When we first met the founders of DASH Systems, Inc, we were excited by the cool factor of a delivery-by-air anywhere company, and curious about the business opportunity to expand the market beyond the currently addressable market for air courier.

Joel Ifill, engineer, dad, & entrepreneur, had a dream to drop packages up to a half-ton out of the sky and land them within three feet of a target.He wanted to create warehouses in the sky to solve a lot of the “last mile” challenges in air cargo.

In early 2017, Joel showed us a video of a drone plane dropping a package in someone’s backyard (although that drone may or may not have crashed in that video). We were moved by Joel’s mission driven nature and his desire to take the industry expertise in guided missile defense systems and appropriate it for commercial applications. That’s the kind of #moregrit, #morekarma, #morehardware that moves us to action, and in September 2017, MiLA started working with the DASH team.

DASH stands for Direct Air SHipping. The team initially explored air shipping and logistics for the oil and gas industry. And then Hurricane Maria happened. Puerto Rico suffered major damage. Roads were closed across the island, and many towns were cut off from the aid supplies that were being delivered to airports (which are typically near the coastline). Joel jumped on a plane and started dropping packages to a sports field near these remote areas. For nearly a week, he successfully dropped supplies to people in need across Puerto Rico, getting full FAA clearance for Part 135, Part 107 and Part 91. He proved that he was able to perform what Google and Amazon drones can’t. Air drops are nothing new, but this was the first time the world saw a company using tech and data as a tool to improve accuracy.

Prior to DASH Shipping, Joel was a welder and fabricator all through college, and later worked as an engineer in aerospace, nuclear reactors, and luxury water fountains. And because this is Los Angeles, he also had an acting stint. The aerospace industry has advanced guided munitions technologies by leaps and bounds. There are laser guided bombs that can hit incredibly precise targets. Joel saw an opportunity to take some of this technology and use it for humanitarian purposes.

Maria was not the last hurricane that Joel visited. Over the past few years, we have seen the team hustle around the globe to bend the world to the DASH vision on unmanned urban and rural package delivery. Government agencies were excited to deliver packages in remote areas. DASH also found incredibly motivated customers in Alaska, where airplanes have a hard time landing due to ice and fog conditions. A grocery chain owner in Alaska told the team “Every day I think about the value of groceries I have to refund because they rot while waiting for transportation.” Weather delays is the status quo for Alaskans. To borrow a Steve Blanks-ism, DASH found a “hair on fire customer.”

DASH has quietly built out a community of advocates and interested partners and customers globally and the world may soon see DASH packages zooming across the sky. The engineering team continues to improve the delivery vehicle, working at breakneck speeds to advance some really hard technology.

If you want to join a company bringing about the future of logistics, check out the openings here.

Runways not needed — Why we invested in direct air shipping company DASH Systems was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

With a subject as diverse and complex as manufacturing, it’s easy for misinformation to spread. When one client develops a theory on why manufacturing has adopted a certain practice, it’s easy for that idea to be passed along down the line to other clients, regardless of how accurate it actually is. In some cases, these myths are harmless; in others, they may lead to major disagreements down the road if they aren’t corrected.

People often experiment with changes in manufacturing in an effort to save money, but without the right information, these choices can lead to sacrificing quality, as well as losing money and time. We want to spread accurate manufacturing information so that everyone, whether they are a client or a manufacturer, can understand one another. Everyone deserves to have a smooth, cooperative work experience with materials and methods that are designed to do the best work possible.

Economies of Scale in Hardware: Myth Busting

It is common knowledge that when you buy one item, that item will be more expensive than it would have been if you had purchased millions of the same thing on a per piece price. This seems like a fairly innocent assumption, especially because it applies to many other fields and not only manufacturing. The problem is that many hardware founders think this phenomenon applies to them regardless of their technical risk and size of production runs, and they make bad decisions on these bad assumptions. By breaking down a few of the common misunderstandings behind per piece pricing, we hope we can help people avoid these mistakes. You’ll be able to save money and have greater peace of mind all at once by using these valuable tips.

Myth 1) Equipment Utilization

Some founders think that they need to consume enough equipment to minimize waste, while also worrying about the capacity at a supplier — either contract manufacturer (CM) or joint design manufacturer (JDM) — and want to monopolize a line 24/7 to avoid this perceived threat. They feel like idle equipment is costing them money and needs to be amortized by as many units as possible. While there is a small truth to this, most manufacturing experts have moved away from tracking equipment utilization rates, and for good reason.

