As
reported by TechCrunch: It’s one trend that’s been hard to miss, being mostly clipped and/or strapped
in plain sight. To spell it out, hardware startups — and the devices they’re
making — are having a moment, thanks in major part to
crowdfunding websites
providing the funding bridge between a promising prototype and the cost of
manufacturing a shipping product.
Fueled by crowdfunding, hardware startups are hard at work extending the
capabilities of mobile devices – the phones and tablets that have otherwise
become boringly alike – and building out the long anticipated
Internet of Things
in the process. In case you haven’t noticed, this network of connected objects
is beginning to materialize around us,
piece by Bluetooth-connected piece.
Startup accelerators are also increasingly getting in on the
connected hardware action, with a number of dedicated hardware hothouses cropping up, such
as recent entrant
High
Tech XL in the Netherlands (in the midst of accepting applications for its
first cohort).
High-profile accelerators such as
Y
Combinator have also been taking more of an interest in the hard stuff –
with the likes of
Lockitron
coming out of their program in recent years. Blogging about the rise of hardware
last October YC’s
Paul Graham suggested a confluence of factors are combining to make it easier to
kick-start a hardware business:
"There is no one single force driving this trend. Hardware does well on crowdfunding sites. The spread of tablets makes it
possible to build new things controlled by and even incorporating them.Electric motors have improved. Wireless connectivity of
various types can now be taken for granted. It’s getting more straightforward to
get things manufactured. Arduinos, 3D printing, laser cutters, and more
accessible CNC milling are making hardware easier to prototype. Retailers are
less of a bottleneck as customers increasingly buy online.
One question I can answer is why hardware is suddenly cool. It always was
cool. Physical things are great. They just haven’t been as great a way to start
a rapidly
growing business as software. But that rule may not be permanent. It’s not
even that old; it only dates from about 1990. Maybe the advantage of software
will turn out to have been temporary. Hackers love to build hardware, and
customers love to buy it. So if the ease of shipping hardware even approached
the ease of shipping software, we’d see a lot more hardware
startups."
 |
The 'Tile' is a crowdfunded Bluetooth device that allows
smartphones to track down lost items. |
I would add that hardware can be much easier to conceptualize than software.
Add in the tangibility of actually getting a physical thing in your hand in
exchange for your hard-earned and convincing buyers to part with money isn't
such a hard sell as software can be (being still somewhat dogged by the notion
that bits & bytes should be free).
The latest Silicon Valley accelerator to be bitten by the hardware bug is
Tandem Capital. One out of
every three to four of its intake over the next 12 to 18 months will be a
hardware startup, Tandem’s Doug Renert tells TechCrunch – injecting an
additional strand of physicality to its ‘muscle capital’ approach. The latter
involves six to 12 months of in-house mentoring before graduates head off to
raise outside capital — and hopefully keep on growing.
“Our plan is, at least for the next year, we’ll basically do one out of three
to four companies in the hardware space now. That are tackling what we feel is
disruptive – or have a disruptive business in a very large market,” he says.
Tandem’s new dedicated hardware arm will sit alongside its software program,
although it is bringing in some additional expertise to staff out the hardware
side. “We’ve brought in folks who can help on everything from the marketing,
from the video to the [crowdfunding] campaign. All the way to the product design
and the development, when it comes to the embedded software and the [connected]
devices and so forth,” says Renert. “Six months ago we didn’t really have the
capabilities.”
Tandem typically invests $200,000 apiece in six mobile start-ups at a time —
and will soon be ramping up to six companies per quarter. Previously that
effectively boiled down to app makers – graduates of past programs include
Playhaven,
BitRhymes,
attassa
and
ZumoDrive –
but up to a third of each intake going forward will be making some kind of
device, in addition to building an app.
Bluetooth
LE is allowing a new wave of physically minded start-ups to
build devices that
can fly for long enough to become 'disruptors'.
Why is hardware hot right now? The hype around 'wearables' and the quantified
self/health tracking movement is certainly encouraging more device makers to get
busy. But on an underlying technology level, it’s the next-gen low-power flavor
of Bluetooth –
Bluetooth Low Energy (or BLE) – that gets the credit as the
enabler of this connected device boom.
 |
| Auranova is a Bluetooth necklace headset for women. |
BLE is allowing a new wave of physically minded startups to build devices
that can fly for long enough to become disruptors. Older generations of
Bluetooth were just too thirsty on the battery for that. BLE is a very different
beast – one that allows makers to build interesting devices that can keep
communicating for up to a year on a single charge (in some cases). And that’s a
game changer. Add in ubiquitous smartphone ownership and it’s a perfect
storm.
Tandem got interested in hardware after noticing what was happening around
this new flavor of Bluetooth and getting excited about its potential, according
to Renert: “The Bluetooth LE communication protocol that allows these devices to
be built for the first time, opens up all sorts of opportunities that weren't
there before,” he says. Renert doesn't limit the category to wearable devices;
recognizing that’s just a small portion of the stuff that falls under the IoT
umbrella – whether it’s
environmental monitors and
weather stations or
door locks and
kitchen scales.
“A lot of the market has been referring to wearables as a hot trend but we
view that as too narrow honestly. Because with these tiny devices that you don’t
have to charge you can really attach it to anything you own,” he says. “Whether
it’s a consumer product or something in the enterprise for that matter which
should be connected to the Internet, and communicate with the web and open up
all sorts of other possibilities.”
Tandem’s first ‘experimental’ hardware startup was
Tile – which is making a
Bluetooth tag to help
$2.6
million via
Selfstarter
– in addition to the $200,000 injected by the accelerator.
consumers keep track of their valuables. Tandem worked
with Tile to prepare its crowdfunding campaign – which then went on to raise
“It was an amazing success – they raised over $2.6 million from 50,000 early
customers, and have continued pre-selling the product since that day and have
actually reached much higher numbers since then,” says Renert. (Tile has in fact
doubled its backers to more than 100,000 people placing pre-orders since the
campaign closed on July 24.)
