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Hardware Startup Financing
 

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. ...

"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 Hardware Startup Financing Presentation Transcript

  • 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 brought to you by more on twitter @elephantsandv or www.elephantsandventures.com