Among all the excitement for the Internet of Things and the resurgence of hardware as an investable category, venture capitalists, many of whom new to the space, have been re-discovering the opportunities and challenges of working alongside entrepreneurs to build hardware companies. Combined with a rapid evolution of the venture financing path across categories over the last couple of years, the increasing importance of crowdfunding and a certain frothiness in the market, this leads to a certain confusion, as both entrepreneurs and VCs try to figure out the best way of financing and scaling hardware startups. Some patterns emerge, however: for example, VCs are mostly interested in opportunities that include a strong software and data component; and they are increasingly demanding when it comes to seeing the product actually shipping and gaining early traction.
3. FirstMark actively invests in the
Internet of Things and Hardware
Helium
San Francisco
Enterprise IoT platform
Sproutling
San Francisco
Connected devices for families
Kinsa
New York
Connected health
ROLI
London
Reinventing musical instruments
8. Hardware companies can be built
capital efficiently
Date
Created
2007 2005
2014
Revenue
$745mm $124mm
2014 Net
Income /
(Loss)
$132mm $(169)mm
Total
Amount
Raised
$66mm $563mm
Source: Capital IQ; Crunchbase; CB Insights
11. Today: many financing options
Friends
and
Family
Grants Incubator Seed
Presales
Venture
Debt
Series B
Pre-seed Angel List
Crowd-
funding
Mega
Series A
(up to
$40mm)
Series A
(incl.
“Straight
to A”)
12. We’re all trying to figure it out – a lot
is case-specific and in this hot market
everything is possible for the right
team/vision
Magic Leap
$592mm Series A / B
Pre-launch
13. A few things VCs have
(re-)discovered in the
last couple of years
14. Lost generation of hardware = many
new VCs learning the realities of
hardware investing
15. A recent history of hardware
investing
Great
expectations
2011 – 2014 (?)
Trough of
disillusionment
2014 – 2016 (?)
Cautious
optimism
2016 (?) –
Many new
firms and
partners!
Hard lessons
learned
16. Hardware is really, really hard
Product design…
Picking a CM…
Selecting
suppliers…
Quality control…
Product
distribution…
Retailer channel
management…
17. Shipping can take forever – and
there’s a HUGE difference between
pre-shipping and post-shipping
18. Crowdfunding is not a reliable
predictor of success
Sometimes only captures “techie” early
adopters
Many successful campaigns are run by
companies that are already VC funded and run
active PR / marketing campaigns
Shipping delays can cause crowdfunding to
backfire