The Hardware Revolution
Early 2010, Wired editor-in-chief Chris Anderson highlighted a major shift both in the ecosystem and in the manufacturing sector in his article “In the next industrial revolution, atoms are the new bits”. Six years later, joining the hardware revolution has only gotten easier.
The hardware revolution has given birth to a more hardware-friendly environment
Tools like 3D printers or CAD programs, once only accessible and affordable to big companies, are now available to everyone. With the price of design and manufacturing tools dropping, prototyping costs have almost been reduced to zero. The maker mindset has also spread around the world: in just 10 years, the number of makerspaces has grown to almost 1,400 actives spaces, 14x the number from 2006. Even governments are getting involved. In May 2014, the White House launched Mayors Maker Challenge, a program designed to encourage local states to support hometown makers. To highlight their support, the White House also hosted the first ever White House Maker Faire just a month after.
In parallel, we’ve observed a rising number of hardware projects on crowdfunding platforms like Indiegogo and Kickstarter. In 2015, Matt Witheiler, at the time a General Partner at Flybridge Capital Partners, gathered some data for Techcrunch. A total of 128 hardware companies pre-sold nearly $70 million in products in Q1 2015, almost 35% of the total dollars hardware projects had raised since both platforms first launched over five years before.
To consumers, the idea of pre-ordering a device is becoming more common, enabling startups to get thousands of units pre-ordered directly on their own websites. In fact in 2015, Lily Robotics, an autonomous camera drone startup, obtained over 60,000 pre-orders for a total amount of $34 million. With the simplification and the adoption of e-commerce, individuals are now more than ever familiar with the idea of buying something online without having ever seen the product on a store’s shelf. But whether you choose to take pre-orders or go for a crowdfunding campaign, this will be just the first step of a long journey.
Thankfully, low-volume manufacturing has become more readily available and manufacturing is expanding globally. If building your own factory has become out of fashion (unless you’re Tesla), it’s because manufacturers are now ready to produce a small batch of a thousand units in exchange of higher margins. In just a few decades, outsourcing production has become the new paradigm for every hardware startup. With the opening and simplification of the supply chain, the time has come for a new industrial organizational model.
But even with major progress being made on the hardware front, the funding side of ecosystem as a whole has been pretty slow to grow in favor of hardware startups. Unlike software, a hardware startup requires significantly more precision to scale and be successful. With so many moving pieces like marketing, branding, distribution, manufacturing, supply chain and logistics (just to name a few) to think about, a hardware entrepreneur needs more than just incredible luck to make it big. Natural selection is a truth in this industry and you really need to have a perfect hand to win.
The entrepreneurial spirit is there, but the experience to scale is not
Scaling has remained the biggest challenge for hardware startups. We’ve seen amazing innovations come to life through the hardware revolution. Companies like Fitbit, Bluesmart or Flic have proven there is a demand for innovative ideas, but bringing an idea to reality is a totally different story. Projects like Coolest Cooler, Zano or Robot Dragonfly are what we can call scaling failures. Even when startups are able to ship their products, it’s often with significant delays. Nevertheless, these examples mustn’t hide the fact that every week hundreds of startups launch their ideas on crowdfunding platforms, many whom many are going on to raise significant amounts of money in presales. Yet, despite market validation and dollars in their pockets, whether they are successful remains to be seen.
As the ecosystem matures, scaling is eventually getting easier
Today, six years after Andersons’ Wired piece, the ecosystem has finally matured to a place where startups can actually find resources to scale.
Hardware can be capital intensive. Fortunately, investments in hardware and more especially in consumer electronics have gained momentum since 2007. Even if this bullish trend seems very paltry compared to investments in software, investors are now more inclined to invest in hardware. Well known venture capital firms such as Andreessen Horowitz, Khosla Ventures, Spark Capital and First Round count at least ten to fifteen hardware startups in their current portfolios. Between 2010 and 2015, the number of deals in consumer electronics has grown from 39 to 268 and the total amount of dollars VC firms have poured into consumer electronics startups has exploded from $273M to $1,389M.
