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Investing in hardware
The document discusses trends in hardware startups and investing. It finds that investment in hardware startups rocketed between 2012-2013. While hardware makes up a small portion of total IoT spending, crowdfunding has become an important validation step for hardware companies to prove demand before pursuing larger VC rounds. Successful hardware startups often leverage software and recurring revenue business models, with crowdfunding helping to accelerate company value growth between funding rounds.
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Investing in hardware
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- 2. What is hardware? Technotrends Investing in hardware Unicorns in HW Venture model & business model Role of crowdfunding
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- 4. What is consumerhardware product? Hardware product is a connected device with a set of features. Hardware is a platform. Software does not exist without hardware. PCB + Industrial Design + Algorithm + Cloud
- 5. Hardware device components SensorsConnectivity Brains blood, air, etc. ZigBee, Bluetooth, WiFi Microcontrollers Microprocessors
- 6. New hardware startupson Angelist 3500 - 6000 HW startups globally 200-400 HW startups in Russia
- 7. Drivers of growth- IoT, Moore’s Law & beyond 3D printing & prototyping technology open hardware connectivity of devices - IoT, sensors Nanotechnology Cheap sensors, Cheap bandwidth, Cheap processing
- 8. Semiconductors’ price falling 100xtimes decrease Components price decrease
- 9. 100x times decrease 2015vs. 2012
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- 11. Drivers of growth- IoT, Moore’s Law & beyond crowdfunding 10,000,000 backers 1.5 billion smartphones as controllers (IDC) Pipes & apps
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- 13. Internet of Things:Technology Roadmap 2000 2010 2020 Time RFID tags (routing, inventorying, loss prevention) Surveillance, security, healthcare, transport , document management Locating people & everyday objects Teleoperation & Telepresence Advanced sensor fusion Miniaturisation, power-efficient electronics Indoor communication Technologyreach we are here
- 14. CES trends 2016 CES,also known as the Consumer Electronics Show, is an internationally renowned electronics and technology trade show, attracting major companies and industry professionals worldwide. Inaugurated in 1967, it hosts 140 000 attendees & nearly 1000 companies. New products & technologies are often debuted on CES.
- 15. CES Innovation Awards(large companies) Diet sensor based on SCIO Smart fish finder Vehicle intelligence by Ford 360 degree camera Ricoh Theta S OURA - Smart ring with biosignal tracking Video headphones Lily drone Musical seaboard RIDE Robotic bartender
- 16. Gartner: Which technologieswill get adopted at scale? Smart robots Human augmentation Connected home Autonomous vehicles Smart workplace Quantified self IoT Wearables 3D printing 3D printing innovation - new materials, incl. advanced nickel alloys, carbon fiber, glass, conductive ink, electronics, pharmaceuticals and biological materials Connected things - Digital Mesh AI: autonomous learning (DNN) & agents
- 17. User need &demand USER NEEDTechnology Push Market Pull push through R&D, production & sales function response to an identified market need x AR Smart watches need to test market & user needs can be validated via crowdfunding
- 18. Investing in Hardware- Facts
- 19. Investment in HWrocketed in 2012-2013 Hardware startups by the year of funding Source: O’Reilly «Hardware by the numbers» (2015)
- 20. Hardware is booming Chancesto find/build unicorn hardware startup is 2x times higher than pure software startup. There are still few: 6000 hardware startups - 11+ unicorns investment hardware startups is booming Source: TechCrunch, Bolt $3.5 bln
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- 22. Share of HWinvestment in total investment? US data $48 billion $3.5 billion 4,356 deals 200+ deals $19.8 billion 1,799 deals 100% 4.6% 41% 100% 7.3% 41% Global VC funding vs. HW VC funding Total VC HW VC Soft VC Source: PWC MoneyTree (2015), bolt.io (2015)
