SVB Analytics completed an in-depth analysis of the Internet of Things (IoT). IoT refers to everyday objects — like cars, food, pets and toys — that are connected to the Internet via smart chips which sense and share information about themselves and their surroundings. The report was developed as part of our strategic advisory service, which provides investors and entrepreneurs with an assessment of a company's value in support of acquisitions, mergers, investments, and other strategic financing activities.
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SVB Analytics Report on The Internet of Things
1. The Internet of Things
Market Overview and Proprietary
Financial Intelligence
2. SVB Analytics
provides business
analytics solutions
to every stakeholder
in the venture
capital ecosystem.
Advisory Services:
Client Focus:
Due diligence support
Valuation Guidance
Proprietary market intelligence
Corporate venture,
innovation and
development groups
Valuation Services:
409A Valuations (Stock Options)
Purchase Price Allocation
(post-M&A Accounting)
Goodwill and Intangible Asset
Impairment
Client Focus:
Venture-backed
companies
6,000
Valuations completed since 2006
Research:
1,200
Proprietary Research and Data
Customized Studies
Thought Leadership
Active clients in 2012
Client Focus:
Corporate and
venture ecosystem
2
3. Executive
Summary
11
Advancements in technology have
created a renaissance for the
Internet of Things. Specific
sub-sectors show promise, but
significant technological hurdles
still remain to realize the holistic
vision.
14
Dissonance exists between
products and services that large
tech companies are pushing and
where strong growth is observed.
21
Innovation capital providers
continue to be skeptical until
quantifiable benefits exist beyond
a promise of widespread benefits
to society.
3
4. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
4
5. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
5
6. What is the Internet of Things in 2013?
The “Internet of Things” is not
an industry.
It is an umbrella term encapsulating a collection of
interrelated industries. Each sub-industry has its own
stakeholders, value chains, and economics, and
therefore each must be evaluated individually.
The Internet of Things is also the buzz word of 2013 in
the tech media, Kickstarter world (the “Quantified Self”),
and of large technology companies worldwide.
Qualcomm CEO Paul Jacobs at CES 2013, courtesy of TheVerge
6
7. Internet of Things v.2
Introducing the Gartner Hype Cycle
Re-Introducing the Gartner Hype Cycle
1998
2012 – 2013
MIT coins the term
Version 2 of IoT re-emerges at the top of large
enterprises’ key strategic initiatives, expectations
peaking
RFID to bring about a ubiquitously connected world by
2005
What happened to IoT v.1?
“It is important to take into account that the ‘Internet of Things’ is
a concept invented by academics, and not a response to any
expressed market need.”
– Bob Williams, Synthesis Journal, 2008
7
8. What Has Changed in IoT?
Successful IoT v1
Emerging IoT v2
M2M Communications
Consumer and Quantified Self
Wireless Patient Monitoring
Energy Management
Fleet Management and Asset Tracking
Mass Enablement Technologies
An “Internet of Some Things”
Primarily enterprise-class, dedicated
hosting, high investment, ROI-driven
solutions.
An “Internet of More Things”
A new class of tools and solutions
driven by decreasing hardware prices
and cloud infrastructure.
8
9. Case Study | Apparel Industry – IoT V1
Linear, one-dimensional information flow
Static data points
Focus on improving logistics
Limited or no feedback to marketing/sales, design teams
9
10. Case Study | Apparel Industry – IoT V2
Complex, multi-dimensional information flow
Dynamic, rich data points collected at many points in the distribution channel
Real time data collection and analytics allowing agile product design and product
improvements
Greatly enhanced product mix, market segment targeting and better customer experience
10
11. Advancements Powering IoT v2 | Key Convergences
Moore’s Law
Metcalfe’s Law
Decreasing prices of wireless
sensors, hardware
Penetration of smartphones and tablets
Public, private, and hybrid cloud-based
architectures and resources
Storage and compute
resources
Wireless connectivity technologies
(3G/4G/LTE, WiFi, ZigBee, Bluetooth)
Smaller, more diverse, and
powerful chips
Ultra-low power Micro-controller Units
(MCUs)
Internet
of
Things
Big Data Analytics
A confluence
of technologies
have been key
drivers advancing the
Internet of Things
Exploding volume of data
Cloud storage systems are dated
Converting data into actionable intelligence
Controlling decisions, optimizing resources,
lowering uncertainty in real time
11
12. Challenges Facing IoT v2
Phasing out of 2G spectrum
Fragmentation of Wireless
Communication Standards
Battery technologies and alternative
power sources (solar, motion,
vibration, temperature)
Software architectures and APIs
Costs to retro-fit current generation
“things”
Master ontology to facilitate interdevice communication
“A new Wireless Intelligence report estimates more than 200 LTE
networks will have launched around the world by 2015. That’s great
news, but they’ll use 38 different frequencies.”
