What kind of capital should hardware founders look for?

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.


Hardware accelerators

Recently there have been more and more hardware accelerators emerging. As in any other acceleration program, avoid the “equity for sympathy” types, i.e. the accelerators that do not invest in cash but provide space, equipments and services in exchange for your equities.

Cash is crucial in your survival, especially in early stages. “Equity for sympathy” type of investors also tend to be bad investors as they have literally no stakes in you and have little motivation to continue to help you.

Even for real accelerators that do invest cash, you still have to think hard enough why you’re joining a particular accelerator. Unlike lean startups that could actually benefit from locking themselves in a facility for 4 months, hardware startups have to deal with players in different continents, e.g. distributors in USA and Europe, retailers in Japan, contract manufacturers in China, etc. Locking yourself for 4 months in a specific space, whether it’s in San Francisco or Shenzhen, might not be the best use of your time.

If you’re going after the equipment argument, note that there are many maker spaces around the world that could be a good, flexible alternative.

The benefit of joining a good hardware accelerator is that as a non-hardware-background founder, you could learn a lot more about critical issues such as DFM and DFT. Then again, there are many other ways to achieve that and an accelerator is not the only option.

As with all accelerators, always remind yourself which KPIs you’d like to accelerate over the course of being in it. Note that “learning more and more about DFM and DFT” does not qualify as a measurable KPI. Most likely the real KPIs that could be accelerated are numbers of email subscribers, Facebook followers or pre-order sales. If you’re not seeing constant week-over-week growth of 6%~10% in the key KPIs, you’re not accelerating. You’re just hanging around.

General accelerators

The only reason to join a general accelerator, i.e. those that don’t even provide hardware equipments, is to develop your entrepreneurial skills and entrepreneur network. For this reason, you should join the best of the best: Y Combinators, TechStars and 500 Startups are the usual suspects.

At the moment of this writing, many general accelerators are adding hardware mentors into their network. However, do not expect to have immediate, hardware-startup-specific advices. As in the case of VCs, most successful hardware startup co-founders are still running their now public companies (Fitbit, GoPro) or serving as the CTOs of the companies that acquired them (Misfit). Few have jumped over to the funding side, let alone spending their precious time serving as mentors or coaches in accelerators.

However, entrepreneurship and entrepreneurial spirits are universal. Go for the best generic accelerator to get access to the network and use it well, to learn about entrepreneurship.


VC firms

While the pure hardware VC firms seem to be coming up, it’s still a very small sample space. Track records are still sporadic. Instead of blindly believing that a VC firm that claims to specialize in hardwares could give you all the help, you should figure out whether the partner himself or herself is a really good hardware investor.

Interestingly, most of the really successful hardware startups are funded by general VC firms. Andreesen Horowitz was notably in several successful hardware deals – while Marc himself coined the famous “Hardware is hard.” sentence.

Again, in this case it’s not the firms that matter. It’s the partner. If you get a tier-1 VC to invest in you but the partner sitting on your board had never invested in a hardware startup before, you could pretty much call it dumb money even if the firm itself has been smart money. The partner could be giving you all the wrong advices and in some cases we saw startups die due to these advices.



Due to the nature of hardware businesses that involve brands and manufacturers, corporates have been relatively active in investing in hardware startups, especially among the big EMS companies.

If it’s an EMS company that wants to invest in you, keep in mind that most of the time they do not really have a VC arm. Investments are usually done randomly, i.e. without structured deal flows and pipelines. They do not go by the notion that only 1 out of 20 ventures startups will make it. For most of them no investment should fail. The decision makers’ corporate asses are literally on the line. Their “no-fail” mentality has a lot of bad implication for you having them as your shareholders. If you are not confident that you could manage this risk well, EMS money could be lethal to you.

There’s also the obvious conflict of interest. When Foxconn invested in GoPro, the prevailing EMS partner for GoPro was Chicony, another Taiwanese firm. You could imagine how many unnecessary discussions or debates arose in the Board Room due to this obvious conflict of interest.

You should also never assume that just because an EMS corporate invests in you, you’ll be able to go into production without any problem. Especially in large EMS firms, each factory is a profit center of itself. The corporate investment team might not have the means to incentivize the BU head, who owns the factories, to work with you.

In general, do not use the (presumed) convenience as a reason to take EMS investments. Fitbit and Nest did not need EMS investments to be successful, so could you.

For the other types of corporate investors, take the same approach and analyze the conflict of interest properly. For example, if you take investments from big brands such as Sony, you might run into the conundrum of competing against their own products. Worse, they might be seen as your eventual exit by many potential investors, which could hugely distort the funding trajectory in the following rounds, if not distort your company operation completely.

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