Internet of Things (IoT) is a highly hyped, new field which includes many different markets that share the idea of machines that communicate both with us and with other machines. It includes older technologies of Machine-to-Machine (M2M), mainly from the industrial world, as well as new solutions for smart houses, wearable gadgets and actually almost everything that surrounds us that can be made “smart” or “connected”.

The potential in IoT seems huge, as there are far more “things” than humans. It’s also exciting, as many new opportunities become possible as more “things” become connected, but the real situation is a bit different. Good old M2M may have been given a new name, but it is still nevertheless Enterprise business with huge players, and an Electrical Meter that reports its status automatically is an idea that has been with us for a long time. Other areas are sometimes so new, that the real value is not always clear.

From the perspective of small companies, IoT is a very interesting area. The good news is that it changes the way many markets are operating, presenting new opportunities. The other good news is that many large companies have started putting IoT at the center of their growth strategy, which means that there will be interested buyers for new businesses created in the IoT space. The not so good news is that in many cases, the ecosystem and the food chain are either not clear or very complex, making it difficult to get into the market or to make money.

Connected Cars

We at Carmel see IoT as an important part of our areas of investment. We have analyzed what can make sense for a young startup in this emerging market, and here are our conclusions (true as of the Fall of 2015). Just a note – outstanding companies are always welcome, even if they do not fit either of the categories below:

bullet-pink-20x10In terms of horizontal opportunities, we believe that software platforms, analytics solutions, security and potentially applications, probably make more sense than sensors and devices. As in many other markets, hardware is a tough case, because it often becomes commodity very quickly. But again, outstanding solutions are sometimes an exception, and Telit’s success with IoT platforms, is proof of this.

As for software, we believe there are amazing opportunities for innovative solutions based on deep technology, which is something that Israeli startups are good at.

bullet-pink-20x10As for Verticals, the market will start probably with Enterprise solutions, such as industrial, automotive and utilities. This also fits well with some of the technologies available in Israel. One example of recent success in this area is RedBend’s software distribution and management for the automotive industry. Smart homes and wearables seem less attractive for now, as go-to-market and business models are not really clear. Still, the potential is big, and the market is still in its infancy.

The fact that we are close to closing our first investment in IoT at Carmel (and as usual we are in love with our companies), is an indication that this is an area that really interest us. We believe that more great companies can be created here in Israel in the IoT space and we’re looking forward to helping them grow and succeed.

IoT - Consumer examplesPhoto Credits: Seebo, Getty Images & iStockphoto