One thing that may surprise original equipment manufacturers is that nearly all CM/JDMs have more than enough capacity for any given job. In fact, it’s not uncommon for lines to run at 25% capacity as often as possible. If 25% sounds low, know that there is sound logic behind it. It may sound counterintuitive to work at less than capacity, but it will almost always work in your favor. By running at a lower total capacity, it is possible to enable both a single shift as well as a lane for expedited orders without overburdening the indirect labor. If a customer ever wants to pull in from one quarter to another, there is always the capacity to do so when the initial capacity starts off relatively low.

Working at less than 100% capacity won’t be a problem when you have competent people at the project’s helm. Manufacturers know the critical bottlenecks that can affect each line and can add people, equipment, or hours to that particular operation to meet the deadline, so an increase in demand won’t lead to a lack of product. During testing, these manufacturing lines can invest in automation of repetitive tasks to boost throughput. If there is global capacity, then any savvy contract manufacturer should be able to spend their way out of “capacity concerns.”

Naturally, factories can run at high initial capacity rates, even nearing 100%. However, there are inherent consequences to this strategy. With such a high capacity, a production team is required to work a very rigid schedule that does not allow for flexibility. When a job is taken from the line and the production schedule is changed, for example, equipment will inevitably go down for the changeover. As a result, a supply chain team will have to move hundreds of orders around. Running at 100% might sound like a reasonable goal, but getting there means sacrificing a lot of manufacturing’s freedom to adjust.

Any machine downtime is often welcomed by folks on the line because it allows for many to “sharpen the saw” and perform preventative maintenance. With preventative work, employees aren’t actively cranking out products, but what they are doing could save a significant amount of time and money in the future. If a small amount of preventative work here and there can keep machines running smoothly, it’s certainly worth those few compiled moments of work time.

Nearing 100% uptime is awesome if you are making millions of iPhones with a fairly predictable demand curve, but it’s not great for everyone else. Few manufacturing jobs are completely predictable all the time, and so few manufacturing plants will do well if its process, and its workers, are pushed to their upper limits.

If you decide to work through a factory that runs multiple shifts, you may notice shift variability playing a roll in both throughput and quality. The more manual a process is, the more likely that humans will undervalue or overvalue certain product attributes such as a discrepancy in solder from one document to another, or a chip that looks nearly identical to the one on the spec. To ensure strict shift consistency will require top tier management and quality talent in both communication skills as well as professional experience.

Key takeaway: don’t try to keep your equipment operating 100% of the time, even if the number sounds like the most efficient speed to work at. It’s often not the right metric, and can lead to mistakes and inflexibility down the line.

Myth 2) Bypassing Distributors

Can one get cheaper parts by bypassing a distributor? Today, more and more founders are taking control of their inventory and managing the process during the first production batch. Another current trend that has been taking place across the field is that many of these founders are eager to cut out their distributors margin once they hit scale. The idea may be appealing from a money-saving perspective, and it might give you the impression of a little additional freedom with one fewer party to work with, but anyone considering it should be sure to think through all the angles before they make any changes. There are benefits to working with distributors that you won’t have access to otherwise, and the small amount of money you’ll make up by cutting margins may not be worth it.

Working with a distributor like Digikey, Arrow, Avnet, Future, Mauser, or Newark, for example, can provide access to parts that are often hard to find regularly. This is because companies like those listed on the BOM generally do not want to talk to every new startup and go through the long process of comparing needs and understanding the processes of new companies. These companies and organizations want to focus on making the best products possible, and not spend time working with needy CTOs that are still toying with their breadboards. When you have a close relationship with your distributor, they can help hardware founders get access to the best chip makers in the globe. Even if you have to sacrifice some of your margin in order to get to this point, the resulting benefits will nearly always be worth it.

As you start to hit scale, smart hardware founders begin to ask their team to manage the CM/JDM relationship instead of the distributor relationship, which is a great idea if you’re looking for ways to save your company money. Manufacturers can often get better pricing, so it’s an option that is well worth your time to investigate. If you are comfortable with your suppliers and have a robust change management process, delegating this step often results in lower material costs at the manufacturer and a smaller supply chain team on your side.

Key takeaway: Don’t cut your distributor too early, as they can often do more for you than many people realize, particularly if your operation is fairly small. When your company finally hits $200M US in sales, maybe you should consider going direct. Until then, maintain a good relationship with your neighborhood distributor.

Myth 3) Dual Source

Dual source manufacturing means working with two suppliers to provide any product, material, or service. Given the state of pandemics like coronavirus COVID-19, there are benefits to diversifying your manufacturing, but, like anything else, there are variables and moving parts to consider. When you’re considering dual sourcing, it’s essential to have a deep understanding of what your company needs, and whether dual sourcing can meet those needs. Each company has different needs, and dual source manufacturing is a great example of a very specific opportunity to make a choice based on your specific organization.

