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IoT Startups

February 28 2023

IoT Startups Receive Record Funding Despite Venture Capital Cool-Down

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The average amount of capital raised by IoT startups in 2022 reached the highest point in over a decade, according to new research by Avnet Abacus, despite a 22% drop in total funding within the sector and an overall 35% decline in venture capital markets.

IoT companies raising funds in 2022 pulled in $15.9m on average, up 30% from the previous year, reveals new research by Avnet Abacus, an electronics distributor that consults engineers when they’re designing new products. The engineering firm analysed crunchbase data for companies listed under the Internet of Things to provide insight on the level of investment activity happening within the IoT.

Commenting on the study’s findings, Dr Sara Ghaemi, Avnet Abacus’s Technical Director, says:
“The amount of funding companies receive in any product category gives an indication of how investors view the future for that technology. Despite venture capital generally cooling off due to current economic conditions, the research reveals investor confidence is higher than ever for the long term prospects of companies developing products in the IoT.”

The average size of funding round (or deal size) for companies in the IoT reached $15.9m in 2022, the highest point in 19 years. Matching the global trend, American startups in the sector also saw the highest average deal size in 19 years at $16.2m.Meanwhile, European IoT companies drew in their highest average funding round ever at $16.7m.

The Industrial IoT also experienced a record year in 2022, where the average funding round reached $16.1m, more than double the average investment of $7.3m in 2021, and the highest since 2006 (a year in which there was only 1 deal on record).
To provide insights on the Industrial IoT, Avnet Abacus analysed crunchbase data for companies listed under both the Internet of Things and Industrial Automation.
Acquisitions of companies in IoT worldwide were at their second highest ever in 2022 with 116 companies snapped up, marginally down from the peak of 117 companies in 2021. In the United States, 48 IoT startups were purchased in 2022, down from an all-time high of 58 in 2021.
Europe fared even better than previous years with 41 acquisitions making 2022 the continent’s highest year ever for IoT exits.
In both 2018 and 2021, 5 companies in the Industrial IoT were acquired, while 2022 took that to new heights with 7 startups in the sector purchased last year.
While the total amount raised by IoT startups globally dropped from $5.6 billion in 2021 to $4.3 billion in 2022, the money invested in early stage startups was on the rise.
The investment into early stage IoT startups (those seeking funds in venture rounds A and B) reached the highest amount on record last year at $2.45 billion, up 12% from $2.19 billion the previous year.
Meanwhile, the total investment for late stage IoT ventures was $1.08B, down 54% from $2.36B in 2021, and 36% lower than 2020’s figure of $1.70B. Angel and seed investors in the IoT were also proceeding more cautiously last year, providing funds of $261m in 2022 compared to $404m in 2021.
When investing in later stage startups, venture capitalists are looking to make a return in the near future via an exit, when the company is either acquired or floated on the stock exchange. As startups approach these later stages, there is an expectation of a large payout, and company valuations increase as the anticipated payday approaches.
In the current economy, however, investors are less optimistic about short-term performance and are reluctant to invest at such high valuations. This has resulted in venture capitalists pulling back from these later stage investments.
Despite a huge decrease in the total amount of VC funds going into IoT companies last year, all of the reduction came from late stage ventures, with the average investment rising for early stage startups.

In the short-term, the economy might wobble, but in the long run, the IoT is inevitable, Tim Bassford, IoT specialist at Avnet Abacus comments:

“There is strong evidence pointing towards a future where we will have more and more connected devices, communicating wirelessly, and providing timely and relevant insights from these new sources of data. This provides great potential for companies to operate more efficiently and provide new value to customers, and as a result, the IoT will continue to grow.”
Dr Sara Ghaemi, Avnet Abacus’s Technical Director, adds:
“For years it seemed the IoT only existed in the words of market analysts, consultants and commentators, but we’ve now moved well beyond the hype with significant numbers of companies delivering real business value and venture capitalists putting their money behind them.
While the current economy is creating challenges for many startups, investors remain confident in the IoT and are placing larger sums than ever before in early-stage startups who are developing the connected products of the future.”

View the full research here.

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Dr Sara Ghaemi

Avnet Abacus

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Avnet Abacus
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