Who Invests in Hardware Startups? | Hacker News Reader

Who Invests in Hardware Startups?

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80 pointsroarden30 comments

Given that it's nice to see posts like this (disclaimer: I'm in one of those HW startups listed) I'm reminded of an old ASIC joke:

How do you make a small fortune? Take a large fortune and build a chip.

And I'm a startup hoping to disprove that joke, especially since I don't have the large fortune to help ;)

Very interesting, and I appreciate the inclusion of hardware discussion. I'm looking to compete in the Intel Curie challenge for an invention, but that is just one of my projects dreamt up over the past few years.

Unfortunately, for my most prized invention, I still feel the best avenue is to put my own capital at risk and secure the patent for myself. For all I know, this is the pragmatic path before seeking investment?

I've had a good consultation with a patent attorney specializing in such cases, and his fee appears reasonable, so unless I'm really off track here, I've always thought of that as Step 1...Step 2 being the Business Plan / Margins Caluclations...Step 3 being seeking partnerships / funding, and then Step 4 is getting to market and hopefully growing the business to the point of taking on a more limited role due to expansion requiring more company infrastructure.

Guidance very welcome, and thanks again for posting this for review.

I've started a hardware company before and went down the patent route. What we did, with success, was to file a provisional patent before raising money - which is far cheaper and less time consuming. That satisfied investor questions regarding IP protection and then we used investor money to file the actual patent itself.

Regarding your proposed step four - if you truly intend to have a limited role for yourself in the future, disclosing this to investors (as you should) might make fundraising more difficult. If you are the visionary behind the tech/company - they'll want to see your continued involvement.

Thank you for sharing your experience and thoughts, I truly appreciate the individual contribution. My understanding of the patent system is still limited, but I definitely follow the logic of How and Why your venture went with Provisional. The goal of IP protection has, without question, been my #1 priority and testing of patience.

Also, I appreciate your commenting on Step 4, and can clarify: From a lot of articles / testimonials through HN and other places, I've seen a lot of caution regarding "Trying to do everything / be everything / resist giving up control" in a Start Up environment. I'd love for my venture to breed more ventures long-term. As in, if I could be successful once I'd like to use that success to cautiously expand my portfolio (get back to work inventing things) and participate in business management on a prudent level. I certainly don't want to project a flighty here-today-gone-tomorrow type of attitude, because I wouldn't want to invest in such an approach either. Thus, a big thank you for noting the expectation within the field regarding ongoing involvement.

I think your step 2 should be the first thing you do. What's the point of spending money if you don't know you can make it back? A business plan is part of initial product development.

Fair point, and constructive as well. My thinking, re: splitting into Step 1 and 2 in this case, alludes to wanting IP protection first and foremost, then conducting research and running numbers and models to establish the financial and production metrics that might be appealing. From there, present the full business case and protected IP to potential investors.

The Patent Attorney said something like what you said as well - the purpose is generally to make money, not have a fancy thing to hang on the wall - so taking the time, effort and cash to invest in it personally should be a serious venture...not like throwing good money after bad, but as an affirmation that it's worth pursuing for my own purposes, and in theory, to make a nice pile of money in recognition of coming up with something of merit to customers. I hope this reasoning makes some sense, and I do very much appreciate your postulation.

As the founder of one of the hardware focused firms listed (ROOT/VENTURES -- http://root.vc) I couldn't be happier that the crew at bolt.io wrote this article. I'm also a huge fan of HN, so if anyone has specific questions to ask about the VC approach to hardware, lets hear em.

Hi there, I've been active in my own thread asking a couple questions relating to a consumer device that I wish to pursue. It's one of several things I've worked on, so I'd like to use this opportunity to toss out a question of sorts:

For one project, an influence has been the Bloomberg Terminal. The concept relates to aggregating large amounts of publicly accessible data, using a proprietary system of sorting and arranging, and then present the customer with a batch (folder?) of useful information relating to their business pursuits. It's kind of like a business intelligence / lead generation platform, but that's simplistic and misses the value of the concept.

Now, how this relates to hardware! As a musician I'm very familiar with the iLok USB-key concept used for certain software suites (some of which have gone cloud-based). This also gets back to the Bloomberg Terminal. Would pursuing a "Subscription Service Requiring Desktop Box/Key" type design be an initial Negative or Positive?