Ask yourself: does it make sense to have a second source make parts for you on top of an original supplier? Having another source of materials can be a relief if you are unsure of your initial source, or have had difficulties working with them in the past. A second supplier can relieve some of this stress and help ensure you aren’t left scrambling at the last minute of production on the chance that your first supplier can’t meet your needs by the deadline. When you’ve only got one source, you’re essentially locked into that partner, which can be risky. Some suppliers may try to take advantage of this, knowing that many manufacturers want to avoid the hassle of finding a new supplier. If your primary manufacturing need is to have some flexibility and peace of mind in regards to where your materials are coming from, dual source manufacturing might be right for you and your team.

If you have a rock steady supplier who you trust to supply what you need, when you need it, dual source might make things unnecessarily complicated. It means that much more back and forth with another party, as well as payments, agreements, and other paperwork and red tape. It can also hurt your relationship with your primary supplier if they are aware that you are splitting your attention between two suppliers. You inherently won’t be able to give your supplier your full attention, and they may not bother to give you the quality of customer service that they could offer someone who works with them exclusively. If you are more interested in developing a deep relationship with a supplier, it may be a good idea to limit yourself to only one. The trick then, of course, is making sure that the supplier you’ve chosen meets your standards.

— — — — — — —

When you’re making hardware decisions, you always want to be sure you’re making choices that are right for your company. When you hear stories about why certain manufacturers do things in a certain way, check your sources. Particularly when it comes to the subject of money, stories are often thrown around without substantial support behind them. Make sure you do your research before making any long-lasting decisions! That said, there are plenty of manufacturing myths out there to avoid, but the majority of these recommendations and stories will vary company to company. Most companies won’t benefit from operating at 100% capacity, but maybe yours is one of a small percentage that will. Similarly, most manufacturing companies are an appropriate size to work with their local distributor, but maybe your company is clearing profits over $200 million.

These hardware myths can serve as great guides to promote critical thinking about what your company needs, but ultimately all of these factors are variable. When you know your company inside and out, you’ll not only be able to see through any myths that come your way, but you’ll know when your company’s needs are the exception to the general rule. When you always act in your company’s best interest, rather than following trends, your company will succeed.

Hardware Myths was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

Thesis Couture is building a fashion house with deep capabilities in design, engineering, and manufacturing without sacrificing style. The founder Dolly Singh is a strong, confident, intelligent leader. Over several meetings, conversations and through due diligence we discovered that she embodies the qualities we look for in an entrepreneur (e.g. curious, principled, creative, etc.). And that Thesis has the potential to realize their vision of becoming the “Nike” for Women.

Dolly has an eye for identifying talent and building high performing teams. She was formerly Head of Talent at both Oculus VR and SpaceX. The Thesis team has expertise in architecture, fashion, engineering and medicine. Dolly formed partnerships with prominent Italian shoemakers to reengineer the stiletto design and manufacturing process, which has not been done before for women shoes. Thesis’s limited edition Olympus One stiletto shipped to initial customers earlier this year.

Thesis is an active member of our community and has made introductions to prospective mentors. Likewise, MiLA will act as a sounding board on supply chain challenges and extend accelerator benefits to support growth and brand awareness.

We are fortunate to have been able to join Full Tilt Capital, Backstage Capital, BBG Ventures, Salesforce’s Marc Benioff, and SpaceX’s Tom Mueller in the Seed round.

We get it. Now when can I get my hands on the shoes?

Last week, Thesis opened up pre-orders for their first micro-collection (Thesis Couture Capsule One) and announced the opening of a Bridal Boutique.

We believe that this launch marks the beginning of a revolution in women’s luxury footwear; with Thesis LIFT Technology and a more approachable price point in the luxury category, women will no longer sacrifice comfort for beauty — we can now have both. Please follow these steps, to complete your reservation:
1) Go to ThesisCouture.com
2) Click on Shop, or on any one of the product images
3) During checkout you can also use a second code: C12018 for a $40 gift credit

Thesis Couture: Why a Hardware Fund Invested in Fashion Tech was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

After more than a year of planning, our first CEO Summit is happening this February in collaboration with six venture firms who care about founder wellness.

The idea for the summit started when we saw some of our portfolio companies stumble with issues that were neglected during the startup’s early days. As Brian Garrett (Crosscut) recently wrote, “many founders don’t address self-care until their ambition or their idea is affecting their health and well-being in real, sometimes irreversible ways.” It’s easy to procrastinate when you are pushing so hard for growth and your Series A. As one attendee told us, “Professional development is something that I’ve deprioritized to get my company to where it is today.”