— Kevin C. Tofel, GigaOm (December 2011)
12
13. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
13
14. Push vs. Pull | A Clear Business Case
Large Tech
Buyers are pulling through:
Push demand for products
Low cost, high utility
High need, high ROI
Mobile Operators
Push demand for services
Large, and frequently slow-growth, enterprises have been the main drivers of IoT use cases. Particularly around the
connected home, investments in “marketing the future” have failed to drive widespread consumer demand for those services.
Conversely, innovation in Healthcare IT and Energy Management has come directly from the VC-backed market, and in
response to buyer-driven business cases.
14
15. Relative Overall Performance
IoT Companies Struggle at the Early Stages Relative to a Broad index of Same-Size Peers
0.43%
0.50%
Sales Growth Relative to SVB Universe
0.22%
IoT companies with less than $10M
in revenue underperform relative to
a broad peer group. However,
companies with more than $10M in
revenue outperform their peers.
0.00%
This can be seen in the progression
of comparable sales growth from
the sub-$1.5M sales growth
segment to the large, over-$10M
segment.
-0.50%
-0.48%
-1.00%
-1.50%
-2.00%
-2.50%
-2.75%
-3.00%
All IoT
Sub $1.5 M
n=14
Median Sales:
$403K
$1.5 to $10 M
n=17
Median Sales:
$4.24M
Over $10 M
n=12
Median Sales:
$13.9M
Source: SVB Analytics
15
16. Small IoT | Net Sales Less Than $1.5M
Viral Growth is Observed
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Small IoT companies are able to
grow revenues faster then their
sales and marketing spending. This
ability to grow revenues faster than
their operating expenses is an
indication of viral growth.
4.50
4.00
Revenue
(67.3%)
3.50
3.00
COGS
(76.9%)
Operating
Expenses
(28.1%)
However, given their small sales
volume, these companies lack
economies of scale and struggle to
keep their production costs (COGS)
in check. As such, we observe high
fixed costs relative to net revenue.
2.50
2.00
1.50
1.00
0.50
2.50
2.00
1.50
VIABILITY RATIO
1.00
n=14
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.95)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Median Sales: $403K
Source: SVB Analytics
16
17. Medium IoT | Net Sales Between $1.5M and $10M
Viral Growth Slows, Acquisition Costs Accelerate
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Revenue
(14.2%)
As they grow, revenues at IoT
companies continue to outpace
sales and marketing spending (as
tracked by their operating
expenses), exhibiting slower yet still
present organic growth.
2.00
1.75
1.50
COGS
(22.8%)
Operating
Expenses
(6.6%)
However, the widening gap
between Revenue growth and
COGS growth indicates trouble
scaling from early-adopters to a
wider customer base.
1.25
1.00
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
n=17
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.19)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Median Sales: $4.24M
Source: SVB Analytics
17
18. Large IoT | Net Sales Greater Than $10M
Scale is Achieved
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Revenue
(23.3%)
As IoT companies achieve size and
scale, revenue growth not only
outstrips sales and marketing costs,
but also production costs (i.e.