If you want another proof of this trend, just take a look at YCombinator. Mostly known for its software unicorns like Dropbox or Stripe, the incubator is now getting more focused into hardware. Last year, they doubled when they went from 17 hardware startups in 2014 to 31 in 2015. Is hardware suddenly cool? In his 2012 “Hardware Renaissance” blog post, Paul Graham shared his point of view:
“It always was cool. Physical things are great. They just haven’t been as great a way to start a rapidly growing business as software. But that rule may not be permanent. It’s not even that old; it only dates from about 1990. Maybe the advantage of software will turn out to have been temporary. Hackers love to build hardware, and customers love to buy it. So if the ease of shipping hardware even approached the ease of shipping software, we’d see a lot more hardware startups.”
The growing number of programs focused on hardware startups is another trend that deserves to be highlighted: PCH Highway1 (US), Hardware.co (Germany), R/GA Accelerator (US), Buildit (Estonia), TechStars (US and Europe), Dragon Innovation (US), HAX (US), Lemnoslabs (US) Bolt (US), NEST VC / Infiniti (China) and of course StartupBootcamp (UK) are just among the many that have launched in the last decade.
In addition, the world’s leading manufacturers are finally willing to work with startups properly for scale. For example, Foxconn has opened an incubator dedicated to hardware startups. The manufacturer is also more involved in startup investments, and has already invested hundreds of millions of dollars across Asia.
E-commerce through Shopify, Squarespace, Celery or others, has finally caught on to allow startups to bypass traditional sales channels and go directly to consumers. Even retailers are now focused on finding a way to work with the rising stars of the hardware startups ecosystem: Amazon Launchpad, Target Open House and Brookstone Launch initiatives are just three examples.
Even if there are obstacles all along the way, recent big exits have demonstrated that there’s actually a potential prosperous path for hardware startups. Hardware can indeed generate high returns, and there are figures to prove it:
Hardware Club, an active player of the hardware revolution
But there’s still a lot of challenges for hardware startups. It’s why at Hardware Club we go even further by connecting hardware entrepreneurs together all around the world. We’re the first community-driven venture firm for hardware startups. We’re neither an accelerator or incubator: we’re a VC fund built on top of a private community and a platform for hardware startups. Our mission is to help our members scale globally by providing investment and support for manufacturing and distribution through our partnerships. We’ve already signed 100+ partnerships both with top manufacturers like Foxconn, Flex or Jabil, and top distributors like Best Buy, Amazon or Brookstone. We make finding the right partner easier and faster.
The starting point? Hardware entrepreneurs meet the same challenges, whether it concerns the sourcing of a manufacturing partner, the scaling of production, the go-to-market product launch, or the selection of strategic distribution partners, being a hardware entrepreneur can sometimes be especially tough and challenging. As Marc Andreessen famously said, “hardware is haaard, it’s called hardware for a reason”. So one could definitely sometimes feel lonely.
But with more than 175 startups from 27 countries in the club as of today, our members are never alone. They can ask each other for advice, connections and help. We also encourage them to share with the community exciting news like a new funding round, their next product launch or any cornerstone event. By pooling knowledge, experience, network and resources, our club members can learn and grow together. We strongly believe the whole is more than the sum of its parts.
To build this community, we select the most promising startups building innovative hardware technologies or products from all around the world. Some of our members include Bluesmart, Hyperloop, Nima, Narrative, Nanoleaf, Misfit, Lima or Canary. As a VC firm we also invest in some of our club members. A startup needs to be a club member to receive funding, however we do not invest in every startup. We’ve already invested in several of our members, including Lima, Prynt, Reach Robotics and Insensi to name a few. Hardware Club is stage, geography and sector agnostic, with offices in San Francisco, Paris and Taipei. If you’re a hardware startup and interested in joining the club, you can apply here.
We’re thrilled to join StartupBootcamp as partner for the first European based Connected Devices, Consumer & Industrial IoT accelerator! This focused program will definitely foster the hardware revolution. We look forward to meeting the next hardware entrepreneurs!
This article was originally published on the StartupBootcamp blog to celebrate our new partnership.
Special thanks to Barbara and Evan for their helpful feedback.