There are a lot of mega conferences. This is not one of them. We capped attendees to 50 startups to increase the sense of a cohort, and made sure the founders were all at a similar stage. We opted for facilitated conversations instead of panels to drive engagement. We have lots of gaps for chilling out between sessions. And we targeted the content to be relevant. The speakers are powerful and will cover Executive Team Dynamics, Leadership Under Crisis, Board Best Practices, Setting and Scaling Culture, Beating Burnout, Recruiting Talent, and much more. There will be yoga and every attendee will receive 1:1 coaching. We have some incredible workshops on issues like Media Training and Happiness.

We decided to host the event over a weekend because every founder says they are too busy during the week. But we didn’t want founders to take time away from their families and plus ones. So we decided to make it a destination event that was family friendly. Hence Yosemite. Many founders are in SF and LA and Yosemite is equally convenient to them. More accurately, it is equally inconvenient to them as well, and to the folks coming from the East Coast and Europe. There are activities for all ages, and time to check out Yosemite National Park, make new friends, grind on a customer proposal, play with your family, or whatever else gives you joy.

If you are a founder energized by what we are building with the CEO Summit, then please join us or ask your VC firm to reach out us for discounted tickets. The event details can be found here:

CEO Summit Yosemite — A Weekend for Founder Wellness was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

We recognized that founders in this space were hungry for mentorship and industry-specific resources to grow beyond prototype stage, and we were fortunate to gather an incredible community of experts to meet those needs. We also created an independent entity Toolbox LA to provide a physical space for the Los Angeles hardware technology community to meet and exchange ideas.

In four years, we ran five accelerator cohorts and invested in 19 companies who have gone on to raise capital from venture, strategic and impact firms such as Fika, Lightspeed Ventures, Felicis, Backstage, Schneider Electric, and Finca. We are particularly proud of the fact that more than 50% of companies have a female founder, one third were led by female CEO, and nearly two thirds had a founder who immigrated to the US.

In 2019, we realized that it was time to evolve the Make in LA accelerator to better meet the needs of the founders we were committed to supporting. Increasingly, we are interacting with founders that have a stronger business foundation relative to what we have evaluated in the past. We feel confident that alternative models can be more effective at building venture scalable businesses. Therefore, we are pleased to introduce MiLA Capital, an investment fund providing turbocharged investments and dedicated to supporting local and global founders as they scale businesses creating “tech you can touch.” We’re delivering our decades of experience in hyperscale, hardware, manufacturing, and finance directly to our portfolio companies through technical and strategy sprints, targeted introductions to potential clients and investors, and frequent check-ins. Our roots as an accelerator will shine through in our investment strategy, as we will always remain focused on hand-in-hand operational partnerships with our founders.

MiLA Capital invests specifically in “tech you can touch” companies in agriculture and food tech, health and wellness, mobility and aerospace, automation, and clean tech. We write $100k to $1M checks in pre-seed and seed rounds. We actively seek to build a diverse portfolio, and currently work with 50% female founders and over 60% immigrant founders.

We are tremendously excited about our next chapter, and appreciate our mentor networks and community’s support as we evolve our platform to better support founders. We will continue to partner with Toolbox LA to maintain a thriving hardware technology ecosystem in Los Angeles.

Please reach out with any questions at MiLA.vc, and we look forward to seeing you around Toolbox LA very soon!

We are excited to announce our transition from Make in LA to MiLA Capital was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

When it comes to funding hardware, many businesses question two things. First of all, what exactly is a hardware company? And second, how big is the hardware industry — or is there even a hardware industry as most understand it? The answers to these questions may shape how businesses view hardware as a worthwhile investment.

MiLA Capital has and will continue to invest in hardware companies across a large spectrum of industries and specialties, but we are not a hardware fund. We simply fund hardware. What does this mean? Read on to learn about what hardware really is and what the “industry” is really all about.

What is a Hardware Company?

To understand what a hardware company is, we first have to define hardware. In broad terms, hardware is typically defined as any tangible item of technology. This can range from your basic computer or smartphone to technology used to keep a plane in the air (for example: think of well-regarded names like Boeing and Airbus and what they have done to help transform airplanes). Hardware makes up an astounding amount of sales and products, especially as technology advances. Hardware is expected to grow alongside all technology.

