"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

1. hardware startup financing.

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. innovators early adopters early majority late majority laggards
2005 2010 2015 2020 2025
and the hardware revolution is just starting.

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. hardware is the new sexy

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. 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. new hardware business models
are emerging

9. new business models = new words ?

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. 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. 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. 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. 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. 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. but whatever the business model,
one thing remains true

17. cash is king !

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. 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. 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. funding is great but
margins are even more critical

22. strong margins = smart pricing

23. pricing
cost of goods sold
distribution channel
brand positioning
customer perceived value

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. smart pricing, ok.
but how to find out? pre-orders

26. preorders vc funding
validate market fit
validate pricing
build a brand/community
finance 1st production batch
preorders
preorders product launch

27. by the way, crowdfunding platform or selfstarter ?

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. vc funding before or after preorders?

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. 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. 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. want to learn more ?
register to our online course