I do feel like this isn't exactly a hardware question, but with the amount of data and investment that would be involved to build the system in mind, having a physical, subscription component seems practical. I suppose that's about the extent I can describe at this point without getting explicit about how it works, what it works with, and who the target audience is/will be. My apology if it came out as a bunch of jibberish. Please feel free to ask for clarification or point out examples similar or drastically different. Thank you for your time!

Ok. I think I understand. I'm gonna step right out there and show my bias. I absolutely HATE the iLok. I bought myself a laser cutter for my wedding (she got a ring, i got a 90watt), and it came with an iLok for the horrible software that the chinese company built. It just takes up a USB port i could otherwise use.

That being said, its a great tool for very big, old software companies that have to protect from pirating.

I think that you have an entirely different play at hand. Because you are building a platform, you dont care if people pirate. What you just want to be sure of is that people aren't sharing logins. Soooo....just make the logins tie to personal info. Back in the day, when I used to send sensitive PDFs, I would just make the password on the PDF the recipients last 4 of their SSN. I could basically guarantee they wouldnt send the PDF around. The equivalent in your situation is to use Oauth with something like LinkedIn or Google. For the users to share your account, they would need to create an fake LinkedIn or Google account...and if you system is all about lead generation, that becomes crippling.

Overall, i dont care about iLok vs another form of protection. For me, the most important thing you are thinking about is can you create an amazing amount of value for your customer. Can you get them hooked, and improve their (business) life. If you can, then you can put a dollar amount on that improvement. I used Bloomberg terminals many moons ago, and it was not the best software in the world, but the data was immensely valuable. So we paid.

Good luck!

Great response and thanks for your time and input. You're not stepping on my toes noting a dislike of the iLok - it actually finished off my interest in ProTools and sent me deep into Ableton Live years ago. I think you definitely grasp what I'm going for in concept, and parlayed that into useful guidance.

As you mentioned about Bloomberg, it's the data that's primarily of value, and from what I've experienced, the communications platform limited access via other terminals are two driving factors for why they're used.

Your point about value to the customer is good for me to keep in mind. The whole idea I have is an intersection of publicly available financial information, marketing, government business, and with a scope of service that would span over several months to possibly more than a year. It could be enhanced by arragements for data sharing with certain established industry players (ex: Thomson Reuters). I'm reluctant to call it an SaaS platform, but maybe I should just frame it as such for practical reasons.

On a different note, how interested would you be in a concept for a recreational personal flight device?

It's what I'm going to submit for the Intel Curie contest, but that's like a TV show thing and could go sideways on me. I'm pretty proud of my R&D thus far on the concept and would probably like the challenge of putting together a pitch for it (that I could also use in my contest entry). Just curious!

ill give you a great quote on building planes (or human carrier drones).

"When failure is not an option, success becomes very expensive" -chris lewicki

Ben wrote about Kickstarter traction != product-market fit. What're your thoughts on this? What would you want to see from a startup that has a somewhat successful crowdfund campaign before you would invest?

I agree that its not a forgone conclusion that kickstarter traction == product market fit....but if your KS campaign is well executed, it could be. Essentially, i see KS as much more of a community builder and low cost testing grounds for market development. A really great KS campaign can tell a great story of audience discovery through advertising purchases. For example, when we launch Spark (now Particle), we thought it would be hardware hobbyists. After looking through the list of backers, we found out that it was actually professional engineers, looking for a good wifi solution for prototyping. Had we focused on shipping before talking with our audience, we would have put our energy into the wrong place. With Prynt for example, we found a specific demographic (young female) was the best click thru we had...this changed our collateral and retail conversations.

Then there is the question of what qualifies as a "successful campaign"? If you sell your product at a loss (I can point to some examples) and sell over a million, i dont know if i consider that a success. Whereas, Particle has done multiple 600k plus campaigns. For a consumer product that might be OK, but for a developer kit, that represents a massive amount of LTV.

All in all, i would say that I dont invest entirely based on a kickstarter campaign (and most often commit before the campaign happens) but the more data the better, and the more action the team has done, the better to learn their behaviors.

People who didn't already lose a ton of money doing it before... rimshot

Not all hardware start ups are failures. Its like most start ups. Most of them fail or manage to break even. A couple though blow up and that's what continues to drive people to invest.