At MiLA, we understand that the hardware industry is not a tangible, specific set of products or businesses. Our teams background in manufacturing and aerospace means that we have had to deal with scaling supply chains, solving product development challenges, and managing growth with an eye on cash flows. It’s surprising how many investors discount the value of hardware when almost every business you can think of deals with some type of hardware; companies that are now a household name like Apple and Google as well as companies that stay behind the scenes. Even companies like Walmart, which over the years has worked to overhaul its approach to inventory management and customer experience, fits our criteria for a hardware company, and we hope to fund companies taking on challenges in those spaces.

At MiLA, we pride ourselves in embracing and funding hardware startups, often in their very earliest stages.

Types of Hardware Companies

As mentioned above, there are a lot of ideas about what qualifies as “hardware” and what doesn’t. Not all Venture Capital firms entertain as wide a definition of hardware as we do, but that means they are probably missing out on some incredible partnerships.

Some LPs have a desire to allocate to specific trending technologies or industries such as blockchain, synthetic biology, real estate technology, consumer technologies, and artificial intelligence. Yet hardware has overlaps in all of these industries. During a recent visit with LP, we debated what “hardware” could be. He was surprised to learn that we consider companies such as Peloton in the hardware bucket. This, of course, shocked us. After all, Peloton has hardware gross margins that are 44% higher than Apple, and their SaaS renewal rate is 80% higher than Apple. Why shouldn’t they be considered an exemplary hardware company?

It’s easy to get stuck thinking that “the” hardware companies simply manufacture laptops and smartphones. There is so much more to hardware than meets the eye. Other companies that might not immediately come to mind include Snap, Toyota, Amazon, Google, Facebook, Square, Uber, and Boeing.

It may be difficult to see what all of these companies have in common, but the bottom line is that they produce hardware in some form and they prioritize reaching consumers. Widening your perspective on what hardware companies can look like is the best way to be informed about the most prudent investments you can make.

Hardware Startups

What we are realizing is that when people talk about hardware startups they typically refer to seed stage companies that are trying to sell a product before they have made the product. Sometimes even before they made a prototype and they just have a proof of concept. Once a company has scale, they tend to lose the hardware moniker.

According to Muthu Singaram and Prathistha Jain from Entrepreneur.com, it is important to remember that a proof of concept and a prototype are two different things. Proof of concept means that innovators have a clear plan for their product and can prove that their plan will work. A prototype is a model of the end product, with clearer visuals and practical and some interactive elements. Singaram and Jain say clearly, “While a [Proof of Concept] shows that a product or feature can be developed, a prototype shows how it will be developed.”

All of this being said, it is important to recognize that a really solid and thorough Proof of Concept or prototype can be a great sign for a startup. Proof of Concept typically includes a realistic assessment of their product’s potential for reach and projected customer interest. According to George Deen from Forbes, this can even be more important for VC’s to see than the product itself. After all, a great product with no customers isn’t worth much investment.

Recognizing potential in a new hardware startup is a crucial part of choosing worthwhile investments. Startups with a high level of potential growth can be a great investment opportunity. Remember that in these early seed stages of a startup, proof of concept is a large element when it comes to assessing potential for growth.

How Big is the Hardware Industry?

Because hardware has such a broad definition, there is no reliable data on the exact size of the hardware industry. When it comes down to it, there are not many companies that do not overlap into the hardware industry. The few in that category, however, include banks, reinsurance, mortgage companies, and medical group companies.

There is no defined hardware market with comps. Hardware is a tool in a founders toolset. It is an expertise in our platform. It is a wonderful moat. But it is not a market. It is not even a strategy. No one has a good dataset on this because hardware is so broad when you define it as tangible things. If you as CB Insights, many of the companies we mentioned would not fit their definition of hardware.

Although it is impossible to come to a consensus on what makes up a hardware industry, breaking it down can give a small sense of just how large the industry is. If you consider the scope of the smartphone industry alone, the results are pretty staggering. Statista reports that 1.56 billion smartphones were sold worldwide in 2018 alone, creating a revenue of 522 billion USD.

These numbers have been steadily increasing since 2007, with no signs of slowing down. With these massive numbers representing smartphones alone, it is clear that the hardware industry as a whole takes up a significant portion of business in the worldwide economy.

The largest and most influential hardware companies are of course the usual suspects: think Apple, IBM, Samsung, and Hewlett-Packard. These companies offer products that allow people across multiple industries to store and share information efficiently and safely. However, just because they are the best known hardware companies does not mean that they alone define what makes a hardware company or what the industry entails.

Take the aerospace industry, for example. We have already touched upon how companies like Boeing and Airbus have shaped their respective industries. But most people don’t think of airplanes and aerospace technology when they think hardware. Furthermore, when we are talking about hardware in the aerospace industry, we don’t just mean the impressive technology that keeps planes in the sky. We also must acknowledge the hardware that keeps the plane itself structurally sound.

