Top 3 Hardware Investment Trends in 2017
Investment trends that hardware entrepreneurs need to know to attract investment dollars this year.
PHOTO CREDIT: Getty Images
I recently sat down with Chris Quintero of Bolt.io, a leading early stage hardware VC, to discuss the state of hardware investing in 2017. This year has seen it's share of hardware successes and failures and hardware startup funding is continuing to grow rapidly.
Here's an overview of the top three hardware investment trends that is really a sneak peek into the upcoming annual hardware investing report you can find in the next few days on the Bolt.io blog.
Trend 1: Hardware Investment is Growing
According to Quintero's research, growth is happening everywhere since the hardware investment spike in 2015. However, he's quick to point out that this growth is regional to San Francisco, the area responsible for 80% of the hardware investment growth over the past year.
The majority of hardware investing is happening for companies in the $1M to $500M revenue mark, showing that most hardware investors do not have an appetite for early stage investments. Even so, early stage startups should not be discouraged as there has been growth even in sub-$1M revenue companies (albeit with the vast majority of dollars going to the later stage companies). This explains the next trend we're seeing in the hardware investment landscape.
Trend 2: Investment Dollars for Growth, Not Development
Quintero explained how long ago software startups raised millions of dollars to hire teams, buy servers and develop software - but now that software is so cheap to develop, investors started funding growth rather than development. Now we are seeing this trend moving into hardware investing.
Quintero added, "Creation has been democratized, and investors are investing in growth - not product development". He's quick to point out advancements and cost drops in rapid prototyping (such as 3D printing) have brought hardware development from the exclusive corporate labs to garages all over the world.
These cost drops have resulted in an expectation by investors that the core technology has already been developed and proven before investing money. Like software, hardware startups are now expected to bring near market-ready prototypes to investment meetings - preferably with customer pre-order revenue already on the books!
It is beyond difficult to achieve, but hardware entrepreneurs are doing it every day.
Trend 3: Don't Raise Too Much Too Early
Nearly every time I've spoken to Quintero since we met a few years ago, I've heard him warn me or others about raising too much too early. Like most hardware company founders, I find this difficult to process because we feel like there's never enough budget to do what we really want to do.
However, this time he explained this concept to me in a way that finally clicked.
Quintero explained that "product development under constraints yields better products". As soon as he said this, so many memories flashed through my head at once that brought it all together for me.
First, nearly anything in the world is done better under constraints - art under constraints yields better art. I also remembered a company called Skully that was raising money on Indiegogo at the exact same time as my company. We raised less than 3% of their multi-million dollar campaign payout, but they were out of business a year later after spending $18M+ and not delivering to a single customer.
Quintero also pointed out the fact that public companies with multi-million and sometimes billion dollar budgets develop products - and most of them fail. Therefore, don't make the excuse or mistake of believing that vast resources predicts success.
Bonus: A Note for Hardware Entrepreneurs
As a hardware entrepreneur myself, I asked Quintero to elaborate further on the concept of developing products without a massive pre-product investment. More specifically - how could you possibly blame failure on having too much money?
He explained how having too much money in the beginning makes you make choices that you wouldn't otherwise make. Perhaps you raised so much money that made you need to swing for the fences of winning over a mass market (to pay back your investor's desired multiples) versus crushing it with a large niche - like Juicero for example.
Or maybe you had the budget to hire famous consultants or outside designers that didn't understand your product or market, and developed something that had to be re-designed the minute you went to market. Or maybe they didn't develop anything at all, and simply delivered some beautiful product renderings. I've heard horror stories of both of these situations happening to entrepreneurs I personally know, yet I never put it together that good choice or bad choice - it simply wouldn't have happened if they hadn't raised that multi-million dollar seed raise.
Whenever you feel like a small fish in a big pond and the odds are stacked against you, remember that two guys in a bicycle shop beat well funded companies to discover flight. And remember that the free tools to fuel your success have never been more numerous. Between Youtube, Google, Wolfram Alpha and a 3D printer/computer at your local library or makerspace - anyone with heart and energy can develop the product of their dreams.