All in + Taiwan

Finally the most important structural development for hardware startups – the emerging of Kickstarter as a first huge funding source. In the old days, the HW startups have to raise money from investors to produce their prototypes and first batch of products. Since this usage of capital is relatively inefficient, the money they raise will take up equities of 30~40%, if not more. Later when the startups go on to raise the next round, the new investors will simply take a look at the Cap Tables and walk away. It's simply not gonna meet their required rate of return. However, today the greatest hardware startups raise their first big round of money for production from their end customers! There is zero equity dilution. Even more beautiful – this is the reverse of the receivables-payables mismatch! While lean SaaS startups have negative working capital, these HW startups have positive working capital for their first phase of mass production!! Consumers are paying in full way in advance – anywhere from 6 months to 18 months – to buy the products that excite them. The startups can then use the money to learn operations and logistics through their first mass production. At the same time, Series A investors look at the Cap Tables and now it has become an investable business. In short, the emerging of Kickstarter has delayed the equity dilution by an entire round and peeled away considerable investment risks, making investments in hardware startups interesting again.

For Californian or French startups struggling to raise money on Kickstarters or from suspicous angels so that they could pay for the huge prototyping cost, I could testify with my own 10 years of working in Taiwan that you could easily get the prototyping done at a much lower cost.

The reason is exactly the success of OEM and semiconductor industries. Due to decades of hardware focus, there are a mountain of 3rd-party vendors in Taiwan providing hardware services such as module prototyping and crafting. We're talking about family firms of 5~10 employees with molding machines in their small workhouses, taking your order individually at a reasonable contract price and even allowing for back-and-forth modification free of charge or with limited extra cost — to many Cali startups, this sounds like heaven and it truly should be.

And for more complicated designs, sourcing the necessary semiconductor components such as processors, memories, networking chips and even digital camera modules is probably even easier than in California, and surely than in France. You find market leaders of different components within the 100 km of diameter from Taipei to HsinChu. And if you have the right connections, eager and talented engineers in those companies are always happy to help you in debugging your system so long as your projects provide the good old engineering satisfaction of problem solving for them — heck! I personally am open to help startups solve issues with their HDMI or USB interfaces as well as WiFi connectivity, even just for fun!

Last but not the least, if you successfully build your networks through working with component vendors and 3rd party hardware service providers, it's much easier for you to find the small OEM who might be willing to manufacture that 1,000 pilot devices that you need to distribute to your impatient supporters from Kickstarter and test the response of a larger market!