Edge computing-related security, smart cities investments a bright spot in cloudy VC outlook

The Q1 2020 report revealed that the share of venture capital deals involving emerging segments has plateaued at 50 percent – a respectable place, but it has been resting at this peak for four years. As a share of venture dollars placed, the “emerging areas” category has moved from sedately shadowing deal percentage to gyrating more sharply, showing influence from a number of outsized funding events.

Emerging Areas, Share of deals/investments (% of overall market)

(Source: PwC/CB Insights MoneyTree report Q1 2020)

Smart Cities highlights

Only one edge-related segment in the report grew both in the number of deals and overall investment – smart cities. That is interesting given the highly visible donnybrook going on over the proposed smart city project in Toronto.

Alphabet Inc. is the prime contractor in the project, via its Sidewalk Labs subsidiary, and the bungled job could give the Google brand its biggest product black eye since its first-generation smart glasses.

Still, 39 venture capital deals were signed for smart city technology in the first quarter, the highest mark reached since the second quarter of 2018.

Investment dollars planted in smart city ideas hit $1 billion. It was the third straight quarter of growth, but still off the $1.5 billion amassed in the third quarter of 2018.

The average of the period’s top five biggest deals was $141 million. The biggest haul was $462 million in a Series B round for autonomous-vehicle software maker Pony.ai.

AI highlights

Funding for artificial intelligence business plans was mixed. On the plus side, the amount of funding increased from the prior quarter even though the number of deals declined slightly.

Total money funneled to entrepreneurs rose to $4 billion during the quarter, which might mark renewed vigor for the segment. Venture partnerships almost doubled their investments in AI a year ago, when 2Q 2019 funding reached $5.6 billion compared to 1Q 2019.

The average of the top five deals was $303 million. Pony.ai was counted in this category for the report as well. It again was the top deal in dollar size. Cybersecurity startup Netskope Inc. was second, raising $340 million in a Series E+.

AI deal volume has been lolling between 137 (third quarter 2018) and 187 (second quarter 2019) for two years. They landed at 148 completed deals last quarter with no obvious upward momentum.

Cybersecurity highlights

Cybersecurity’s performance has closely followed that of AI.

Deal numbers have meandered in a very narrow range, with last quarter representing the bottom. Fifty-seven investments were made, compared to 68 the previous quarter. High water over the last two years was 80, reached in the second quarter of 2019.

Investment totals, like those of AI, look like apathetic waves, holding out wan hope that an upswing has begun.

Last quarter, $1.3 billion was invested. That compares to $1.1 billion and $1 billion for the two previous quarters, respectively. Fully $2.2 billion was plowed into business plans in the second quarter of 2019, the peak for the last two years.

Netskope, naturally, is in this category, and it topped the list of deal amounts with a $340M haul. Of the top five investments for the quarter, the average payday was $148.8 million. Netskope, as Edge Industry Review has noted, uses a distributed edge architecture to support its security services.

All of the deals counted in the first quarter were the culmination of months of preparation and negotiation, which is to say, they do not in a significant way reflect the impact of COVID-19’s economic devastation. It is anyone’s guess (at least outside of the oak-lined conference rooms of Sand Hill Road) what the second quarter will look like.

Article Topics

edge AI  |  edge computing  |  IoT  |  smart cities  |  venture capital