There’s been an influx of hardware startups popping up in recent years, with cheaper tools and crowdfunding platforms making it easier for people to realize their product dreams.
But many of those entrepreneurs are jumping into the startup world for the first time in a relatively new arena and may be unsure of the best practices when it comes to raising money.
How much do you need? Should you validate demand with a Kickstarter? When should you reach out to a venture capitalist?
These questions and many others were answered at the Hardware Workshop event in Seattle, which kicked off Friday. Created by local entrepreneur Marc Barros, who recently raised $450,000 on Kickstarter for his new camera lens company Moment, the two-day event features a series of talks designed to help founders learn more about succeeding in the hardware space.
“You need less than you think and way more than you know,” said Jason Stoffer, a partner at Seattle-based venture capital firm Maveron.
Stoffer explained that even though production costs have gone down, most companies will still need to devote a few million dollars to not only build hardware at each stage of the development process, but also for a bevy of other expenses.
“You cannot just think of this as the cost to build hardware,” he said. “You’re not a hardware entrepreneur — you’re building a business.”
The panelists all agreed that when it comes time to raise money, it all depends on what type of product you want to build and how big the idea is. For example, if you’re Jeff Bezos and want to manufacture delivery drones, something like that would require something other than crowdfunding to raise money. But, if you’re like the more common hardware entrepreneur, testing the market with a Kickstarter campaign may make more sense.
Stoffer said there are different types of hardware startups, from personal passion ideas that have a small niche, to giant ideas that appeal to a huge audience. He noted that there are plenty of successful hardware startups bringing in several million dollars a year with small teams — “success is not tied to venture in the hardware renaissance,” he said.
But, if founders think they have a big idea and require substantial financial backing, they should be prepared for what’s ahead.
“You better understand how to go through the process,” Stoffer said. “If you think you have a big idea and it’s not, you’re going to overbuild.”
“You need to know not just what the terms mean, but really what each milestone means in the life of a hardware company,” Klein explained. “So, when you approach an investor, you approach them with the right set of metrics, met or not met.”
Though Seattle isn’t generally known as a big hardware city, there have been recent successes. Barros, who previously co-founded helmet-mounted video camera maker Contour, raised ten times what he expected to bring in for Moment. Two others also come to mind: Poppy, a 3D imaging device for iPhone built by veteran local entrepreneurs Joe Heitzeberg and Ethan Lowry, and Robot Turtles, a board game that teaches kids coding skills created by Dan Shapiro.
“I know Seattle is a software town, but I do believe we can build successful hardware startups here,” Barros said. “It has fantastic engineering and design talent that has a passion to build.”
Hardware Workshop will be holding an event in Boston on March 28, in Toronto on May 2, in San Francisco sometime in September and in New York City one month later. Head here for more information.