Photograph by David Paul Morris/Bloomberg
The success of Nest’s digital thermostats are helping turn up the heat on venture capitalists to fund hardware startups.
McCabe has backed about a dozen hardware companies in the eight months since she joined VegasTechFund, the venture investment group started by Zappos founder Tony Hsieh. She’s looked at 400 to 500 others. After an extended stretch when many investors steered clear of hardware because of the excessive costs and risks involved, high-profile acquisitions and IPOs are starting to bring back the enthusiasm.
“Entrepreneurs will be reading a lot of buzz about hardware and starting hardware companies because there’s a viable exit strategy,” said McCabe, 34, who previously worked at robot startup Romotive.
Several of McCabe’s initial investments, including health device maker Scanadu, were companies whose products she first backed out of her own pocket through crowdfunding sites Kickstarter or Indiegogo. Crowdfunding has helped spawn numerous hardware companies by letting them take pre-orders to fund development and test the market.
After that, entrepreneurs have had to turn to a short list of venture capitalists who have shown an appetite for hardware, such as Khosla Ventures or VegasTechFund. That pool could grow thanks to the recent high-profile success stories.
In addition to investing up to $200,000 in each deal, McCabe brings expertise. She spent about six months in Shenzhen while working at Romotive, gaining a firsthand look at production lines and manufacturing. She’s helping startups to navigate the challenging world of distribution, and hopefully avoid common and costly mistakes.
For example, the large cartons that companies use for shipping must weigh no more than 35 pounds or else they result in an extra charge for the use of a forklift, McCabe said. That’s something many hardware entrepreneurs learn the hard way.
By Ari Levy courtesy Bloomberg. Thank you, TiA