Who invests in iron?
Posted by Chris Kinter, a partner at Bolt , a seed fund that invests money, resources, development, and expert knowledge in startups running at the intersection of hardware and software.
The renaissance in the world of hardware is just beginning. Flattered by reducing the cost of development, reducing the time it takes to launch the product on the market and moving the business model from consumer electronics to regular income generating services, venture funds began to invest in hardware startups.
Last year, an overview of this explosion in investment was published.. The volume of investments increased by more than 30 times compared with investments 4 years ago. What happened during this time? Does the sphere justify such a stir? Here's what we found out.
Investment growth continues
In contrast to the widespread decline in venture capital activity, iron companies continue to receive investments. In the first half of 2016, $ 1.7 billion was invested in 120 transactions, more than invested in any other half-year period over the past 10 years. But, as long as money flows in the river, the number of transactions remains the same as in the same period last year (120 and 123, respectively). From this we can conclude that the growth spurt is gradually aligned with the development of the sphere, investors become smarter with initial investments and choose companies that can bring the product to the market.
Data as of July 1, 2016. Open rounds of financing are taken, where more than $ 1 million was collected. Several large players such as Xiaomi, Magic Leap and Jawbone are not taken into account. Source: Bolt and Crunchbase
GoPro and Fitbit troubles
Last year's iron favorites, GoPro and Fitbit, had difficulty maintaining growth and both now barely have a quarter of their maximum market capitalization. Interestingly, their difficulties were caused not by the fact that their competitors began to trade analogues, but by the fact that their own market segments were oversaturated. If I already have GoPRo or FitBit, I practically do not need to buy the latest and most sophisticated model of the same manufacturer. Let's see if one of these companies can successfully launch a new product line in the coming year.
GoPRo Market Capitalization Dynamics
Minor acquisitions and placement of a small number of shares
Last year, several exit transactions from investment projects were concluded: Square , Misfit , Withings , Whistle and JayBird . Of course, these are not so many multi-billion dollar transactions as in 2014, but nevertheless, some investments were successfully implemented.
San Francisco Still Dominates Hardware Financing
Although the communities of Boston and New York have expanded significantly, San Francisco is almost two times ahead of Boston and New York. The number of startups borrowing iron in the Gulf (which attracted more than a million dollars in open rounds), according to my estimates, is 161, compared with the 110th last year. New York recently ahead of Boston in terms of the amount of money collected and the number of funded startups.
There are more funds investing in hardware
Last year, Eclipse raised the first $ 125 million and it is reported that the company is organizing the next fund. The Hardware Club , located in Paris, also organizes its foundation. It is too early to judge which of the venture capital organizations has become the most successful investor in this area. The largest realized investments (Fitbit, Square and Nest ) were initiated before 2011, when there was a real boom in the field of hardware. That is, venture capital funds have more than justified their investments ( SoftTech and True Ventures with Fitbit, Kleiner and Shasta Ventures with Nest and Khosla with Square), but the vast majority of startups funded by venture capital funds only last 2-4 years.
Over the past few years, there has been a boom in investment in the field, the next few years will be devoted to the implementation of developments.
The number of investment transactions of a venture fund in a certain area does not mean that it is focused on this particular area of activity. For example, a16z made 50% more investment transactions in the iron industry than lux capital . But less than 8% of the a16z portfolio falls into the hardware category, and Lux Capital has more than 25% of transactions.
Over the past year and a half, we have seen an increase in investment in hardware, but this jump is aligned with the development of the sector. Many developments that caused a stir in 2013 and 2014 finally entered the market. And although it is too early to draw conclusions on most products, we have already seen several breakthrough developments ( Eero ), as well as several failures ( Skully ).
Over the past few years, there has been a boom in investments, the next few years will be devoted to the implementation of developments. With the number of new funds and accelerators, raising money in the early stages of iron mining is now an easy task. But the search for funds to scale the business is still an almost impossible event.
By hardware, everyone understands something of their own. By “hardware” I usually mean startups that make Internet devices and deal with both software and hardware. Startups involved in robotics, wearable devices, the Internet of Things fall under my definition. And most consumer companies are not suitable. Companies such as Casper, Warby Parker or Bonobos are more likely not engaged in iron, but are digital brands that innovate in the distribution of products.
Original: Who invests in hardware?