The Industrial Internet of Things

Learn about the major trends, biggest investments, and key players in the Industrial IoT, courtesy of CB Insights.

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Below is a transcript of our webinar, "The Industrial IoT," led by CB Insights Research Analyst, Nick Pappageorge

We're going to be covering the Industrial Internet of Things. The goal here is to give you as much hard-hitting data as quickly as possible on the industry and the sector to get you up to speed without wasting any of your time.

Just to outline what we're going to talk about: first, we’ll start with general IoT, what it is, why it's popular, and the emerging company landscape. Then we'll examine where IoT is driving investments and also take a look at how corporate investors are responding to IoT.

So what are we talking about when we talk about IoT? In one sentence, we're talking about connected hardware that's collecting and sharing data

Another example is here in the bottom right, you can see with drones, a lot of the hype has definitely been driven by the DJI Phantom. For example, around drones. But increasingly we're seeing drone startups being funded for industrial inspection purposes. And coincidentally DJI recently announced it's producing a $15,000 UAV for agriculture, specifically for crop testing. And well there's an industrial layer for pretty much all these categories. We also included an industrial IoT bubble on the right side, in the center there. And these are industries that are talking very, very asset-heavy areas. So oil and gas is an industry that obviously fits that bill, very capital intensive processes there. GroundMetrics does analytics and sensor systems for the oil and gas industry. Also working in analytics for industry and manufacturing, there's Ergon Innovations and World Sensing. Both make a data platform that's tailored to industrial data. And then finally in the bubble are also APX Labs and Wearable Intelligence. Those two startups are working on wearables for industrial settings. 

Now here are the funding trends for all of IoT. Looking at the quarterly history, you can see that at $846 million in investments in the first quarter of 2016, it was one of the strongest quarters yet, second only to quarter two of 2015. And just for an idea of how this market has grown over the five-year period, funding went from $1.2 billion in 2011 to nearly $3 billion in 2015.

Industrial IoT

via a network. And that's excluding laptops, desktops, and smartphones. And this quote from Chris Dixon highlights why IoT is coming to prominence right now. He says, "If you disassemble a modern drone, VR headset, or IoT devices, you'll find mostly smartphone components." What he's saying here is that thanks to the smartphone revolution and Moore's law, small chips, sensors, and the data networks are now small enough or cheap enough to be repackaged and applied to the physical world, and that's enabling the Internet of Things.

To give an idea of the economics here, over the past 10 years the cost of sensors have more than halved to an average of $.60 per unit. The image below is a market map and gives a general view of the startup landscape. When someone says IoT, what first comes to mind might be a connected home device like the Sonos or the Nest. But IoT encompasses applications that span way beyond that. And if you look at this map, nearly all these categories also have an industrial layer to them. So one example here in the top left of wearables, they often target consumers with fitness tracking bands, but many startups are actually turning them for workers in industrial settings.

Looking at the most active investors in IoT below, we see a bunch of well-known names that invest across stages. But what's really notable here is that among the top investors are three corporate venture funds. So Intel, QUALCOMM, and Cisco's venture arms are all very active IoT investors, but that's not much of a surprise given that these tech giants either focus on small chips or communication networks. And so clearly IoT investment offers them a ton of strategic value. 

Next is a historical look at the deal stages where corporates are investing in IoT deals. Over the years, corporates are going more and more into early-stage deals which made up nearly half of the deals in 2013, though that number has retreated slightly since then as the industry has matured. 

Below you see IoT deals by geography. Unsurprisingly, a lot of the geography for IoT deals skew heavily towards Silicon Valley.

Similarly, the trend in corporate deals and dollars has grown in lockstep with overall IoT investment and actually significantly ramped up in 2015 where corporates were involved in rounds totaling $1.7 billion. That's actually nearly 92% growth year-over-year from 2014. You can see that huge increase there. 

You can see that 59% of corporate deals are happening in California. Herewhere, for example, an enterprise drone developer which I will talk more about later. They're located in San Francisco but there's plenty happening elsewhere. Massachusetts, for example, is home to Rethink Robotics, a company focused on industrial robotics. And New York is home to an industrial smart glasses company called Augumenta. So there’s stuff happening elsewhere for sure.

digitization and capturing data on the moving parts of industry. 

So next we have the most well-funded industrial IoT companies. And two of them, Sensus and Tendril, they provide solutions for smart metering for utilities companies. Alien does RFID tagging, that's like a radio frequency tags, which enable with IoT logistics and supply chain tracking. And also, Telogis makes a platform for the connected trucking fleet.

Now this is a list of the most active investors in industrial IoT. And when we drill into the industrial side of IoT and we see an even higher concentration of corporate venture arms driving the bulk of the activity here. Among the most active was GE Ventures, Intel Capital, Cisco Investments, Kleiner Perkins, and QUALCOMM Ventures. And there is plenty of bread to these investments, but just to name a few of them here, Impinj does radio frequency tags for the supply chain, Ayla Networks is a cloud platform for IoT manufacturers, and Skycatch develops drones for surveying and rendering in construction sites in 3-D. 