Quite a few hardware startups have gained a (sometimes large) portion of their series-A funding through Kickstarter or similar platforms.

Could you provide a single example of a successful hardware Kickstarter that has made it to production without a VC series-A?

Formlabs shipped their first printers before VC money I believe. Wikipedia tells me they've since taken $19M more via traditional channels.

Not exactly. We raised a seed round of $1.8m a little less than 1 year before the Kickstarter. We probably could have built and shipped the product off of the crowdfunding proceeds, but we couldn't have had such a successful crowdfunding campaign without spending some of that money to design the product and market it well.

Define "successful hardware Kickstarter". There's more than just the ones you hear about because they raised millions. The vast majority of hardware Kickstarters get shipped without additional funding.

Kilpatrick Audio (http://www.kilpatrickaudio.com/) did a Kickstarter for their Phenol patchable analog synthesizer, which I believe is now generally available for order.

Particle.io It used to be called Spark Devices. They successfully shipped the spark core, then Root Ventures led their series A (we were called Lion Wells back then)....i know, so many name changes!

As a hardware investor (founder of Root Ventures, mentioned in the article), I'd be careful to differentiate between funds raised from investment vs kickstarter or crowdfunding. At the most basic level, $'s raised via kickstarter should sit on your balance sheet as a liability. There is an expectation that you will deliver product equaling the amount you raised. Of course there are margins baked into the product price, but VC money is truly there for business development. We have invested in several very successful companies who have had millions of dollars in successful campaigns on kickstarter. Each and every time, the KS money is earmarked for delivering the promised product (tooling, Mfg, shipping), while the VC money is used to build a company (recruiting, office space, salaries, travel).

What stage do you typically invest at? pre-Kickstarter? post-Kickstarter? pre-manufacturing prototype? Working prototype? How about hardware startup accelerators, how should a startup choose between talking a VC or an accelerator and at what stage?

Ok. I'm gonna try some stream of consciousness answering...

I always need to see someone having done some difficult technical development. As an engineer myself, it makes my job so much more fun (i do code/design review with every startup i invest in!). Seeing a team build a prototype shows another level of commitment. I've built hardware, so i know how much more time/effort/money it takes over a software wireframe...It also minimizes one of the risks of the startup. Can the team build what they say they can build? I see 3 primary risks of building a startup; technical, team, and market. My goal is to invest when as many of those are solved, but completely understanding that because i am a seed stage investor, will never see all 3 de-risked before i invest. Some of my investments were during a kickstarter (Prynt and Particle fka Spark.io) Others I invested pre-kickstarter (Shaper -- shapertools.com) And others are not meant for crowdfunding (Plethora, Momentum Machines)

The question of an accelerator vs going direct to VC is a different story. I see accelerators helping a tremendous amount with first time hardware entrepreneurs...and since the hardware startup space is so new, thats almost everyone! However, there are experienced hardware founders, and I have definitely invested in teams that have not gone through accelerators (Plethora -- seasoned entrepreneurs, DFX Machina -- Senior ex-Apple founders)

Overall, its never to early to speak with a VC or accelerator. We are here to support the ecosystem. That means inspiring potential founders to go for it, and help educate those inspired to take the rights steps, and avoid the mistakes of others.

We make it easy to find us for a reason!!!

> Seeing a team build a prototype shows another level of commitment. I've built hardware, so i know how much more time/effort/money it takes over a software wireframe...

A wireframe is not the same as a hardware prototype. The similar analogy would be a functioning product, which in software is also difficult to do well. Functioning means it solves a need better than existing solutions, which requires research, experience, insight, and technical knowhow.

Furthermore, building a functioning software product that is well-engineered to scale (as opposed to a hacked out MVP) is, in my personal experience, rare. Very few "engineers" are able to.

I agree. Perhaps using wireframes was not the best analogy. I studied computer science and spent quite a few years as a developer, both inheriting code bases, and building my own, so i do appreciate code thats built to scale! (though to be honest, mine rarely was...)

Some VCs do not recommend companies to go thru the crowdfunding route early on because of the distraction involved. I wonder if you would share your thoughts on what kind of companies should or should not try crowdfunding.

Er, what's the data source?

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