The Internet of Things (IoT) revolution, now a decade old in India, promised to digitise factories and buildings, aiming to reduce their maintenance and energy costs. These expenses typically make up to 30 per cent of operational costs, making technology-driven scalable solutions for cost reduction a significant opportunity.

Over the past decade, numerous start-ups such as Ecolibrium Energy, Faclon Labs, Minion Labs, 75F, Zenatix Solutions, and Nebeskie Labs have utilised IoT and data analytics to offer asset maintenance and energy cost reduction solutions. However, very few have scaled up with revenues exceeding even ₹50 crore. Consequently, there’s a scarcity of venture-backed companies in this sector.

Yet, shifting industry dynamics, including a rebound in the manufacturing sector and mounting pressure to decarbonise factories and buildings, may provide IoT start-ups with fresh momentum for growth.

Industrial automation, commonly known as Industry 4.0, encompasses start-ups offering asset management solutions for commercial real estate buildings and factories by digitizing machinery and systems. They connect existing machinery with sensors to collect operational data on machinery, energy consumption, air and water quality, and other critical aspects.

This data is then analysed to provide insights on energy consumption and machinery health, enabling facility managers to take timely action. This approach is typically offered through the Software as a Service (SaaS) model, with start-ups being paid a portion of the savings accrued by clients.

However, these young companies have found it difficult to find the right customer segment. Industry 4.0 solutions are typically targeted at large commercial buildings and energy-intensive industries, who need a wide variety of solutions apart from energy efficiency, and hence prefer to either work with automation majors such as Schneider Electric, Honeywell, or with consulting companies. On the other hand, mid-sized companies are not keen to incur upfront expenses in sensors.

Avenues for growth

Despite these challenges, several factors indicate potential avenues for growth. For example, with reducing emissions becoming crucial, there’s a separate budget for energy savings, especially for large real estate companies pursuing green certifications. Additionally, there’s a surge in smart manufacturing, with aggregators such as Zetworks and outsourcing manufacturing to mid-size SMEs, potentially making digitalization more cost-efficient.

Start-ups are also working on reducing the upfront investment required by their clients in sensors and innovating on the business models. For example, Bangalore-based Clairco is proposing to manufacture its own sensors and offer energy efficiency as a service, thus eliminating the need for clients to make any investments in sensors.

Similarly, Hyderabad-based Zodhya went back to the drawing board to reduce the fixed investment needed to install its AI-based plug-in that optimizes energy efficiency.

Partnering with start-ups

Additionally, automation companies and facility management companies are partnering with start-ups to leverage their expertise and explore new markets. For example, 75F has raised investment from Siemens AG, and Zenatix Solutions has been acquired by Schneider Electric.

Recently, Panasonic India also started Panasonic Ignition, an accelerator program to identify start-ups that offer energy management solutions in commercial spaces. Similarly, facility management firm JLL runs Idea Labs, a program to identify and nurture start-ups who offer building management solutions.

Investors are taking note too. Recently, Pavestone VC invested in the Series A round of LivNSense, which offers IoT-based solutions to reduce GHG emissions of global companies in “hard-to-abate” sectors like cement and asphalts, metals, mining, heavy engineering, and Petro-chemical manufacturing industries.

Also, Accel Partners recently picked Industry 5.0 as a theme for its latest batch of Accel Atoms, a programme to nurture and fund early stage start-ups.

As such, there is reason for optimism for Indian IoT start-ups. Let us hope that this time, we see the emergence of a few large companies.

The writer is founder of FineTrain, a boutique investment bank for climate start-ups.