HackerNoon.com
Published in

HackerNoon.com

Unusual Ways To Get Funding For Your Startup

We Know Who Funds Hardware (or Other Categories), But Not Why

  1. Classic way
  2. Reality
  3. Hacks
  4. End game

The Classic Way

“I don’t hate Hardware, but I pity the fool.”
  • Traction
    This is real milestones, like technical demo, work-like-look-like prototype, customer feedback, corporate pilots … Show you get things done! It is NOT media coverage, Youtube views and other vanity metric. Note that misguided customer discovery can also lead to undue confidence in the demand for your product. What i-Corps does really works, just do that.
  • Team
    Do you have the experience or pedigree? (Sold a company? ex-Google? Industry? Stanford? Etc.).
  • Tech
    Is it hard to do? Defensible? (secret sauce rather than patents) Affordable?
  • Timing
    Why now? Did something change in the market or in tech enablers?
  • Target
    You can’t convince people. Just find more of those who believe. Or as I like to repeat “if you want to change people, change people”. In particular, stay away from those who say “hardware is hard”.

2. The Reality

A typical VC sees over 1,000 startups per year, and invests in less than 1%
  • Insiders
    A lot of deals are not cold calls but done via recommendations, and are never really “socialized” beyond the immediate network of founders. So VCs have the choice between highly recommend deals and … your deal. Tough!
  • Social proof
    With the right labels and endorsements, VCs flock to a deal because it not only looks high potential but less risky. It makes sense that serial entrepreneurs have learned something in previous ventures (founder is a career) and will mostly make new mistakes.
  • Local
    Let’s go to Silicon Valley for 2 weeks! There is so much money there, you’ll have no problem finding some even if it’s from a second or third tier VC! As it turns out, it rarely works. Why? Because you have zero track record locally, poor intros, maybe the wrong legal setup, and maybe you don’t know the cultural codes. Most VCs don’t have a problem if you’re not in the Valley (it’s too costly and hard to recruit at early stage), but outside the U.S. is another story. Unless you have outstanding tech and U.S. customers already, look for VCs locally for your first round. Yes, you might not get as good a deal, but you’ll waste less time, and you’ll get a deal.
  • Cash flow
    With hardware, cash flow is an issue. VCs hate to finance working capital. If you scale with structurally negative cash flow, you will just scale the problem.
  • B2B
    Consumer is mostly out. Enterprise / Industry and Health Tech are in. Five years ago HAX was investing in ~75% B2C, now it’s less than 25%. Mostly because (1) Consumers are very price sensitive. $100? Better have Apple quality! and (2) Most consumer products are “nice to have”, not “must haves”. There seem to be higher motivation for STEM, because it’s an investment in the future of kids.

3. Hacks

  • Coverage
    Media is mostly a vanity metric, but it can help. If you don’t have “hardware porn” to show off like a cyborg or a flying car, focus on human interest stories, humor or an exciting vision of the future. For more ideas, read the timeless presentation by Mike Butcher from TechCrunch.
  • Celebs
    Engage with the right one and you’re golden. Think Beats and Dre. One startup was making a high-tech mike (which I bought on the spot as I am considering podcasting) and said a BBC announcer loved it. Done!
  • Cheap
    Don’t starve but be frugal. This will make you less dependent on outside funding. Some companies in Illinois spend $1,000 per founder per month. Others have relocated to Shenzhen until they ship. We have several companies at HAX who are getting complex products to market with no other external VC funding (sometimes they use grants or win prizes, and start selling POC or products to customers). Bootstrapping all the way to profit! (and keeping 90% of their company)
  • Champion
    You don’t have the network for warm intros? Find ONE angel who has it. Such person can help syndicate a deal.
  • Corps
    Corporates can pay you for POCs or other. Some are considerate enough to be mindful of your cash flow and pay early.
  • Conditions
    Look at improving your cash flow by reworking your contracts with your suppliers, distributors and customers. With some luck your clients will pay you upfront and you’ll pay your factory 60 days after delivery and reach Cash Flow Nirvana. Factories can be your bank, and it’s non dilutive! Be sure to meet the owners, who are often entrepreneurs, and make friends. If they can’t give you good enough terms, take your (tiny) business elsewhere.
  • China
    At HAX we are big advocates of prototyping and manufacturing in China. Mostly because of SPEED and EXPERTISE (ask Tim Cook). And contrary to popular belief you don’t need high volumes. Another thing for which China is great is investment. There is more VC money there than in U.S. since 2017, and many Chinese VCs are happy to invest overseas (in USD) as they find the deals cheaper than China (they also see more potential as they include the Chinese market in their projections).
  • Crypto ;p
    We haven’t found a way yet, but if you can have a blockchain angle, you’ll be able to access another class of investors. At the moment you best bet is to repaint your hardware company as A.I., Machine Learning or even “behavioral analytics”. You’ll get more attention. Many of our robotics and health tech startups are legit A.I. or ML companies. Maybe yours is too!

4. End Game

Now it’s all good.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Benjamin Joffe

Partner @ SOSV — Deep Tech VC w/ $1B AUM | Digital Naturalist | Keynote Speaker | Angel Investor | Mediocre chess player, worse at Jiu-jitsu