So where is IoT going? Well, to give a little context on the state of industrial IoT I want to revisit some important industry news. So a little over year ago, a German steel mill's office network was infiltrated by a hacker who prevented the blast furnace from being shut down and that caused massive damage to the facility. And that whole debacle brought the issue of cyber security to the forefront, and then later in 2015 we saw many of the public tech giants announce massive bets in IoT. IBM, for example, invested $3 billion into its own IoT unit, and 

A very useful way to visualize these investment connections is using our Business Social Graph. And here we visualize those top five Industrial IoT investors and take a look at their most recent bets inside industrial IoT. You can see that the connections here on Airware link between Intel Capital and Kleiner Perkins. Relayr was a co-investment of Kleiner and Cisco. And BitsDu Systems saw investment for both Cisco and GE Ventures. And all this activity is happening just in

When we talk about industrial IoT, we're not just talking about factories with sensors, but really any setting that's asset heavy. The graphic below from McKinsey shows levels of digitization by industry. If you look at the far most left column here and try to look for red you'll find industries like chemicals, mining, transportation, and warehousing, construction and agriculture. All have relatively low levels of digitization currently. So software hasn't evened these various physical, various asset industries yet. One way to think about industrial IoT is as a means of bringing that 

 the later ones. But in the coming years, we expect to see this, today's crop of startups mature and see these stages even out a bit more.

Let's dive into the industrial side of IoT and just to get an idea of how big industrial IoT. First we’ll take a look at the quarterly financing history. Similar to broad IoT, the industrial side of Internet of Things has steadily been growing. It went from $208 million in funding in 2011 to nearly $1.2 billion in 2015. 

Now another way to visualize this is to compare funding in industrial versus all of IoT. In the graphic below, you can see how industrial has gradually increased its share in overall IoT funding. This past quarter, industrial represented more than one-third of all IoT funding.

And the industrial IoT wave is definitely still in its infancy with 51% of deals in the past five quarters in the early stages. The graphic below shows that one quarter of deals were in the middle stages and only 10% were in

compromised, and the consumer products proving hackable, security is definitely going to need to be built in. And you'll see more companies like Mocana or Bastille tailoring it for the enterprise side of IoT.

This year IoT subsets like AR/VR and drones will definitely take off. We've already seen some asset-heavy leanings in quarter one with financing to Airware's industrial drones and to Daqri's augmented reality headset that's used for industrial workers. Then I think we'll also see more government participation and interest in smart cities and smart utilities projects that are enabled by IoT, given that recent government pledge by President Obama. And then lastly, I think the analytics layer will continue to grow beyond big data. And some are calling this “big context.” Industrial IoT systems are extremely complex and we'll see heavy investment in analytics tools that go beyond just a simple dashboard, for example. There is increasing demand for innovative ways of slicing data, like using AI or machine learning and data sets. And I think Maana and Site Machine are two great examples there. But I also think VCs will jump on these types of startups right now. And companies that squeeze more juice out of industrial IoT data, be it with AI or other data science techniques, these companies are extremely well-positioned because they build a very strong data mode.

And by that I mean they generate a feedback loop with more industrial customers, they get better algorithms working out. And then with the better services, the more customers they will subsequently get. And that kind of virtuous cycle, that feedback cycle, that will benefit greatly from an early start. This industrial IoT area is an area of ongoing coverage for us. So stay tuned for coming research and more webinars.

So where is all this going? I think in 2016 we'll see investors piling on to the industrial side of IoT. And not only because there is still plenty of room for startups like we saw with the heat maps but also because these are very, very valuable business problems to solve. There's tremendous opportunity in making an oil well, a factory machine, or a truck fleet just 1% more efficient. Next, I think we'll see cyber security will definitely be a large part of the conversation this year. With that German steel mill that was

February, we saw a massive exit to Jasper technologies, a cloud system for IoT. Jasper was acquired by Cisco for $1.4 billion, putting it among the largest IoT exits of all time. And in early 2015 a little over a year ago, Sigfox, a French networking company that focuses on IoT communications; they raised $115 million Series C.

So getting even more recent, 2016 has already seen several important industrial IoT deals. Very recently, we saw a $30 million series C to Airware, which develops commercial drone software. And recent Horowitz, and Kleiner Perkins, and former Cisco CEO John Chambers were involved in that deal. In

2015 and early 2016. And so these business social graphs are very useful tool for understanding the connections between investors and startups.

Amazon announced a $100 million fund to support its Alexa voice-control platform. In September, we saw that President Obama announced a $160 million pledge for smart cities, which will grant new funds for technology that reduces traffic and improve city services. And then later in September, GE announced that it predicts that its “Predix” industrial IoT platform was going to generate $6 billion in revenue in 2015.

IoT startups have 18 more points than the rest, which is small but it's a significant trend because this is seen over hundreds of companies.

