IoT startups got record investments in 2022

The Internet of Things (IoT) remains attractive to the investment world, particularly startups. The average amount of capital raised by IoT startups in 2022 is at its highest for more than a decade, despite a 22% drop in total funding for this sector and a 35% reduction in international venture capital markets.

IoT companies will raise an average of $15.9 million in 2022, up 30% year-on-year, according to research by Avnet Abacus, an electronics distributor that consults engineers at the design stage of new products. Crunchbase data associated with companies in the Internet of Things category was analysed to gather information on the level of investment in IoT.

“The volume in funding that companies receive in any given product category gives an idea of how investors see the future of the respective technology class. Although venture capital has slowed down due to the current economic conditions, our survey reveals that investor confidence is higher than ever in the long-term prospects for IoT product developers,” explains Sara Ghaemi, technical director at Avnet Abacus.

The average value of the investment round in US IoT startups reached a 19-year peak at US$16.2 million. On the other hand, European IoT companies reached US$16.7 million, also a peak in the same period.

Industrial IoT (IIoT) also had a record year in 2022, with an average investment round of $16.1 million, more than double the average of $7.3 million in 2021 and the highest since 2006. Crunchbase data associated with companies associated with Internet of Things and Industrial Automation were analysed.

IoT company acquisitions around the world were the second most ever in 2022, with 116 companies bought, down slightly from the peak of 117 companies in 2021. In the US, 48 IoT startups were acquired in 2022, down from a record 58 in 2021. Europe fared better than in previous years, with 41 acquisitions, a record for the region. In the IIoT field, 7 startups were acquired.

Investments in early-stage IoT startups (those seeking funding in venture rounds A and B) last year reached the highest amount ever recorded, $2.45 billion and up 12% from $2.19 billion the previous year.

Investments in late-stage IoT ventures, meanwhile, totalled US$1.08 billion, down 54% from US$2.36 billion in 2021 and 36% from US$1.70 billion in 2020. Angel and seed investors in IoT also acted more cautiously in 2022, providing funds of $261 million in 2022, compared to $404 million in 2021.

According to the study, when investing in late-stage startups, venture capitalists seek returns in the near future, when the company is acquired or floated on the stock exchange. When startups approach these stages, the expectation is that they will pay high amounts.

In turbulent scenarios like the current one, investors are usually less optimistic about short-term performance and reluctant to invest in ventures with higher valuations, thus shying away from startups in more advanced stages of maturity.

However, even though the economy may swing short term, investments in IoT will be inevitable in the long term. “There is strong evidence pointing to a future with more and more devices connected wirelessly and providing relevant data. This offers great opportunities for businesses to operate more efficiently and generate more value for customers. That’s why IoT should continue to grow,” says Tim Bassford, IoT expert at Avnet Abacus.

“For years, it seemed IoT only existed in the words of market analysts and consultants, but we have now moved far beyond the hype with a significant number of companies offering real business value and a large volume of venture capital investing in IoT,” adds Avnet technical director Abacus.

How to attract investors for IoT startups

According to Startup Grind, a global startup community, there are a few things every IoT startup needs to know to attract investors:

1. Value proposition: What is of most value is not your product, but the ability to collect relevant and usable data in practice.
2. Degree of disruption: You must present a degree of disruption that leads many companies to migrate legacy and traditional systems to the models presented by your startup. You must be the IoT company that will do this for a business segment or industry sector.
3. Monetisation: Show how to monetise your IoT business idea and develop a viable and sustainable business model. This can be a challenge, according to CapGemini Consulting.

• “Must-have” X “Nice to have”: What will attract investors in IoT startup is the ability to convince that their products or services are considered “must-haves”.