Unless you’ve been living under a rock, you’ve probably heard about the hardware renaissance that is sweeping Silicon Valley (and the world), and is largely driven by advances in IoT. From its impact on local manufacturing to the way it’s changing real estate demand, it’s fair to say that we have provided in-depth coverage on this topic. But, one element that has not received as much attention, partially because it’s perhaps the most challenging aspect of hardware product development, is how the latest advances in hardware development are getting funded.

Last week, at the Product Realization Group‘s (PRG) annual Hardware Symposium, we got a much better sense of who is getting funded and what makes a hardware investor tick. PRG Founder and CEO Mike Keer kicked off the event with a rapid-fire list of hardware companies that have recently gone from idea to scale, raising significant amounts of money along the way. He offered a few examples:

  • Roost – Smart battery smoke detector, shipping first-generation product, $5.5 million of venture capital raised
  • Hatch Baby – Smart changing pad, shipping first product, participant on “Shark Tank,” $7 million of venture capital raised
  • Whistle – Smart dog collar, successfully completed acquisition with $117 million exit

The event also featured an investor panel to discuss industry trends. Participants included Gareth Keane from Qualcomm Ventures, Carol Sands from The Angels’ Forum/Halo Fund, Ron Keith from Riverwood Solutions, and Stephen Baker from NPD Group. Together, the panel provided unique insight into how their minds work and what hardware investment opportunities most excite them. Key takeaways include:

  • Hardware has finally gravitated to the “Automobile Model” from the “Shaver/Razor Blade Model.” Instead of just replacing a component, you replace the entire device every couple of years so that you have the newest, coolest version. This is fueling exponential growth.
  • The democratization of hardware has occurred — small hardware startups are proving that the infrastructure/outside services exist to support growth. No longer are only the very large, vertically integrated corporations producing these products.
  • The gap between an early prototype and a first-generation product is so hard to bridge financially, so startups should not underestimate the amount of early-stage funding they need. If anything, overestimate it because you’ll probably need it.
  • Crowd funding has helped as a source for hardware funding.
  • Develop a well-thought-out plan for inventory management and use of contract manufacturers. Inventory is one of the biggest costs for hardware companies and can be a red flag to investors.
  • While the jury is out on where we stand in the business cycle, hardware startups should not necessarily fear a down market. Investors want to buy low and sell high, so many of their deals are done during this time. When the market is hot, they are selling and amassing large amounts of capital to invest in the next wave.

 

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