COGS growth). In contrast to
smaller companies, large
companies’ operating expenses
begin to be affected by the scale of
revenues
2.00
1.75
1.50
COGS
(17.3%)
Operating
Expenses
(11.6%)
1.25
1.00
As can be observed in all three
revenue buckets, IoT companies
exhibit the ability to grow revenues
without excessive investments in
sales and marketing expenses.
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
n=12
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.28)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Median Sales: $13.9M
Source: SVB Analytics
18
19. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
19
20. VC Market Dynamics Affecting IoT
The “Series A Crunch”
Declining Venture Capital Investment
Venture Dollars Raised Fall 27% Below
15-Year Trailing Median
Tomasz Tunguz, Tech Crunch, July 22, 2012
Dan Lyons, CB Insights, December 3, 2012
There are more angel/seed-funded companies than institutional dollars available
to continue to fund them.
20
21. Does a “Series A Crunch” Affect IoT
Disproportionately?
IoT Companies by Round of Funding
Estimates of Silicon Valley Bank’s market share in the VC-backed
market exceed 50% in the U.S.. A review of identified IoT
companies shows an even distribution by stage of development
between Series A, B, and C.
Series D
11%
Series A
30%
However, IoT companies as a % of SVB’s total client base is small
(~3%), indicating an overall lack of VC enthusiasm for the space
thus far.
An important thing to note, SVB’s portfolio does not cover a
majority of the angel-backed market (or seed-stage companies).
Activity in IoT at the seed-stage is high, but most products
being developed are not “venture fundable.”
Series C
30%
Series B
28%
Note: Chart may not add up to 100% due to rounding
Source: SVB Analytics
21
22. Who is Investing in IoT?
Investor Types and Round Preference
FUNDING
DISTRIBUTION
INVESTOR ACTIVITY
11%
Strategic
Angels/Individuals
VC
Series A
30%
32%
50%
Series B
Series C
30%
Series D
18%
28%
The ratio of Strategic-to-VC (excluding angels) is higher in IoT than other sectors.
This further illustrates the strategic imperative for large enterprises to create a market for IoTrelated products and services.
The even distribution between Series A, Series B, and Series C supports the view of two
iterations of IoT and that certain sub-industries have progressed from product development
to product-market fit.
Notable VCs include KPCB, DAG, Khosla, Lighthouse, and NEA.
Notable Strategic Investors include Intel, BestBuy, Cisco, and Comcast.
Source: SVB Analytics
22
23. How Much are VCs Investing?
Total Invested Capital
$47
$50
Median Round Size
$US Millions
$45
$40
$35
$29
$30
$25
$18
$20
$12
$15
$10
$18
$6
$11
Series B
Series C
$6
$5
$0
Series A
Series D
Important Note: “Series A” in SVB databases refers to institutional VC rounds. Angel rounds are
considered to be “Seed” rounds.
To get a product to market and successfully expand (Series C and beyond), it takes, on average,
$30M+ in total invested capital. Given some of the quick hits in recent years (e.g. Instagram), IoT
factors such as hardware development, inventory management, long sales cycles and/or slower
than expected up-take may explain the lack of investment activity.
Source: SVB Analytics
23
24. Revenue by Stage of Development
Median Revenue at Financing
Revenue progression from Series B to Series C indicates that
many mid-stage IoT companies experience trouble creating
rapid growth.
$25
Successful Series C companies take invested capital and fuel
strong growth going into their Series D rounds. There are
much fewer Series D companies than Series C, indicating that
winners and losers separate at this stage of development.
$20
$US Millions
Lucrative for those that execute
(survivorship from Series C to
Series D)
Unfortunately, the cost to get an IoT company through its
Series C financing is high (~ $30M.)
$15
$21.8
$10
Traction challenges
$5
$6.1
$4.7
$0.1
$0
Series A
Series B
Series C
Series D
Source: SVB Analytics
24
25. Value Progression
Up-Rounds
Flat Rounds
Down Rounds
80%
75%
75% of Series D
rounds are at higher
valuations than the
Series C
70%
60%
60%
53%
50%
37%
40%
30%
20%
17%
25%
23%
11%
10%
0%
The relatively higher proportion
of down-rounds at the Series C
financing again highlights the
growth challenges mid-stage
companies face.