Consider, for example, the aerospace fastener. Fasteners unite two objects and ensure that they stay in place. As you can imagine, such hardware must be robust, durable, capable of withstanding even the harshest of conditions. What’s more, the aerospace industry as a whole continues to grow, as more and more people, organizations, and world governments opt for secure air travel and transportation. It only makes sense, then, that the hardware that helps this industry thrive will also evolve consistently.

How does MiLA Capital Fund Hardware?

Since hardware plays such a large part in our economy, it is important to know how to invest in hardware companies to benefit everyone involved. Many times, this means taking a risk and supporting a new startup. This gives you the opportunity to grow as the startup takes off, and incentivizes both parties to work in the interest of the other.

MiLA Capital is a high-touch Venture Capital firm in LA. This means we fund and support hardware startups in order to accelerate growth and contribute to the hardware industry at large. Hardware is just one tool in a startup’s toolset; it is not a market in and of itself. We understand that, and are one of the few companies that funds founders and entrepreneurs in their earliest stages.

With our incredible team of experts, mainly sourced through the Los Angeles hard tech ecosystem and Toolbox.LA, we are able to offer hands on, personal support for our startups. Some of our companies, like Rufus Labs, are hardware startups helping the broader “hardware” industry like DTC brands, logistics players, and retailers. We are proud that our startups cover a wide range of specialties and fields, and that 44% of our startups were founded by women.

We built Toolbox LA to be the epicenter of hardware entrepreneurship in California. Toolbox LA is a shared space, hosting a community of makers in the hardware industry. Your company can opt for a shared desk, a private dedicated desk, or your own private office, and Toolbox LA is also equipped with event spaces available for your use as part of our community. However, for the more adventurous founder, the facility has a makerspace/prototype lab as well as a wet lab, making it the perfect place for you to get started on your hardware.

Our Investment Strategy

Our investment strategy is to find hardware startups with high growth potential and support them as well as we can. We fund pre-seed, seed, and post-seed hardware, with checks ranging from $100k-$1M. In addition to funding, our strategy includes providing resources that allow founders to grow and thrive. These are sometimes done on site in week-long or multi-week sprints, or over weekly and monthly calls. This additional support is what sets us apart.

To summarize. We fund hardware. We are not a hardware fund. We fund companies that make hardware and founders seem to be drawn to that messaging (even though everyone funds hardware!). However, the term hardware fund is strange and misleading because there is no hardware industry.

We look for startups that have ideas that surprise and intrigue us, featuring bold and innovative technology. We are particularly interested in startups in mobility and aerospace, industry 4.0, food and agriculture innovations, medical diagnostics and through big data, clean tech innovations, and companies looking to opportunities in Latin America. We have the privilege of working with young entrepreneurs across many fields, all with one common feature: they are leaders who will change the world.

If you’re a hardware startup that fits, check out our resources or contact us. Remember, we value groundbreaking technology made by curious leaders with big ideas.

We Fund Hardware; We Are Not A Hardware Fund was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

No surprises here. #Vaping is not a "healthier cigarette." The long term effects are still TBD. https://t.co/0mCPLLdqa1

Someone has to clean up the mess made by vaping. Smoking was on the decline in high schools until Vaping not only rejuvenated the tobacco industry early adopters but extended their reach into middle schools. With Altria’s marketing muscle and much bigger retail footprint, says Gottlieb, Juul adoption could well erase a generation of gains in the fight against nicotine addiction. One in five people under 30 in the U.S. now vapes occasionally, and a growing percentage of those users are teenagers. We’ve heard from school administrators that students as young as 10 are having a hard time concentrating in class and are requesting breaks to get their nicotine fix. Schools are trying patches and gum but none of those products seem to be effective with vaping, in part because they do not satisfy both cravings (hand to mouth) and user-control of doses. Adults echo that concern and have told us that quitting apps are interesting but hard to adhere to on their own.

Then we met Josh Israel. His team at HAVA helps people battling nicotine addiction in a manner that is consistent with the behaviors the majority are used to: smoking as they please. Blending vaporizer with both feedback and accountability through their app, their product, the Hale, will automatically and gradually wean vapers off the substance.

Their patent-pending vaporizer pen design allows them to provide a consistent smoke experience while reducing nicotine intake over time. The company plans to go the FDA route in order to get this product prescribed to teenagers, as well as offer an over-the-counter option for adults.

The team is led by Josh Israel who moves at lightning speed, and has one exit under his belt. He has close relatives who have suffered from nicotine addiction and some have passed away. Prior to HAVA, Josh built and sold Thrill, an Indian dating platform that was acquired by Shaddi.com.

