2017 Hardware Investors Ranking, And How To Get Funded
With the recent and highly publicized crashes of prominent hardware startups, it might feel like investors wouldn’t want to touch hardware for the next 10 years.
As it turns out, it’s not quite true. Our friends at Bolt shared some data about funding rounds to illustrate that. Discerning investors have realized that the way hardware startups were built today was vastly different from even a few years ago, and that there was a way to do it right.
Additional insights are below.
2017 Hall of Fame
First, we turned the investment data into three groups. It only counts seed rounds and above (pre-seed / angel / accelerator rounds are not included).
Here are some observations:
- Specialists: We see the emergence of very active specialists like HAX, Bolt, Lemnos Labs, Eclipse, Root Ventures and Grishin.
- Generalists: A number of “generalists” such as Khosla, First Round, a16z, True Ventures still manage to close a significant number of deals, even if it is a small percentage of a much larger portfolio.
- Corporate VCs: Some corporate VCs are very active: Intel and GV. The data is missing some like Samsung, Bosch, Cisco and Xiaomi and a few others.
- Foreign VCs: A handful of foreign or cross-border investors invest in hardware. Among them the French-born Kima, Taiwan-born Cherubic, China-heavy GGV, China-born ZhenFund and a few more. The lack of data on foreign deals likely leads to their under-representation.
- Stages vary: The most active investors tend to be early stage, with checks starting at a few hundred thousand dollars.
Beyond Numbers: Targeting For Fundraising
While every investment round can be challenging, the first ones are particularly hard as founders do not necessarily know who to talk to. The above data provides a good starting point. Here are additional ideas focused on startups looking for a seed round, gathered from the experience gathered investing in over 200 pre-seed startups.
You only need ONE
Some VCs like to lead, but most only lead 1 out of 4 or 5 deals. Post-acceleration, SOSV/HAX typically does not lead rounds. Remember: one lead investor and you’re good to go as most investors co-invest!
You only need ONE lead. Help them find you by being visible.
The number of hardware deals of a VC matters, and it also doesn’t: you first need to check the stage they invest in, and the sectors they focus on. If they love service robots don’t approach them with a consumer device.
If they’ve never invested in a medical device, chances are low you will be the first. If they only invest once a product is on market, don’t contact them to get funding for your first production run.
Visit their website, look at their portfolio, find interviews they gave. When contacting generalists, approach the partner in charge of hardware. You need to do as much due diligence for investors as with a co-founder or a factory. It’s part of building a company.
You need to do as much due diligence with investors as with a co-founder or a factory.
Warm Intros Only (Ideally)
Cold approaches have low chances so help VCs self-select and find you by getting visible through media, events and introductions.
In particular, VCs listen to their portfolio founders (if they are doing well). Meeting with them will allow you to refine your pitch and possibly get a much coveted “warm intro”.
Look for investors who believe in your market. Usually, we find that trying to convince an investor about a market to be a waste of time. Either they believe or see it very fast, or it won’t happen. Look at their portfolio to understand their beliefs: they invested in another service robot? Great!
Once this is done, your main job is to show you have the right team and it’s the right time.
Aim, aim, aim, aim…
Most VCs close only a few deals per year in total per partner. If they are not specialists, the chances of them investing in hardware is even lower.
We met recently with a Partner at a well-known firm who was about to close his first deal of the year — we are in November! — and it wasn’t hardware. It is difficult for VCs to build expertise in a sector if they don’t focus and invest frequently.
For seed rounds, early stage specialists who dedicate all their time to hardware and will generally have better questions, advice and networks.
Early stage specialists dedicate all their time to hardware and will generally have better questions, advice and networks.
Reality is not like HBO
Don’t expect a 2-weeks trip to the Valley will be enough to find investors. Try first to find them where you are based , especially if you’re not from the U.S. — distant locations and foreign tax rules are red flags for many VCs.
If you must come to the Valley to fundraise, expect weeks of effort, and multiple trips. Once you have shipped, growth and customers state-side, it’s a different story.
Try first to find investors where you are based, especially if you’re not from the U.S.
Hot or not? Enterprise and A.I. are the new black
Do you have machine learning or A.I.? You’ll get more attention. Many startups have reinvented themselves as A.I. companies — sometimes only changing their narrative and their domain name to a “.ai”.
A.I. / Machine Learning is now everywhere, from robotics to consumer and health tech.
Our portfolio has also evolved in that direction — consumer is now less than 50%, the rest is health/enterprise/industry.
The main reasons are:
(1) the fear of the “one hit wonder” (or worse: no hit)
(2) Businesses do not have a price ceiling as long as your solution saves them time, money or create value. Consumers are limited by their disposable income and anything above a few hundred dollars is hard to sell.
Enterprise and A.I. are the new black.
We hope this advice will help you raise your next round, should you need it!