0%
A-to-B
B-to-C
C-to-D
200%
Average Step-up
Average Step-down
Those that successfully execute
are rewarded with higher
valuations in the Series D round.
157%
150%
100%
58%
50%
23%
0%
0%
-50%
-45%
-45%
-100%
A-to-B
B-to-C
C-to-D
Source: SVB Analytics
25
26. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
26
27. IoT Segmentation
Communication
• Backhaul
• Data Transfer
Connected
Healthcare
• Remote
Monitoring
• Telehealth
Energy and
Environment
Enterprise
and IT
• Water Sensor
• Smart
Meter/Utilities
• Data Center
Monitoring
• MDM
Enablement
• Toolkits
• Cloud
Services
Retail and
Commerce
Heavy Industry
• Process
Control
• PetroChemical
• Locationbased
Commerce
Security and
Safety
• Emergency
Response
• Data Privacy
Smart Buildings
• Automation
• Energy
Management
Transportation
and Logistics
• Supply Chain
Management
• Asset
Tracking
Distribution of SVB IoT Companies
35%
30%
25%
20%
15%
10%
5%
0%
Communication
Connected
Healthcare
Enablement
Energy and
Environment
Enterprise
and IT
Heavy Industry
Retail and
Commerce
Security and
Safety
Smart
Buildings
Transportation
and Logistics
Source: SVB Analytics
27
28. Niche Spotlight | Enablement
The Brains
Software
Enables underlying M2M
interactions, creating a unifying
experience across platforms
Maximizes the limits of the
operating environment through
intelligent, robust and lean
software
Increases the focus on an
information and decision-based
world delivered through apps
The Sensory Network
Hardware
The majority of connected
devices in IoT are located at
the “last inch” of the network
Bridging the gap between
access networks such as the
Internet or utility networks to
a localized home area
network or sensor nodes
Source: ZTE Technologies - Opportunities, Challenges and Practices of the Internet of Things [2010]
28
29. Spotlight | Enabling the Internet of Things
Hardware
Software
Enabling late-stage consumer-facing product development
Empowering IoT end-to-end and unifying user experience
1. Interoperability through Standardized Protocols
Uniformity across frequencies, communications protocols
Minimize device, node and band fragmentation
TCP/IP support along the communications channel
1. Single Control Interface
Creating rich, cross-platform native experiences across
connected devices
2. Superior Power Efficiency
Ability to operate for months/years on low power sources
Ability to harvest energy from environment
3. Ease of Installation/Deployment
Consumer-facing devices with negligible capacity for user
error, ease of installation in a host of environments
Developer-facing devices with ease of developing and
deploying firmware updates, design, debug and optimize
2. App-Platform Consolidation
Build out application-development environments spanning
multiple devices
Enable development of consumer electronics devices –
tablets, smartphones, set-top boxes, social TV, in-car
entertainment
3. Optimize Cloud-Based Service Deployments
Developing smart software for tracking, situational
awareness, decision analytics, resource and process
optimization – all deployed and controlled through the cloud
Enhanced network optimization for content delivery
29
30. Niche Analysis | Enablement
Organic Growth Observed
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Revenue
(27.3%)
IoT enablement technologies are
the base upon which all other IoT
products are built, and this
dependence is reflected in the
robust sales growth.
2.00
1.75
1.50
COGS
(27.4%)
Operating
Expenses
(18.7%)
However, strong organic growth is
matched with increasing COGS and
operating expenses.
1.25
1.00
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.07)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Distribution of Companies in this Niche ($M):
Sub $1.5
$1.5 to $10
Over $10
Source: SVB Analytics
30
31. Enablement | Software
Organic Growth Observed
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Much of the current excitement in
the IoT enablement space is driven
by advancements in Big Data.
3.00
2.75
Revenue
(44.0%)
2.50
The Cloud links sensors, networks,
people and applications, allowing
for the analysis of Big Data.
Software revenue models allow for
fast scaling after high initial
investments in R&D.