Cessation products have a CAGR of 2% while vaping has a CAGR of 20%! The market for smoking cessation product is large but can be larger with the right product executed well. The HAVA team’s approach to both regulatory and manufacturing passed our stress test. During diligence we had a chance to see Josh’s speed of execution and commitment to making HAVA a success.

We want every founder to think of us as their most helpful investor, and although HAVA is earlier than many of our direct investments, we had confidence that we could add value by bringing to him relevant portions of the Make in LA program. We have already assisted the HAVA team with introductions to technical talent and advisors, and look forward to continuing to be a supportive investor (perhaps his most supportive).

We were honored to be part of their oversubscribed $1M pre-seed round alongside Village Global. Next for HAVA: they’re testing their production-level prototype and beginning the regulatory process with preclinical testing.

Our 2019 investment will reverse the trend of one of the “hottest” startups of 2018 was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

Hardware startups have many seats on the bus and you need to fill those seats with the right people at the right time. If you are not a hardware person, it can be tempting to hire a Head of Hardware in your early days. There are some incredibly talented people with this title. We’ve noticed this trend with some of the CEOs of our portfolio companies and understand the allure. However, I am hesitant to recommend that they hire a Head of Hardware. In fact, it may be dangerous.

What is a Head of Hardware?

“Head of Hardware” can mean different things to different people. Their responsibilities may include many or all aspects of end-to-end hardware production and management. They could also manage R&D activities for hardware, evaluating product designs and performing quality and reliability tests. They may also oversee preparing the prototype for mass production, improving products for better yield and reliability, and coordinating and managing outside vendors and contract manufacturers.

Here’s how one company, Toast, described the role in a job posting for a Head of Hardware Product: “You’ll be a critical part of the product leadership team, working directly with the founders and executive leadership to define Toast product direction and drive execution.” Individual tasks include overseeing full lifecycle of product, new product introduction, supply chain, pricing and revenue, and full P&L. Plus strategy: “Articulate business case for hardware projects that will make an impact for our customers and measure/quantify success.”

In this case, a head of hardware is someone with a broad mix of skills and a lot of experience. That’s not so easy to find in a hurry, and while you are searching for the right person, the development clock is ticking. In the short term at least, you should first look at whether you already have some or all of the skills you require in your office. Early stage companies are always a little messy and roles will blur; you are still at the point where everyone is taking out the trash and answering the customer support line. Roles have not ossified and your team is leveling up their skills.

If you are executing with the right people on the bus, you may find that in the long term you do not need a layer in your organization chart dedicated to hardware strategy. Some companies include hardware as a tool across multiple strategies and your company may be better served by topgrading a seat or two on the bus.

In most startups, there are several team members whose skills may overlap with those of a Head of Hardware:

Chief Operating Officer — If your operations are mostly hardware related, then the COO is the person in charge of scaling your business. They know how to oversee the many facets of logistics and operations involved in the development, manufacturing, and shipping of your products.

Chief Technology Officer — If your technology is mostly hardware related, then the CTO is the person who drives your product vision and develops and prototypes your technologies and products, including advanced technology research and testing.

Head of Product — If your product is mostly hardware related, then the Head of Product is the person who leads the cross-functional team that will build, market, sell, and support your product. They are the customer and market expert, bringing together insights and skills in business management, user experience, and technology.

At the risk of stating the obvious, you wouldn’t want to commit too soon to the cost of a head of human resources or marketing. A head of hardware also seems like an odd seat on the bus at any company; while Apple, Google, Xerox, and IBM have the role, other companies like Ford, Boeing, and Medtronic do not appear to have the role. Before you hire a Head of Hardware, carefully review your existing team’s experience and capabilities as you may already have hardware development covered without making an additional hire.

Map Your Gaps

At MiLA Capital and Make in LA, we coach founding teams early on to map the roles that they need to build and manage their hardware. Then place on the map the names of all the people on your team already who are most suited for those roles. This approach is best articulated by Michael Gerber in The E-Myth Revisited. We see that the founding team bring certain strengths to the company but even their roles evolve. They are often doing multiple roles in the early days but when the right person walks in and says “I can take this off your plate,” it almost always creates a net positive for the business. There is no one-size-fits-all answer when deciding how to structure roles and responsibilities for a company.

When you dissect the various business functions that might cover hardware, you often find that different companies have different duties and reports for a Head of Hardware based on what jobs need to be done. These job roles may include:

Manufacturing — The operations, engineering, product, or hardware departments may have ownership for getting products built.