Another interesting fact about industrial IoT is that industrial IoT companies have a higher on average Mosaic score if you look at the top quartile there. So what Mosaic score is, it's our proprietary algorithms for company health. It runs from a possible zero to 1000 and Mosaic scores are based on what we call the 3Ms. There's Momentum, there's Market health, and then Money. We combine data from financing history, investor quality, hiring and jobs activity, industry sentiment, news and social media, and several other sources. So interestingly, when you look at the top quartile of industrial versus the top quartile of all other IoT, on average Industrial

We were inspired by that and we recreated the graphic using CB Insights data to spot opportunities within the IoT. This is a breakdown of deals by IoT sub-industry; the data here echoes the prior idea. If you look at the very top here, health and wellness, for example, made up mostly of consumer fitness bands, that has a pretty solid green band across the years, indicating some deal saturation. And if you look towards the bottom of the graphic we see relatively few deals went to startups in manufacturing, warehousing, and industrial. And that's second from the bottom.

Other categories with low deal density included supply chain and logistics, wireless, and lighting/LED. Another interesting thing that's going on here is with robotics, the category that is sixth from the top. This sub-industry includes a lot of warehouse automation companies like Rethink Robotics and Clear Path Robotics. And you can see how deals have gone from pretty dark orange, maybe even red in 2011, to really solidly dark green in 2015. More attention actually being paid to bringing these areas into the 21st century. 

Below is the market map of Industrial IoT. At the center there is the cloud platform which can be thought of as the workhorse for collecting and storing the data from sensor networks. Tempo IQ and the recently acquired Jasper Technologies are all great examples there. And to highlight a few of these areas that are feeding into the cloud, there's utilities, which can be smart metering, but that also includes connected lighting and HVAC. And startups like Enlighted focusing on quantifying that in commercial spaces. Other networks like Impinj and Cargo Sense are supply chain startups that allow intelligence on location and movement, and allow for that to be tracked in real time. Connected fleet networks like GreenRoad and Telogis are tracking fleet location and telematics.  

And using various techniques like machine learning, AI, there are Big Data companies that are helping analyze the ocean of often unstructured data that industrial sensors and sensor networks produce. So Uptake, Maana, and Site Machine are all great examples of analytics platforms that tailor their services for data made by heavy industry. 

Where IoT Is Going

After that, we'll dive into the Industrial Internet of Things (IIoT), looking at the subset of startups working on asset-heavy industries and providing technology to areas like factories, oil wells, truck fleets, and that's just to name a few areas there.

THE GROWING CROP OF IoT STARTUPS IoT encompasses many emerging technologies like connected cars, wearables, drones, robotics.
HOW MUCH IS FUNDING TO IoT STARTUPS BOOMING? IoT Funding went from $1.2 billion invested globally in 2011 to nearly $2.9B in 2015.
FUNDING TO IoT STARTUPS Corporate participation in IoT deals went from $362M invested globally in 2011 to nearly $1.5B in 2015.
CORPORATE FUNDING TO IoT STARTUPS Early-stage startups took an increasingly large share of deals involving corporates from 2010 to 2013. Seed/Angel and Series A deal share peaked at 57% in 2013, but began to trend down and slid to 37% in 2015
CORPORATE FUNDING TO IoT GEOGRAPHY Unsurprisingly, the IoT startups receiving corporate investments were overwhelmingly based in California. Some lesser known yet well-funded IoT companies based outside of Silicon Valley included Chrono Therapeutics (Mass
FUNDING TO INDUSTRIAL IoT STARTUPS Industrial IoT companies from $208M invested globally into in 2011 to nearly $1.2B in 2015.
FUNDING TO INDUSTRIAL IoT STARTUPS As IoT has seen more investment, Industrial IoT has gradually seen a greater share of IoT investment. In Q1’16 Industrial IoT represented more than one-third of all IoT.
DEAL SHARE BY STAGE Industrial ioT is still in its infancy with 51% of deals happening in the early stage over the past 5 quarters.
WHY IoT IS GOING INDUSTRIAL Asset-heavy industries remain the least digitized.
WHY IoT IS GOING INDUSTRIAL Manufacturing, Warehousing & Industrial underrepresented. But industrial robotics is a category that’s heating up.
THE IIoT MARKET LANDSCAPE IIoT is building on existing consumer products like wearables, but also applying sensor networks to oil wells, utility grids, and building out infrastructure, cybersecurity, and analytics layers to support it.
INVESTORS IN INDUSTRIAL IoT Here were the most active investors in IIoT. Nearly all top investors were corporate venture arms.
BUSINESS SOCIAL GRAPH The Business Social Graph lets you visualize the investment, acquisition, competitor, partner & customer relationships between players in a space. Here are 5 active IIoT investors’ bets in 2015 and 2016.
MOSAIC SCORE - INDUSTRIAL VERSUS OTHER IoT Top Industrial IoT companies have a higher average Mosaic score that top non-industrial IoT companies.

Most Active Investors in IoT

MOST ACTIVE INVESTORS IN IoT Activity is not restricted to venture firms. Intel Capital, Qualcomm Ventures, Cisco Investments among the most active IoT investors.