Everyone Funds Hardware: 3 Hacks To Get There

Founders often tell us that that an investor “does not invest in hardware.” And in the past month I have heard:

“We don’t do hardware and life sciences. Until we do.” — Growth VC Investor
“We funded that drone company. But typically we don’t fund hardware” — An LP Investor
“Their fund was overexposed on hardware, and then they did two more hardware deals so now they are really overexposed” — Seed GP Investor

So let’s take a step back and admit it: everyone funds hardware. We even started to make a chart to prove it but got tired:

Note for investors: just admit it; you fund hardware and you will do it again!

If you are a hardware founder, you know how frustrating this pass can be. You know the investor lists a number of hardware deals on their website. You know that your business has amazing potential. And you know that your valuation is below where you want it and they still don’t budge.

So what gives?

While many founders come back disillusioned and complaining that hardware is not in vogue, there is another point of view.

Everyone funds hardware; it just needs to be derisked

We find that most Silicon Valley investors have been burned by the level of hardware risk present in some businesses. Many founders are going after hard industries like logistics or transportation, and most investors are not from that world. So what should a hardware founder do to break the cycle and derisk enough?

1) Hack your credibility

I speak with many investors who have no issue in funding the hardware rockstars from Ring, 3D Robotics, Nest, Cruise, or Fitbit. If you are working on incredible hardware and can recruit some of these folks as your CTO, VP of Engineering, CRO, or cofounder, you have become less risky to the VCs and perked their ears. Bringing superstars to your team makes this much easier because they have experience navigating the phases of hardware (i.e. DFM, EVT, PVT, etc.) and go to market. If only it was easy to bring these people to your team.

2) Hack your sales and marketing

Enterprise sales takes time to convert and if you do not have a large enough credit line you may not want to grow too quickly. So prove that you have demand by building a robust pipeline, and show actual conversions at each stage. Let your investor know that you have been holding back on the throttle, but you have the demand to push the pedal down. Having proformas for both steady growth and high velocity would allow the number geeks to see that you don’t need their money but if you take it then everyone wins. Having a solid marketing strategy shows that you know your customer and how to reach them.

3) Hack your product benefits

Since “nobody funds hardware,” don’t use that word. We often tell founders to stop talking about their hardware and software solution. Leave the maker brain at home and focus on areas where your audience will both relate to and add significant insight. What you are doing is hard enough and can only be made harder by dropping the H-word.

A truth that has been used against hardware underdogs for too long

I am reminded of the famous saying from Marc Andreessen, a fellow hardware investor. Yes, software is eating the world, but not at the expense of hardware. There will be many hardware deals funded this year and next year. Yours may be one of them. For additional tips, check out our blog where you can find our latest piece on redefining the milestones in hardware seed. And if you are building products in one of our focus areas (agtech, mobility, biotech, LATAM, cleantech, or industry 4.0), you can apply for funding here.

Also published on Medium.