- 23. Hardware ecosystem growth CommunityAccelerators Fablabs over 1000 hackerspaces worldwide
- 24. Physical things aregreat. They just haven't been as great a way to start a rapidly growing business as software. Paul Graham
- 26. Most funded hardwarestartups & exits
- 28. Features of hardwareunicorns • Software is a key: there is (almost) no hardware without software • Exit: mostly M&A, only 1 IPO • Most companies are B2C. Robotics are mostly B2B • Wearables and smartwatches are a smaller percentage • Crowdfunding is becoming a platform for top hardware startups • Hardware unicorns are growing faster • Unicorns ship products Source: http://techcrunch.com/2014/11/17/lean-hardware-breeding-hardware-unicorns/
- 29. Business Model inHardware
- 30. Other business models- unlock Venture Model & stable cash flows Jawbone Portfolio model Pebble Hardware-as-a-Platform Kindle Dropcam Hardware-enabled services Software $46 m$818 m $48 m HES HaaP
- 31. Other business models- unlock Venture Model & stable cash flows CreoPop Petnet Consumables Ecosystem Makerbot $4m $10m
- 32. Economies of scalein HWBOMmark-upprice 1 1,25 1,5 1,75 2 1 10 100 1000 1000000 Units depends on product demand
- 33. 2015 2020 7,1 2,7 IoT MarketChallenge: «Things» is a small slice… Internet of Things Total Market (in USD billion) Hardware vs. Software IoT Sales in B2B by 2020 Hardware 10 % Software 90 % Source: IDC, 2014 Source: Business Insider (BI), 2014 • 23 billion active IoT devices is expected by the year 2019, which is expected to push down device pricing. • Most of the spending will go to software & services, while hardware sales will account for a very small slice. • Barriers to entry are high cost & time associated with setting up IoT systems. Software is key!
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- 35. Top hardware startups& crowdfunding Source: http://techcrunch.com/2014/11/17/lean-hardware-breeding-hardware-unicorns/
- 36. Top hardware startups& crowdfunding Source: http://techcrunch.com/2014/11/17/lean-hardware-breeding-hardware-unicorns/ - top crowdfunded Crowdfunding is becoming a systematic validation method for hardware startups
- 37. VC funding orCrowdfunding first? Crowdfunding campaigns are launched after the VC round
- 38. Case-study: Canary http://www.fastcolabs.com/3035852/how-vcs-use-crowdfunding-to-make-sure-their-hardware-startups-pay-out The all-in-onehome security system you control from your phone. It’s built to learn and sends intelligent alerts with HD video and audio directly to your phone. 2013 $1.2 million seed 2013 $2 million on Indiegogo with a goal of $100,000 2014 $10 million from Khosla 2015 $30 million from Walden
- 39. Crowdfunding - UnlockingVenture Model 0 4 8 12 16 Pre-seed Seed Pre-Round A Round A Company value growth 4-10x after crowdfunding Product validation Marketing Valuation growth 1 2 3
- 40. Crowdfunding - findingsby CB Insights • $321 million – Total VC financing to-date to crowdfunded hardware projects • 9.5% – The percentage of crowdfunded hardware campaigns that have gone onto raise VC • 2013 – The momentum has been building as might be expected and 2013 was a big year for funding. 2014, if the current run-rate continues, we will see a new deal high for crowdfunded hardware campaigns. • Misfit, Formlabs and SmartThings – The top 3 most well-funded crowdfunded hardware startups (un-exited) • Unrelated – Surprisingly, there doesn’t appear to be a relationship between the amount a campaign raises on a crowdfunding platform and the amount it raises from VCs.
- 41. Unrelated crowdfunding vs.VC funding size
- 43. Key takeaways • Crowdfundingis a model of validation & value growth • Hardware unicorns - software+hardware monetization model • Crowdfunding is launched after seed funding • Hardware startups & investment boomed after 2012 • Key hardware market drivers - cheap components, technology shifts, crowdfunding, smartphones
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- 45. Checklist of asuccessful hardware startup • Business model - recurring revenue • CEO is proven leader • Domain expertise • Speed of execution • Product ecosystem change for roadmap of future products • Product economics • Market & dynamics • Innovation