I believe that this is not the case in FCFF & EV valuations, as there's no effect on how the FCFF is distributed if we exclude tax impacts. I would say that if the Terminal Values in your FCFF models account for huge part of your EVs, the models are still unreliable. This is the case of many LBO modelings where revenue growths are modeled only up to 5 years and also to be low single-digits. 

In the case of high-growth startup modeling, it's important to project FCFFs up to 10 years or 20 years until the company hits maturity. If after doing all this a significant portion of the EV still comes from Terminal Values, then this model is just as unreliable as a 5-year LBO one, if not more.

Unlike the lean-startup world where pure-play VCs dominate almost all early-stage investments, we have seen quite some corporate investors stepping into early stage investments in the hardware field. Usual suspects are large manufacturing firms such as Foxconn or Flextronics, as well as some consumer electronics brands.

I believe that a more complete hardware investment eco-system will take form in the next 2 to 3 years. However, before that happens, a hardware founder should, like any founder, really think carefully over all funding options. A dollar is never just a dollar. There could be a lot of good things and bad things coming with it.

Like many hot startup subjects, crowdfunding is an oft-misunderstood one. At the Hardware Club we have more than 20 startups that broke $1M on Kickstarter or Indiegogo. In our portfolio companies along we have 3. We consider ourselves knowing the art of crowdfunding better than most average investors.

However, I constantly run into hardware founders that have very distorted views on crowdfunding. This article is to share my opinions on this subject as an investor. 

Some entrepreneurs think that contracts with component suppliers, manufacturers and distributors would govern everything, which could not be further away from truth. When you work at a large corporate, you can rely on contracts. Your company has the resources and luxury to spend money and time to enforce the contracts, sometimes even by going to the court.

As an entrepreneur, sadly, you never have enough time and enough money.

The general feeling is that if you're working on B2C products, you don't have to interact with too many adults other than your investors or potentially your acquirers.

This is definitely not the case in the hardware space. The reason is very simple: to deliver a product to the consumers, the hardware entrepreneurs have to work with suppliers, manufacturers, distributors, stores, logistics partners, etc.

Locking oneself in a garage, even with a 240 IQ, won't get these things done.

Startups do not have volume, especially in early stages. For an EMS company to work with a startup, the EMS company has to take a long-term view. If the startup will just easily switch to the cheapest supplier, then why should the EMS firm even work with them from the beginning?

On the other hand, by working with the startups on industrialization, building testing programs and QA programs, the EMS firms know the startups won't easily switch. That allows them to take the long-term view and hammer out multi-year growth plans together with the startups.

The real operational profitability should be judged on Operating Cash Flow (OCF). If OCF is turning positive and growing, you could be sure that real VCs will be more than happy to fund your startups even if you're still losing money accounting-wise. The new money will be used to do more investments and will hit the Investing Cash Flow (ICF) but as long as where it's spent feeds into OCF in the feature, this is a very healthy outflow. 

While most outsiders think a VC's job is the same as a stock picker, which is to make better decision in buying stocks than others. It could not be further away from the truth.

90% of our job is sell-side, if not more. Making the buy-side investment decisions is key to our eventual financial performances. However, without the 90% of sell-side effort, we may never get to choose, to exit and even to have the money to invest!

On the EMS side, they now have all the incentives now to "pump up" the numbers of NREs. What might well have been a healthy $500k NRE might suddenly be listed as $1.5M, including many service items that were not necessary for a startup.

On the startup side, it will try to use a high valuation to bring down the dilution but the EMS might never agree with its valuation since most early-stage startups are pre-revenue. EMS's thinking is all about P&L numbers. Without revenue numbers, it could not even "pretend to" do a proper valuation.

This debate could drag on for months. The next thing you know, product shipments are delayed, cash burns out, other VC investors walk away and a promising startup dies for wasting too much time on this wrong debate for no good reason.

This means that the discovery process of a hardware product is vastly different from the discovery process of a pure software app. It's not correlated to the app download slowdown we're observing now.

It is therefore entirely possible that a different scenario emerges: consumers buy a new connected hardware product, download the necessary app to run it and get hooked by the great UI/UX.

Note that any time of the day you could run into a random rich guy that appears to love your startup at the first sight like no one else. However, by taking his $200k (which means nothing to him) for a $20M valuation could block other real value-adding VCs to join the round.

Worse, it might block the next round completely as well if you can't grow the company fast enough to justify a valuation higher than $20M in the next round.