the old saw in Silicon Valley is that venture capitalists won’t touch hardware investments. It’s not because they hate gadgets and machines, it’s that the cost of launching a hardware startup is much higher compared to the price of coding a new piece of software. Not only do you have to build it, but you also have to find the shelf space (virtual or not) to sell it. All of that adds up to a risk that most investors don’t want to face.
If you ask Jeremy Conrad, co-founder of hardware incubator Lemnos Labs, he’ll tell you those notions are outdated. “Venture capitalists are starting to look at radically different companies than they used to because the cost of launching a hardware startup has gone down,” he says. Conrad hosted the Hardware 2.0 conference in San Francisco, where investors, startup founders and others in the hardware space challenged the notion that it’s impossible to fund hardware startups.
Venture capitalists are a little less optimistic. Trae Vassallo, a partner at Kleiner Perkins, says it’s still difficult to get venture capitalists interested in hardware. “The hardware is hard.” Vassal says. “So when there’s an easier way to make money, like software, venture capitalists flock to companies that are taking an easier path.”
But the hardware is also getting simpler, Conrad says. Thanks to rapid prototyping and cheaper, high-powered computers that can run simulations on your device, getting a product ready for market is cheaper than ever, Conrad says. Yes, you still need to find a way to sell it, but the overall cost of launching a hardware startup, whether you’re trying to sell a device or build a new robotic drone, is falling.
“You would be surprised how little money startups spend here. [at Lemnos Labs] “We’ve needed to design and prototype their products,” says Cheryl Kellond, co-founder of the team behind the Bia sports watch. Kellond credits the rise of more available and cheaper 3D printing for helping keep costs down when designing the Bia.
Explaining why most of Sand Hill Road doesn’t invest in hardware, Vassallo points out that there are very few venture capitalists who have experience manufacturing and selling hardware, as most started their careers in science or software. They struggle to provide proper guidance to hardware founders because they’re unfamiliar, he says. But that’s exactly where seed investors are taking over, because they have the experience or are more willing to take risks, says Ash Patel, managing director at Morado Venture Partners.