2.25
COGS
(51.1%)
2.00
1.75
1.50
Operating
Expenses
(26.9%)
1.25
1.00
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.14)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Distribution of Companies in this Niche ($M):
Sub $1.5
$1.5 to $10
Over $10
Source: SVB Analytics
31
32. Enablement | Mobile Devices
Falling Hardware Prices
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Revenue
(-7.5%)
The prices of mobile enablement
devices have continued to fall,
resulting in decreased revenue
levels.
2.00
1.75
Production costs for these
companies have risen modestly but
have been offset by proactive
management of operating
expenses.
1.50
COGS
(3.7%)
Operating
Expenses
(-7.6%)
1.25
1.00
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.00)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Distribution of Companies in this Niche ($M):
Sub $1.5
$1.5 to $10
Over $10
Source: SVB Analytics
32
33. Company Spotlights | Enablement
Hardware
Software
Overview
Overview
Founded in 2011, Electric Imp is developing Imp, a platform that
leverages WiFi and cloud technologies to connect everyday electrical
devices to the Internet.
Founded in 2000, UIEvolution provides the UIEngine platform, tool
suite, and specialized services to support real-time data application
services, rich storefront clients, multimedia applications, casual games,
and device/service User Interfaces (UIs) to a large number of devices
and wireless/broadband users. UIEvolution employs both a traditional
packaged software delivery model and an SaaS-based delivery model
for its products.
Imp-enabled devices can be accessed through the web or mobile
devices using Electric Imp’s application or other third-party
applications.
The Imp chip will be available as a user-installable card integrated with
a processor and WiFi capability. The chip can automatically recognize
the device in which it is inserted to retrieve software required to operate
the device.
Value Proposition
To Developers:
Value Proposition
Write-once application logic that adapts to many native platforms and
adapts itself to different screen types.
To Developers:
To Manufacturers/Businesses:
Open Imp API, which connects to most Web services, servers and
applications.
The connected car vertical is very promising – from audio today to
enhanced driving and increased safety in the future.
Web-based IDE maintains software and pushes new features instantly.
Creates seamless rich, cross-platform native user experience on
multiple platforms across multiple devices.
To Manufacturers:
Pre-built scalable, reliable and secure connectivity solution.
Design, test and deploy network integration into unconventional
devices.
Integrate back end services: takes your existing Enterprise web
services and optimizes them to work better with your mobile
applications.
Diverse app management: easily modify the content of applications
across diverse platforms and screens.
33
34. Niche Spotlight | Connected Health
A Clear Business Case:
Demographic changes leading to an increasing target market
Rapid decrease in size and cost of devices
Federally mandated re-admission penalties leading to increased provider
demand for telehealth and remote patient monitoring solutions
Gradual shift in payer framework to accountable care organizations resulting
in greater reimbursement for connected healthcare solutions
U.S. Department of Health and Human Services launching the Health Data
Initiative, which provides greater amounts of health data in more usable
formats
“While the focus of funding has been in the Health
Information Management [HIM] category, which
covers technologies on the Healthcare Practice
side, there is significant investment and funding
going into companies that engage the consumers—
like mobile health, telehealth, personal health, and
social health.”
– Mercom Capital Group “HIT 2012
Annual Funding and M&A Report”
Risks and Challenges:
Long sales cycles associated with selling into healthcare markets lead to
delays in successful product commercialization
Complex regulatory requirements associated with healthcare devices that
many technology entrepreneurs are unfamiliar with leading to product delays
Security and privacy concerns related to the data generated by wireless
devices lead to delayed customer acceptance
Lack of standards leads to fragmented solutions, inability to scale efficiently
Source: Perficient.com
34
35. Niche Analysis | Connected Health
Modest Growth, Lack of Scale
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
Revenue
(11.5%)
IoT companies developing
patient-monitoring products are
seeing solid fundamental consumer
demand for their products.
2.00
1.75
However, companies in this niche
tend to be relatively small (less than
$10M in sales,) resulting in higher
COGS growth due to a lack of
scale.
