Hardware Startup Financing

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"Financing a hardware startup" is an intro presentation to the Hardware Kit, a tool kit for hardware startups giving all the info HW startups need to grow successfully.

We focus here on the financing strategy which is key for any hardware startup.

More than any other business, in hardware cash is king ! You need a lot of it to finance not only production but also marketing and distribution.

This presentation gives you the basics for your financing strategy from your pre-order campaign to VC funding.

More to come with The Hardware Kit soon.

Elephants&Ventures

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Hardware Startup Financing

  1. 1. hardware startup financing.
  2. 2. 2014 largest venture exits WHATS APP LENDING CLUB ZAYO NEST GO PRO BEATS ARISTA $22Bn $5.4Bn $4.4Bn $3.2Bn $3.1Bn $3.0Bn $2.7Bn OCULUS VR $2.0Bn hardware is eating the world. hardware VC investments* 2010 2014 $1.3Bn $2.6Bn *Source : Dow Jones VentureSource 2
  3. 3. innovators early adopters early majority late majority laggards 2005 2010 2015 2020 2025 and the hardware revolution is just starting.
  4. 4. crowdfunding derisking the product launch hardware components commoditized and cheaper improved software and connectivity systems easier prototyping and manufacturing smartphones and tablets widespread thanks to the planetary alignment
  5. 5. hardware is the new sexy
  6. 6. 2014 founded in SFC in oct 2007 series A of $2m in oct 2008 valued at $300m in mar 2013 filed for IPO (NYSE:FIT) in may 2015 revenue: $745m gross margin: 48% net income: $132m adj. ebitda: $191m *Source : FitBit's S-1 filing on May 7th, 2015 hardware startup can be profitable.
  7. 7. reinventing unloved but important home products founded in 2010 >$80M funding acquired by Google in 2014 for $3.2B the next generation of drones has landed founded in 2009 $85M funding next-generation virtual reality technology founded in 2012 $91M funding $2.4M crowdfunding acquired by Facebook in 2014 for $2B control and monitor your home from one simple app founded in 2012 $12.5M funding $3M crowdfunding acquired by Samsung in 2014 for estimated $200M hardware startup can generate high return.
  8. 8. new hardware business models are emerging
  9. 9. new business models = new words ?
  10. 10. haap n. acronym for hardware-as-a-platform i.e. model based on hardware-derived revenues generated by apps. example pros vs. consoculus infinite potential revenues device acquisition cost makes customer captive need a large developer community + + -­‐
  11. 11. haas n. acronym for hardware-as-a-service i.e. subscription-based revenue model. example pros vs. consdropcam recurring monthly revenues lifetime customer value > individual device price huge working capital if no hardware sale + + -­‐
  12. 12. 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. conspaper 53
  13. 13. hardspresso n. revenue model based on recurring revenues from the sale of consumables high margin on consumables captive customer distribution issue + + -­‐ example pros vs. consprynt
  14. 14. hardata n. revenue model based on the monetization of data collected by a hardware device. data represent great potential data-driven machine learning how to monetize data? + + -­‐ example pros vs. consnest
  15. 15. hardware is a trojan to sell the software brand is strong network/community is central what do all these business models have in common?
  16. 16. but whatever the business model, one thing remains true
  17. 17. cash is king !
  18. 18. “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
  19. 19. prototyping industrialization scaling funding need $25k - $500k funding use $500k - $10M $10M - moulds test benches design & studies working capital marketing hiring staff components first design costs company creation ∞ why cash is so important?
  20. 20. prototyping industrialization scaling $25k – $500k $500k - $10M $10M - ∞ fundingneed crowdfunding friends & family pre-orders debt grants seed time   accelerator straight to A series A series B series C multiple funding sources for hardware startup
  21. 21. funding is great but margins are even more critical
  22. 22. strong margins = smart pricing
  23. 23. pricing cost of goods sold distribution channel brand positioning customer perceived value
  24. 24. why distribution channel matters for pricing? production cost $60 selling price $150 net price (VAT exc.) $125 gross margin $65 eShop margin$58 online distrib. margin$47 retail margin$22 $65 - $7 cost ie 5% of selling price $65 - $18 cost ie 15% of net price $65 - $43 cost ie 35% of net price
  25. 25. smart pricing, ok. but how to find out? pre-orders
  26. 26. preorders vc funding validate market fit validate pricing build a brand/community finance 1st production batch preorders preorders product launch
  27. 27. by the way, crowdfunding platform or selfstarter ?
  28. 28. tips to decide: are your target customers on a platform? can you raise funding before launching a campaign? what product development stage are you at?
  29. 29. vc funding before or after preorders?
  30. 30. full stack hardware startup it’s time to bring magic back into the world founded in 2011 $592M funding putting energy into things that matter founded in 2011 $150M funding AI and consumer robotics for our everyday lives founded in 2010 $105M funding beautifully built safety technology founded in 2013 $37M funding
  31. 31. 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
  32. 32. alexis HOUSSOU alexis@hardwareclub.co @alexishoussou barbara BELVISI barbara@hardwareclub.co @b_belvisi brought to you by more on twitter @hardware_club or www.hardwareclub.co
  33. 33. want to learn more ? register to our online course

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