We Fund Hardware + We Have A Fund; We Are Not A Hardware Fund
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.