Despite all the hype and heat around hardware right now, Renert reckons there
are still plenty of investors who haven’t yet got comfortable with backing
hardware. Indeed, Tandem was tentative at first — hence it viewed Tile as an
experimental foray into a strange new world.
“We haven’t seen too much dedication to the space. People are still trying to
figure it out, and get comfortable with it. And even we were doing that if you
rewind six months ago. We weren't sure about it; we started slowly with some
experiments…. but we felt it could be mapped to disruption and fortunately the
Tile experiment proved out,” says Renert, adding: “Now we’re stepping on the
gas.”
The approach Tandem used with Tile will be the same one it applies to all its
hardware startups going forward. The accelerator model combines its initial
standard funding injection of $200,000 (plus the six to 12 months of in-house
mentoring) with a crowdfunding campaign aimed at raising enough capital to carry
device manufacturing costs. It’s calling this crowdfund-leveraging model ‘lean
hardware’.
“There’s a lot of difference in terms of how you execute on [hardware vs
software]… but not a lot of difference in terms of how much money or time you
need in order to prove product market fit, which is a huge, huge development,”
he says. “It used to be that a hardware start-up was much more expensive to
start-up and launch but with Tile… we did our typical $200,000 in the company
and brought them in for six months and they were able to accomplish everything
they have so far only on that initial investment.
“Now they’ll probably soon raise more but it wasn't necessary to have more
capital or time to get to playing for that.” So, in other words: the
crowdfunding opportunity has effectively dissolved that hardware vs software
start-up difference as far as this accelerator is concerned – at least for
now.
Notably Tile used the open source Selfstarter option for its crowdfunding
campaign – rather than opting for the two main crowdfunding platforms:
Kickstarter and Indiegogo. “We haven’t had to rely on just one of the existing
crowdfunding communities and platforms and be completely dependent on them,”
notes Renert. “Tile was able to manage its campaign on its own. Remain
completely independent, leverage Facebook, YouTube and Twitter to get the word
out and that turned out to be very effective. So that’s another key tool we’re
building at Tandem — the know-how to build and run those campaigns.”
There’s
going to be a huge wave of this for the next 12 to 18 months
and at some point
there’s going to be saturation
Although Tandem is betting on hardware right now, it’s not convinced the
current conducive winds helping to accelerate hardware start-ups are going to be
sustained forever — or even for all that long. Renert is under no illusions that
crowdfunding fatigue will set in at some point, for instance. And also
recognizes that Tandem’s lean hardware formula will require tweaking to keep it
fresh.
“The market will continue to evolve quickly there, so we’ll have to be
cognizant that what works today won’t work potentially a month or two from now
so you’re always going to have to be adjusting to stay ahead of the curve. It’s
not something that we can learn quickly and not be able to get better at,” he
says.
“I don’t think this is going to be a five-year trend – I don’t think there’s
going to be a window for five years. There’s going to be a huge wave of this for
the next 12 to 18 months and at some point there’s going to be saturation – the
consumer is going to get a little fatigued about all this stuff getting promoted
to them. So we want to really strike now – and we think this next 12 to
18 months is the time to build those next brands in this category.”
As more and more startups crowd in to the hardware space, and crowdfunding
loses its sheen – after enough consumers get burnt with bad product, shipping
delays and failed and/or scam campaigns – the end result will be that hardware
gets harder to startup again. Or at least that hardware startups have to try a
lot harder to win consumers’ trust, says Renert.
“You’ll have to show the credibility of your team and the viability of
delivering your product and I think the bar will get higher and higher to do
that before consumers will invest in you,” he says. “There still will be room
for a product that excites consumers, and that they’re willing to bet on, but
their bar’s going to be higher – and building the confidence that that team can
deliver on it [will be essential].”
 |
'Pebble' a crowdfunded watch that uses Bluetooth to connect
to your smartphone. |
In the near term, Tandem has two more hardware start-ups in its immediate
pipeline, following in Tile’s footsteps – one targeting entertainment, and
another in the personal safety space. The aim is to launch crowdfunding
campaigns for each this fall, before Thanksgiving. “We've now turned out
attention to a couple of other lean hardware start-ups who are entering the
program and we’re building out a lean hardware arm within Tandem to support
these businesses,” he says.
It took Tandem “a little over three months” to work with Tile to launch their
crowdfunding campaign, honing the story and creating the video to tell it, as
well as getting the prototype to a position where they were comfortable they
could build it, according to Renert. “That was probably about three and half
months out of 10 of the program,” he says.
So, while there’s no getting away from the fact that it takes (on average)
longer to ship a hardware product than a piece of software, the ability to both
“prove product market fit” — via a crowdfunding campaign — and buy time to build
the product by booking pre-orders, means the difference between starting a
hardware vs a software business is not as great as once it was.
 |
Nike's 'Fuel' activity tracker is already looking at
the second generation release. |
“From day one to actual shipping of the product, yes it takes longer, but
from day one to proving the product’s market fit does not have to take any
longer which is the beauty of the model now,” Renert adds.
“To get to the point where you've designed it and promoted it and if you have
market demand you can take another six months to actually build and ship the
produce. And that’s what Tile did. They shared that they wouldn't have their
product until the first quarter of 2014 so that the backers – the customers who
came in – were excited about the product, pre-ordered one but gave the team time
to deliver on their commitment.”
How long this window of opportunity for hardware will stay open remains to be
seen. But right now, it’s never been easier to build that connected thing you’ve
always dreamt about making.
