This week Swedish lock company Assa Abloy said it would buy August, the maker connected locks. I also found out that Immedia, the company that makes the Blink cameras and alarm system is also on the market. Blink didn’t respond to my inquiry about it being for sale.
Meanwhile, rumors are flying about a variety of companies including Canary, the maker of an all-in-one security device that generated headlines this month after it rolled back some features because they cost too much to provide. Canary’s CEO Adam Sager says the company is not for sale and has never been. Others floated Grid Connect, which offers a series of Wi-Fi connected sensors and switches through a subsidiary called ConnectSense. Adam Justice, a VP and GM at Grid Connect said the company is talking to strategic partners but is not formally for sale.
Several other startups popped up on the radar but I couldn’t confirm them with more than one person or see the book (a presentation for potential buyers) for the companies. Even so, there is clearly a reckoning in the connected device market. Two startups, Juicero and Hello, a company making a sleep tracker called the Sense, have shut down.
Several companies have already been sold this year, including Wink, iDevices, Stringify (to Comcast), Arrayent (to Prodea), Anova (to Electrolux) and Beddit (to Apple). Others like WigWag have switched from selling to consumers to selling to industrial clients (or are trying to).
This isn’t a surprise. One of my predictions about 2017 was that it would be the year of M&A for connected home companies. After raising fat rounds or getting their products out the door and trying to make a go of it, many companies are realizing that supporting consumer-grade hardware products takes resources that are hard to fund without deep pockets.
Meanwhile, venture firms have moved on to the more lucrative industrial internet of things (IIoT) opportunities. CB Insights, which tracks venture funding, noted that in 2017 funding slowed for smart home companies. Plus, a large portion of the funding was going to just a few companies that were raising later rounds. For example, Ring raised a $109 million round in January, while August announced a $25 million round in April.
As of June smart home companies had raised $188 million this year. The year before in 2016, they had raised $752 million across 92 deals, according to CB Insights data. However, on the industrial side companies in 2016 raised $2.2 billion in 321 deals. Industrial IoT is hot. Consumer is not.
One challenge that many connected home startups (and their investors) are discovering is that valuations are not tied to the sky-high numbers associated with acquirers like Google. When Google purchased Nest for $3.2 billion in 2014 it set off a frenzy of hope for big deals that haven’t come to pass.
One entrepreneur told me that instead of “Google money” companies are pitching established, old-line companies that make real products or offer services like security systems. Those companies aren’t as excited about revenue growth. They want to see high gross margins and deals that will be accretive to the their bottom lines. That’s hard to come by in Silicon Valley.
Another challenge is that many of the larger companies are looking at what startups have built and believe they can offer something similar without going through an acquisition. For example, next month Honeywell will launch an all-in-one security product reminiscent of Canary’s on Indiegogo. GE has a partnership with Indiegogo and an effort called FirstBuild to create connected consumer products that might find a market. One of the latest efforts from GE’s FirstBuild group is a line of bakeware that connects to a connected oven and tells people when a cheesecake or quiche is done. GE is also introducing algorithms to its ovens in 2018 to improve cooking–something a startup called June has pioneered.
For connected device companies, the squeeze is on. As for what we’ll see next year, my bet is those that are left will soon be competing on cost against giants and Chinese companies. It’s probably enough to make the smart money get out early. If they can.