As today we live in the era of services and information, it almost never comes to our minds that real sector production is still necessary and can actually be profitable. In this connection, most modern investors are pretty skeptical about projects dealing with any kind of manufacturing and consider it to be a risky business with relatively low returns. However, in recent years we have observed a rising trend in hardware startups’ investments, with some major capitalists concentrated particularly on this field. Thus, some device companies managed to raise more than 1 million funds each from private venture capitalists and business angels.
Traditionally there are three categories of hardware investors:
- small venture funds investing only in hardware startups and usually not big enough to lead the project till the end;
- capitalists providing only seed investment to hardware companies and simultaneously involved in other fields’ projects;
- hardware friendly venture capitalists able to provide strong financial support to the consumer hardware companies during the whole project development process.
For now most successfully funded hardware startups originate from the US. Unfortunately, other regions still have problems in their hardware-funding ecosystem. But why has it become worth investing in hardware companies and how do they manage to raise funds in general?
The first and the most obvious reason for hardware financial help is associated with possible high returns on investments, already demonstrated by famous device startup based companies like Nest, GoPro and Fitbit, which are now valued at 3-9 million dollars each according to their acquisition prices. This should be a very persuading factor encouraging hardware investments.
Furthermore, many private investors are happy to participate in the production of connected hardware. Interconnection with modern technology like the cloud, Internet of things and other already popular receivers of funds makes capitalists take such hardware investments easier.
Some hardware companies has found another way to become more attractive for investors through lower commoditization. It is widely known that hardware products can be easily replicated or prototyped, which leads to a high level of commoditization in the field. Respectively, low price margins are expected, which pushes investors away from such non-perspective hardware projects. However, a good combination of hardware with the quality software makes a new product distinctive from its competitors. That is why hardware investors tend to cooperate with companies producing connected hardware featured with unique software components, which allows avoiding commoditized consumer electronics.
Obviously, in order to encourage stable investments in the hardware-funding ecosystem, producers should work on their products’ distinction and try to escape from saturated market niches. Specialists from seed-stage hardware venture fund Bolt already know in which projects they would like to invest and even make suggestions to the potential hardware partners on their website. Thus, the following startups are expected: enterprise connected devices, new sensor devices, virtual reality video capturers, consumerized healthcare devices and many more still non-existent or non-developed gadgets that could make a sensation in the hardware industry.
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