I was invited last week in Vienna to a gathering of hardware startups organized by SpeedInvest (an energetic VC within the area).
It was a full day workshop to share insights about hardware startup challenges, from prototyping to manufacturing and logistics. I gave a presentation about funding, followed by a discussion. As the event was below Chatham House Rule (~ off the record), I’ll only share some of what I offered.
We know Who Funds Hardware, But Not Why
Yow will discover lists of hardware investors and trends, but in some way it is like supplying you with a pair of skis and telling you “go that approach, actually quick, if one thing will get in your method, turn”. It reveals you the pieces however doesn’t inform you how to play the game.
The presentation I gave had 4 elements:
- Classic manner
- Reality
- Hacks
- End game
Mostly as a result of the sport just isn’t always what it appears to be.
Let’s get began.
The Classic Way
It’s the recommendation you hear in all places, and then some. I managed to condense it to five phrases beginning with “T” 🙂
Traction
This is real milestones, like technical demo, work-like-look-like prototype, buyer feedback, company pilots … Show you get things executed! It isn’t media protection, Youtube views and other vanity metric. Note that misguided buyer discovery may lead to undue confidence in the demand on your product. What i-Corps does actually works, just do that.
Team
Do you will have the experience or pedigree? (Sold a company? ex-Google? Industry? Stanford? Etc.).
Tech
Is it arduous to do? Defensible? (secret sauce rather than patents) Affordable?
Timing
Why now? Did something change available in the market or in tech enablers?
Target
You can’t convince folks. Just discover extra of those who consider. Or as I wish to repeat “if you need to change people, change people”. Particularly, avoid those that say “hardware is hard”.
So Traction, Team, Tech, Timing and Target.
All this is great, however the truth is harsher than that.
2. The truth
The game is rigged!
Well, probably not, but you’ll see what I mean.
Getting consideration is admittedly onerous, so VCs often rely on filters to deal with the circulate of calls for. A advisable startup gets instant consideration.
I couldn’t discover a clever alliteration nor an acronym this time, so bear with me.
Insiders
Numerous deals should not cold calls however finished via recommendations, and are by no means really “socialized” past the rapid community of founders. So VCs have the choice between highly advocate offers and … your deal. Tough!
Social proof
With the fitting labels and endorsements, VCs flock to a deal because it not only seems excessive potential however much less risky. It is smart that serial entrepreneurs have discovered one thing in previous ventures (founder is a career) and can largely make new mistakes.
Local
Let’s go to Silicon Valley for 2 weeks! There is a lot money there, you’ll haven’t any drawback finding some even when it’s from a second or third tier VC! Because it seems, it not often works. Why? Because you’ve gotten zero monitor report domestically, poor intros, maybe the improper authorized setup, and perhaps you don’t know the cultural codes. Most VCs don’t have a problem if you’re not in the Valley (it’s too expensive and onerous to recruit at early stage), however outside the U.S. is another story. Unless you have got excellent tech and U.S. prospects already, search for VCs locally for your first spherical. Yes, you might not get pretty much as good a deal, but you’ll waste much less time, and you’ll get a deal.
Cash move
With hardware, cash move is an issue. VCs hate to finance working capital. Should you scale with structurally detrimental cash move, you’ll simply scale the issue.
B2B
Consumer is generally out. Enterprise / Industry and Health Tech are in. Five years in the past HAX was investing in ~75% B2C, now it’s lower than 25%. Mostly because (1) Consumers are very value sensitive. $100? Better have Apple high quality! and (2) Most client products are “nice to have”, not “must haves”. There appear to be larger motivation for STEM, because it’s an investment in the way forward for kids.
But all hope will not be lost! I also listed a number of #hacks.
3. Hacks
My extensive vocabulary allowed me to seek out an unprecedented EIGHT hacks beginning with “C”. Coverage, Celebs, Cheap, Champion, Corps, Conditions, China, Crypto.
What is venture capital? definition and meaning …
www.businessdictionary.com › definition › venture-capital
Startup or growth equity capital or loan capital provided by private investors (the venture capitalists) or specialized financial institutions (development finance …
Coverage
Media is mostly a vanity metric, but it surely can assist. For those who don’t have “hardware porn” to showcase like a cyborg or a flying car, focus on human curiosity stories, humor or an exciting imaginative and prescient of the future. For extra ideas, learn the timeless presentation by Mike Butcher from TechCrunch.
Celebs
Engage with the fitting one and you’re golden. Think Beats and Dre. One startup was making a excessive-tech mike (which I bought on the spot as I’m contemplating podcasting) and stated a BBC announcer liked it. Done!
Cheap
Don’t starve but be frugal. This may make you much less dependent on outdoors funding. Some corporations in Illinois spend $1,000 per founder monthly. Others have relocated to Shenzhen till they ship. Now we have a number of corporations at HAX who are getting complicated merchandise to market with no other exterior VC funding (sometimes they use grants or win prizes, and begin selling POC or products to clients). Bootstrapping all the method to revenue! (and retaining 90% of their company)
Champion
You don’t have the network for heat intros? Find ONE angel who has it. Such person may help syndicate a deal.
Corps
Corporates can pay you for POCs or different. Some are considerate sufficient to be aware of your money circulate and pay early.
Conditions
Look at enhancing your money flow by reworking your contracts together with your suppliers, distributors and prospects. With some luck your shoppers pays you upfront and you’ll pay your manufacturing facility 60 days after supply and attain Cash Flow Nirvana. Factories might be your financial institution, and it’s non dilutive! Make sure to satisfy the homeowners, who are sometimes entrepreneurs, and make mates. If they can’t offer you adequate terms, take your (tiny) business elsewhere.
China
At HAX we’re big advocates of prototyping and manufacturing in China. Mostly due to Speed and Expertise (ask Tim Cook). And contrary to widespread perception you don’t want excessive volumes. Another thing for which China is great is investment. There’s more VC cash there than in U.S. since 2017, and many Chinese VCs are pleased to invest overseas (in USD) as they discover the deals cheaper than China (in addition they see more potential as they embody the Chinese market of their projections).
Crypto ;p
We haven’t discovered a way but, but when you’ll be able to have a blockchain angle, you’ll be capable to entry another class of buyers. In the mean time you greatest wager is to repaint your hardware firm as A.I., Machine Learning and even “behavioral analytics”. You’ll get more consideration. Many of our robotics and health tech startups are legit A.I. or ML companies. Maybe yours is too!
4. End Game
This is a little bit of a new topic, however if in case you have already raised a seed spherical or extra and are considering your subsequent spherical, it’s worth asking yourself whether or not an early exit just isn’t a greater possibility.
How a lot momentum do you will have?
What’s the true market potential?
Are situations changing?
Fortune favors the prepared and 90% of exits are M&A (CB Insights reported 3,358 complete tech exits in 2016 — 3,260 M&A, 98 IPOs — so M&As are 30x more frequent). Over 60% happening at series B or before so be aware of your asymptote & inflexion level.