1.50
COGS
(27.4%)
Operating
Expenses
(5.0%)
1.25
1.00
0.75
0.50
1.50
1.25
1.00
VIABILITY RATIO
0.75
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.06)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Distribution of Companies in this Niche ($M):
Sub $1.5
$1.5 to $10
Over $10
Source: SVB Analytics
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36. Company Spotlight | Healthsense
Overview:
Founded in 2003, Healthsense is a Minnesota based company
providing technology-enabled care solutions for the entire senior
care continuum.
Healthsense has its platform in over 100 senior living communities
serving approximately 10,000 seniors.
Full suite of WiFi-enabled products for remote monitoring, nurse
calling, emergency response and wellness management.
Healthsense plans to offer their products and services to all at-home
care customers.
Value Proposition:
Aging demographic yields large and growing market for senior care.
PPACA (Obamacare) expected to increase incentives and financing
options for assisted living programs. Medicare and Medicaid
incentives driving more long-term preventative care spending.
Potential to be a key provider of highly valuable data and services.
Partnerships with strong partners such as Verizon, Sodexo, as well
as NIH.
ROI benefits of a single standards-based platform solution.
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37. Niche Spotlight | Energy Efficiency in the Home
Current State of the Smart Energy Home:
Smart Energy technologies employ two primary approaches to reducing peak
demand:
Energy Efficiency: Cutting unnecessary energy consumption, such as plug-load
waste and vacant home temperature control.
Load Management: Shifting energy consumption away from peak demand times,
optimizing utility generating capacity.
Energy efficiency models are already prevalent in the Smart Energy Home—
they enable real-time energy use monitoring, remote control of devices and
appliances, and aggregate consumption data and trends for better informed
decision making.
Load management is critical to reducing peak energy demand but requires
residential customers to know the current price of electricity, and be charged
dynamically as opposed to a flat rate. Installing “smart meters”, digital meters
which enable two-way communication, is the first step a utility can make toward
enabling the Smart Energy Home.
Risks and Challenges:
Source: geappliances.com
Metering: Legacy meters must be overhauled to enable two-way communication
of real-time electricity pricing based on peak demand.
End Use: Residential energy consumption is fragmented over several dozen
end uses, each contributing differently to a user’s energy bill.
Affordability: Broad consumer adoption requires technologies to be priced to
provide users with a reasonable rate of return on their energy expenses.
Security & Privacy: Devices and technologies must be transparent about what
information is collected and communicated and for what purpose.
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38. Niche Analysis | Energy Efficiency
Organic Growth Observed
REVENUE/EXPENSE
GROWTH
(ANNUALIZED %)
IoT companies focused on
developing products for improving
energy efficiency are performing
exceedingly well. Revenue growth
well exceeds increases in both
COGS and operating expenses.
4.50
4.00
Revenue
(71.4%)
3.50
3.00
COGS
(50.5%)
Operating
Expenses
(10.0%)
Benefits from improving energy is
easily quantifiable, making the case
for the adoption of products easy to
justify. For example, smart meters
for various utilities, such as electric,
natural gas and water, have proven
their value in reducing waste and
improving bottom lines.
2.50
2.00
1.50
1.00
0.50
3.50
3.00
2.50
2.00
VIABILITY RATIO
1.50
1.00
Q3.12
Q2.12
Q1.12
Q4.11
Q3.11
Q2.11
Q1.11
Q4.10
Q3.10
Q2.10
0.50
Q1.10
Viability Ratio
(1.56)
CHANGE IN NET REVENUE
CHANGE IN OPERATING EXPENSES
Distribution of Companies in this Niche ($M):
Sub $1.5
$1.5 to $10
Over $10
Source: SVB Analytics
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39. Company Spotlight | Energy Efficiency
Overview:
Founded in 2008, ThinkEco is a New York City-based company developing
easy-to-use energy efficiency solutions for homes and businesses.
Its flagship product, the Modlet—short for “modern outlet”—is a hardwaresoftware solution for saving money and energy on plug loads, both at home
and in the office.
