The Internet of Things: An Update

Market Overview and Proprietary Financial Intelligence

Note: this is an adopted presentation of one delivered on April 14, 2014

Introduction

Internet of Things | April 14, 2014

SVB Analytics provides strategic advisory, research, and valuation services to the venture capital ecosystem.

In early-2013 we published a report on the Internet of Things. The following serves as a brief update a year later.

Original Report: http://www.svb.com/internet-of-things-2013-infographic/

Internet of Things | April 14, 2014

12,500,000,000Connected Devices

201020031998 2008

MIT coins “Internet of

Things”

IoT v1.0 500,000,000

Connected Devices

Apple launches iPhone

IoT v2.0 12,500,000,000

Connected Devices(mostly smartphones)

“Decade of Slow Progress”

Internet of (Some) Things v1.0

Internet of (More) Things v2.0

Rooted in the late-1990s, the Internet of Things is not new, however the latest iteration has been powered by the explosive growth of connectivity

Internet of Things | April 14, 2014

What’s Driving the Internet of Things?

Internet of Things

MOORE’S LAW

METCALFE’S LAW

BIG DATA ANALYTICS

Rapid decline in price & size of wireless sensors and compute resources

Proliferation of connected devices & adoption of wireless standards

Exploding volume of data creating need for actionable insights

Hardware advances and network effects

have been key accelerators, but big

data analytics capabilities have really propelled IoT version

2.0 forward

Internet of Things | April 14, 2014

The “Series A Crunch”

There are more angel/seed funded companies than institutional dollars available to continue to fund them.

Declining Venture Capital Investment

Venture Dollars Raised Fall 27% Below 15-Year Trailing MedianTomasz Tunguz July 22nd, 2012

“”

The “Series A Crunch”

Last year we predicted a Series A crunch as the number of seed-funded Internet of Things companies far exceeded the amount of funding that was

available—there were too many companies chasing too few dollars.

Internet of Things | April 14, 2014

The “Series A B Crunch?” Declining Venture Capital Investment

Venture Dollars Raised Fall 27% Below 15-Year Trailing MedianTomasz Tunguz July 22nd, 2012

Rising Crowdfunding Investment*

Instead, an explosion of crowdfunding filled the gap. It’s still unclear if this has fully filled the funding gap or just pushed things out to a Series B crunch. More importantly, crowdfunding now demonstrates a form of “crowdfiltering”, where consumers provide vetting of ideas early on.

There are more angel/seed funded companies than institutional dollars available to continue to fund them.

“”

Internet of Things | April 14, 2014

Fragmentation of Wireless Standards Industrial Internet Consortium (IIC)Launched by Cisco, AT&T, Intel, GE, & IBM – 3/27/2014

Challenges (Still) Facing IoT v 2.0

Though many challenges from a year ago still remain, industry is addressing these directly and progress has been made. One area that didn’t materialize was

consumer retrofitting, where adoption has been slow as consumers appear to be willing to wait for full replacement cycles before upgrading to “smart” devices.

Challenge Update

Power source limitations

Costs to retro-fit current generation ‘things’ and slow rate of replacement

Ultra-low-power circuits, Apple iBeacon & Bluetooth Low Energy (BLE)

Retrofitting consumer technologies will be transitional as horizontal is slow

Retrofitting industrial may accelerate through innovation due to higher replacement cost.

Internet of Things | April 14, 2014

Energy & Home Healthcare Enablement

Opportunities – Then and Today

Fastest-moving: proliferation has occurred in the

connected home

Up-and-coming: healthcare has seen

acceleration by reducing costs

Didn’t materialize: consumers slow to trade dumb devices

for smart ones

Internet of Things | April 14, 2014

Clear Use Cases Crowd-filtered Consumable Analytics

Smart CitiesEnergyAgriculture

RetailBuildingsBankingWaste Parking

Healthcare

The Next Perspective – Predictions

Compelling use cases will continue to languish without

clear business cases

Crowdfunding as “crowdfiltering” will

revolutionize the way products are brought

to market

Consumable analytics allows individuals to improve behavior

Internet of Everything

Internet of Things | April 14, 2014

Summary• Despite its enormous potential, there remain significant business and technical hurdles to

overcome for adoption of the “Internet of (Every)thing.” Until compelling use cases are translated into directly viable business cases, IoT adoption will proceed slowly.

• We predicted a Series A crunch that never came—instead a torrent of crowdfunding filled the gap, pushing many IoT companies into later stages. More importantly, this has served as a “pre-vetting” process, allowing market feedback before a product launch.

• Encouragingly, industry has responded to some of the biggest challenges—fragmented networks, power sources, and retro-fitting—in the last year, and progress has been made (though at times uneven– ie. consumer retro-fitting v. industrial adoption).

• In spite of these headwinds, significant opportunity exists. We continue to see the greatest opportunity in energy and home management, health care, and enablement technologies. The former two witnessed a strong year since our first report was published, though enablement on the consumer side has progressed more slowly.

• Looking ahead, we continue to see slower adoption of IoT until clearer business cases can be made. We also believe that crowdfunding will play an increasingly important role in IoTvalidation and vetting—representing an accelerant in the market. Finally, we expect to see a rise in consumable analytics that will drive IoT adoption by impacting real-time behavior.

SVB Analytics555 Mission Street, Suite 900San Francisco, California 94105800.760.9644 svb.com

This material, including without limitation the statistical information herein, is provided for informational purposes only. Thematerial is based in part upon information from third-party sources that we believe to be reliable, but which has not beenindependently verified by SVB Financial Group and, as such, we do not represent that the information is accurate or complete.The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment orother decisions. You should obtain relevant and specific professional advice before making any investment decision. Nothingrelating to the material should be construed as a solicitation or offer to acquire or dispose of any investment or transaction.

©2013 SVB Financial Group. All rights reserved. Member Federal Reserve System. SVB>, SVB>Find a way, SVB FinancialGroup, and Silicon Valley Bank are registered trademarks. SVB Analytics is a member of SVB Financial Group and a non-bankaffiliate of Silicon Valley Bank. Products and services offered by SVB Analytics are not FDIC insured and are not deposits or otherobligations of Silicon Valley Bank. SVB Analytics does not provide tax or legal advice. Please consult your tax or legal advisors forsuch guidance. Rev. 06-17-13