quarter, accounting for 63.5% share of the total deal volume. 

In the fourth quarter, deal volume increased 60.3% from the third quarter. The quarter witnessed the highest number of low-value deals with a total of 71 such deals being announced, accounting for 70.3% of total deal volume.

The quarter witnessed four deals valued more than $100 million, which was also the highest among all the quarters, the report showed. 

Interestingly, VC funding in the IoT segment has shown early signs of growth in 2015 and 2016 before declining in 2017, according to the report. In 2018, the total deal value grew 8.3% even though the number of deals have dropped.

Overall, VC deal value has been increasing at a compound annual growth rate of 10.4% but the deal volume has been declining at a CAGR of 9.9% during 2014-2018, suggesting growing average deal size.

“Amidst the rosy picture for IoT technology and its implementation across different areas, several project failures in the recent past have made investors wary,” Bose said.

As per a Cisco study conducted in 2017,  the success rate for companies implementing IoT was as low as 26%, primarily due to serious concerns over cybersecurity. In October 2016, a huge distributed denial of service (DDoS) attack by Mirai botnet malware using insecure IoT devices made Internet inaccessible in the US for some time.