The Modlet plugs directly into any standard outlet and communicates wirelessly
to a user’s Internet-connected computer, allowing users to:
Monitor real-time energy consumption;
Remotely control plugged-in devices via the web or smartphone; and
Set schedules for controlling plugged-in devices.
Internet of Things:
The Modlet enables remote control and connectivity to virtually any
appliance that plugs into a standard outlet. Through the use of proprietary
algorithms, the Modlet software helps detect when electronic devices are
unused and turns them off at the source.
Internet of Things
Clear Value Proposition:
Prevention of plug-load waste, the fastest growing segment of commercial
energy use.
6-8 month payback period, reducing home energy use by 6-10%.
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40. Table of Contents
Overview of the Internet of Things
6
The Internet of Things in 2013
9
What has changed | Case Study in Apparel
11
Advancements Powering IoT v2
12
Challenges Facing IoT v2
Market Forces at Work
14
Push vs. Pull – A Clear Business Case
15
Relative Overall Performance of IoT Companies
16
Sales Trends of IoT Companies by Size
Financing the Internet of Things
20
VC Market Dynamics Affecting IoT
22
IoT investments – Who and How Much
24
Revenue Growth and Value Progression
Niche Performance Mapping
27
Internet of Things Segmentation
28
Enablement – Spotlight & Analysis
34
Connected Healthcare – Spotlight & Analysis
37
Energy Efficiency – Spotlight & Analysis
41
Summary and Key Takeaways
42
Definitions
40
41. Summary and Key Takeaways
Despite the attention being paid to the Internet of Things by large tech companies and media,
there remain significant financial and technical hurdles to overcome.
Compelling use cases have not, so far, translated directly into viable business cases, with the
exceptions of healthcare IT, energy efficiency, and enablement technologies.
Venture Capital, and in turn, venture-backed companies, fuel innovation and disruption.
However, the future of the VC industry, and the thousands of seed-stage companies needing
funding, is uncertain.
IoT companies appear to be starting strong out of the gates financially but fight strong
headwinds as they attempt to scale their businesses.
The Internet of Things offers the promise of enormous socio-economic benefits,
but the providers of innovation capital will continue to proceed cautiously until
use cases evolve into compelling business cases.
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42. Definitions
Term
Definition
API
Application Programming Interface
CES
Consumer Electronics Show
COGS
Cost of Goods Sold
IoT
Internet of Things
M2M
Machine-to-machine
MDM
Mobile Device Management
Metcalfe's Law
The value of a network is equal to the square of the number of devices connected to it
Moore's Law
The number of transistors on integrated circuits doubles approximately every two years
Organic Sales
Growth that comes from existing customers, word of mouth, and viral sources, versus from increased sales and
marketing efforts
RFID
Radio-frequency identification
ROI
Return on Investment
SaaS
Software-as-a-Service
Step-up
Refers to the percentage increase in the original issuance price of the preferred securities between two rounds of
financing
SVB
Silicon Valley Bank
WSN
Wireless Sensor Network
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43. SVB Biographies
Steve Allan | Managing Director
Steve Allan is a managing director with SVB Analytics, responsible for
leading SVB Analytics in executing client engagements, issuing valuation
opinions for private companies, and conducting research in the technology
and life science private financing arena. Allan brings a strong financial
background and passion for entrepreneurship to his leadership role at SVB
Analytics.
Sallan@SVB.com | 415.764.3135
Rob Tompkins | Director
Rob Tompkins is a director with SVB Analytics and leads SVBA’s research, strategy and
business development initiatives. Tompkins has extensive experience valuing privately-held
technology companies with a focus on the intersection of energy and technology. Prior to
joining SVB, Tompkins provided strategic and financial advisory services to startups in the
U.S. and Latin America.
Rtompkins@SVB.com | 512.372.6769
Special acknowledgement to Russ MacTough CFA, the principal
author of this report.
Contributing Authors:
Dan Zaelit
Paul Schroeder
Steven Kakowski
Sean Lawson
Amrit Sareen
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