hardware startup financing.

intro to hardware kit.

what do you mean by hardware again ?

what hardware used to be.

heavy tech hugely capital intensive endless development time expensive distribution

hardware startup.

VC.

not really sexy.

what hardware has now become.

low tech as well less money needed lean manufacturing methods

simplified distribution

hardware is the new sexy

kickstarter de-risks the product launch

1. 2. 3. 4. 5.

hardware components commoditized and cheaper

improved software and connectivity systems

easier prototyping and manufacturing

smartphones and tablets now widespread

the +hardware revolution+

hardware startups are now more vc-fundable than ever

vc-funded hardware startups

$120M raised. w/ shasta, kpcb, google ventures,..

$45M raised. w/ founders fund, a16z, highland capital partners, …

$91M raised. w/ spark capital, founders fund, a16z,…

$440M raised. w/ koshla, sv angel, sequioa, kpcb

$2B acquired by facebook

$3.2B acquired by

google

funding for hardware startups is booming

$848M into hardware startups in 2013 in the US.

31 fundraising deals in 2013 in the US.

new hardware business models are emerging

new business models = new words?

haas n. acronym for hardware-as-a-service i.e. subscription-based revenue model.

example pros vs. cons space monkey

recurring monthly revenues lifetime customer value > individual device price huge working capital!

++

-­‐

hardmium n. software service where a hardware device is the premium feature.

great to build large community more feedback on software allows more iterations free rider effect?

example pros vs. cons paper 53

++

-­‐

haap n. acronym for hardware-as-a-platform i.e. model based on hardware-derived revenues generated by apps.

example pros vs. cons leap motion

infinite potential revenues device acquisition cost makes customer captive need a large developer community

++-­‐

hardata n. revenue model based on the monetization of data collected by a hardware device.

example pros vs. cons nest?

data represent great potential data-driven machine learning how to monetize data?

++-­‐

but whatever the business model, one thing remains true

cash is king!

“hardware is a cash flow business. it takes money to get to market, and even more money to scale your company. this means that your funding strategy is second in priority only to creating an amazing product.”

Marc BARROS

founder of contour

why is cash so important?

prototyping industrialization expansion

funding need

funding source

$25k - $100k

friends & family

personal savings

funding use

$150k - $500k $1M -

pre-orders

angel / seed venture capital

moulds

test benches

design & studies

working capital

marketing

hiring staff

components

first design costs

company creation

∞

funding is great but margins are even more critical

strong margins = smart pricing

why distribution channel matters for pricing?

production cost

$60

selling price

$150 net price

$125

gross margin

$65

eShop margin $50

online distrib. margin $34

retail margin $2

$65 - $15 cost ie 10% of selling price

$65 - $31 cost ie 25% of net price

$65 - $63 cost ie 50% of net price

why distribution channel matters for pricing?

production cost

$60

selling price

$150 net price

$125

gross margin

$65

eShop margin $50

online distrib. margin $34

retail margin $2

$65 - $15 cost ie 10% of selling price

$65 - $31 cost ie 25% of net price

$65 - $63 cost ie 50% of net price

Wrong pricing if sales are driven by retail

pricing

cost of goods sold

distribution channel

brand positioning

and obviously, what price are customers ready to pay?

smart pricing, ok.

but how to find out? pre-orders

crowdfunding preorders

preorders vc funding

validate market fit validate pricing

build a brand/community

finance 1st production batch

preorders

preorders product launch

by the way, kickstarter or selfstarter* (or indiegogo) ?

*preorder campaign “à la kickstarter” operated through your own website.

kickstarter selfstarter

6M+ organic community easy media coverage

Kickstarter brand stamp

traffic => kickstarter page KS community ≠ your community Post-Kickstarter “valley of death”

cut middlemen fees traffic => own website

optimize paid visits

hard without seed funding strong PR resources needed

no leverage on existing community

vs.

-

✚  

tips to decide:

are your target customers on kickstarter?

can you raise funding before launching a campaign?

what product development stage are you at?

kickstarter indiegogo

✚  

-

6M+ organic community best media coverage

Kickstarter brand stamp

US-based company needed hard to get data

heavy constraints + selection

flexibility easy to get data

no selection

1/6 of kickstarter audience less prestige

many #BS# projects

vs.

tips to decide:

is indiegogo’s flexible plan for you ?

can you easily set up a company in the US?

what is the real goal of your crowdfunding campaign?

vc funding before or after preorders?

funded after preorder campaign

$2.5M preorders in 08/2012 $ 91M funding : 16M$ 06/2013

+ 75M$ 12/2013

$10.3M preorders in 05/2013 $ 15M funding 05/2013

$8.6M preorders in 08/2012 $ 15M funding 05/2013

$1.2M preorders in 09/2013 $2.5M funding 05/2014

$1.5M preorders in 02/2014 $1.9M funding 11/2013

funded before preorder campaign

$350K preorders in 05/2013 $2.3M funding 07/2012

$1M preorders in 11/2013 $7M funding 08/2011

$1.4M preorders in 12/2013 $1.0M funding 05/2013 + $8.0M 03/2014

so? VC-funding before preorder validation is in most cases a sweet dream, unless:

1. team with previous exit(s) 2. alumni from top-tier accelerator (YC, Techstars, etc…) 3. a lot of luck

alexis HOUSSOU alexis@eandv.co @alexishoussou

barbara BELVISI

barbara@eandv.co @b_belvisi

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