VCs Look To The Future As IoT Investments Soar


Image Credits: Chris Isherwood (opens in a new window) / Flickr (opens in a new window) under a CC BY-SA 2.0 (opens in a new window) license.

Editor’s Note: Christine Magee is an analyst for CrunchBase. 

From personal mobility device Whill to wireless power transmitter uBeam, Internet of Things startups are amassing millions in venture dollars to make their way out of the conceptual future and into our homes, cars and offices.

Crowdfunding platforms have made popular hits out of intelligent coolers and customizable smartwatches, but the top venture-backed companies have been centered around the home automation and security space. Following recent acquisitions of connected-home startups by major players like Google and Samsung, investor interest is hitting an all-time peak.

In the past year, investors have contributed over $300 million in 97 venture rounds for IoT startups. Nearly half of these deals were recorded last quarter, as seed rounds hit a record quarterly high.

This is in part due to a rise in IoT startups emerging out of programs like R/GA and Techstars‘ connected devices accelerator in New York, Microsoft Ventures’ home automation accelerator in Seattle, and global hardware accelerator HAXLR8R. Venture investors appear to be paying close attention as Series A rounds have followed suit, reaching a record high last quarter, as well.

“The largest informing factor for me investing in this space is the overall belief that this is where the future of life is going,” says Nick Wyman of Galvanize Ventures. “It’s going to be centered around capturing data and around home awareness and intelligence.”

Galvanize backed connected device startup Keen Home last week in a round that included strategic investors American Family Insurance and communications company Comporium. Keen’s first product is a smart vent that allows home owners to control the temperature in each room of a house to reduce energy use and cut down on heating costs.

“It’s not just investing in what the market is right now, but creating new markets,” says Wyman, whose previous investments include indoor home gardening startup Grove Labs and craft beer brewing kit BrewBot.

Startups like Keen Home represent a small piece of the larger puzzle, perfecting different verticals of home convenience or security. As these single-focus solutions gain traction, the need for a central hub that will integrate and facilitate communication between individual applications becomes even greater.

“The biggest factor to me is that we haven’t seen exactly what Apple (Homekit) and Google (Nest) and Samsung (SmartThings) and GE (Wink) and other major platforms will really look like, so figuring out how to play in the IoT ecosystem is a total grey area,” says David Tisch of BoxGroup. “Until that picture becomes clearer, identifying where the large companies will emerge in the space is very challenging.”

Tisch contributed to the $15 million SmartThings raised prior to being picked up by Samsung in July, but has yet to make any major bets on home automation startups since. The uncertainty in the space could explain the relative lack of larger investments, as investors are willing to help new IoT companies get off the ground but hesitant to take on too much risk.

While a winner in this battle for the hub of the connected home could bring clarity to investors, it muddies the waters for consumers who aren’t interested in exposing their private lives to the likes of Google or Samsung.

“Google is definitely positioning itself as a leader in the home IoT space with Nest/Dropcam and more,” says Benjamin Joffe of HAXLR8R, “but there’s a bit of a pushback from people regarding what’s happening to the data and what’s happening to the privacy of their home.”

That’s what HAX graduate Form Devices seeks to tackle with its “soft security” model, an alternative to the more common “hard security” model that relies on cameras and microphones. Launched on Kickstarter this week, Form is taking the “invisible” approach to hardware, detecting irregularities in sound or air composition data as opposed to recording 24/7 so that home owners can retain a comfortable level of privacy.

This is one attempt to preserve a homeowner’s peace of mind while still collecting data that allows connected devices to learn from consumer behaviors. And this learning and adjustment period is essential for IoT companies to eventually transition from the home into the industrial sector, where their effects will be felt on a much larger scale.

“As we collect more data, there’s going to be a larger opportunity for industry manufacturers that can really analyze that data and change the way they do business,” says Jenny Fielding, head of the R/GA Connected Devices program. “The home, the car, the office, is where it’s going to start, and then you’re going to see the domino effect once the data is there which will have a huge impact.”

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