Supply Chain — Responsibility for the supply chain and the complex logistics of sourcing materials and delivering products to market can be part of operations, product management, hardware or engineering departments.

Engineering — The engineering team brings together the functional disciplines needed to build the product. Engineering can be a separate department responsible for other teams like product, or it may be owned by the hardware, product, operations, or technology departments.

Quality Assurance — The responsibility for ensuring that products meet specified requirements via QA processes and teams may be owned by the Head of Hardware, but may also be part of operations, technology, product management or engineering.

Product P&L — Depending upon the number and complexity of products, the product P&L may be owned by the Head of Hardware or by a product or business group. This may even include cash flow management.

Clearly a Head of Hardware is seen as a leader with hands-on technical and validation experience across specialties, someone who can take products from concept to high-volume manufacturing.

With so much fluidity in hardware roles, it is dangerous to assume that only a Head of Hardware will be able to fill a lot of your empty seats. That’s why, for many founding teams, I am skeptical that the best way forward is to hire a Head of Hardware. Our recommendation: identify and fill specific gaps on your team and wait for the the magical Head of Hardware that will make you stronger, not the one that allows you to abdicate your opportunity to build a world class team (that includes hardware talent).

Hold that Seat: You May Not Need a Head of Hardware was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

I want to suggest to my VC peers that funding inventory can be a good thing. Let’s look at a potential scenario.

Example 1: Should A VC Fund A Small Seed Extension

A hardware startup raises a $750k round to finalize design and pay for tooling and inventory. They have $100,000 in orders to ship to early adopters and are looking for an additional $300,000 to produce extra inventory. Margins are 50% and the company can activate a SAAS model that generates the equivalent of 1 unit in revenue over 24 months. To simplify the math, let’s assume that customer acquisition and operating expenses are negligible, inventory converts to revenue in 1 month, SaaS has 0% attrition, and hardware has no returns.

Should a VC fund this? The accepted VC wisdom says the margins are too small, early backers are too few, the additional money will dilute the founder, and SaaS revenue is too early. It is easy for those VCs to pass, and we think they are missing out.

A founder can convert that investment into $150,000 cash and start to live off the SaaS revenue, reaching $3 million sales in two years by recycling cash flow every 3 months into a new purchase order, as illustrated below:

We could factor back some of those assumptions where cash will be burned quickly, but in isolation you can start to see the case where paying for inventory is a good thing. At MiLA Capital, we see founders like this all the time and we plan to write bigger checks to help founders get to escape velocity.

Example 2: Should A VC Fund A Post Seed Sized Check In The Same Company

Hypothetically, what if the investor gave the founder even more money for inventory? The company is at $3M in sales at the end of year 1 and $10M in year 2.

So What Does This Mean?

In the past month, we have spoken with many startups who have strong demand for their products. They have been focused on production and demonstrated an ability to sell. They hustled to get to where they are today and their customers want them to succeed. They have factories waiting for the next order, but not enough cash to fund that order.

The next time you are a participant, or spectator, in a situation where an investor does not wish to pay for inventory, we hope you speak up. Remind the investor that not all inventory is created equally. A strong cash pile for inventory may be just the thing to get a company with strong product market fit past the death-by-cash flow.

Why Venture Investors Need To Start Paying For Inventory was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.

One thing that founders keep asking us for is a simple roadmap or checklist so that they are not forgetting anything important. And for years we pushed back. We didn’t think that we could create one. The NEO Tech checklist is nearly 20 pages! Something that long may be appropriate for an X-Band Precision Approach Radar but may not be relevant to the maker taking her IoT device off of the breadboard for the first time. How do you take something as complicated as manufacturing and create simple rules that apply equally to rockets and to high heel shoes?

We pushed our team to simplify EVERYTHING down to a single sheet of paper. And we made it (double sided counts)!

Enjoy! We hope we have found the right balance between depth and breadth.

The checklist would not exist without the help of a few key friends. We wish to thank Manuel Camarena (former Beats and DAQRI manufacturing executive), Martin Dalgaard (Bluefish), Michael Corr (Duro Labs), Sebastian Jeschko (Brinc), the Make in LA founders, and many NEO Tech engineers for their help with this checklist.

And before you run off, there is one more rule that applies to all of the items on the checklist: use basic language. Jargon can make your team move quickly and feel like a cohesive tribe. However, when running a complex supply chain, the more complicated your language the more likely it is that someone will not seek to clarify and make a bad assumption.

If you have feedback or improvements on the checklist, let us know on twitter. Thanks!

The MiLA Manufacturing Checklist was originally published in MiLA on Medium, where people are continuing the conversation by highlighting and responding to this story.