Where Are the Investors for Hardware Startups?

If you are a hardware startup that is ready to take off, one of the items on your checklist now must be funding. The good news is that the hardware industry is witnessing a resurgence in investment. According to TechCrunch, investment in hardware startups has grown more than 30% since 2010, and the trend is expecting to keep growing. As you may be interested in learning about the source of these funding, we have broken it down to three types of investors for you: Hardware-only VCs, Hardware-friendly micro-VCs, and Hardware-friendly traditional VCs. However, traditional VC still counts for most of the investment in the hardware startup sector, while Hardware-friendly micro-VCs and Hardware-only VCs focus on hardware startups at different stages.

Where are the funded hardware startups? 

It is not surprising that the Bay Area is the No.1 location for funded hardware startups, with Boston and New York City ranking right behind it. If we rank the cities base on the amount of money raised, San Francisco is the outright winner. The amount they raised in 2014 is 5 times more than Boston and 10 times more than New York City.

And if you wonder why venture capitals are now more interested in hardware startups than 10 years ago, it can be broken down into 3 main factors: strong exits, the combination of hardware and software and higher rates of feedback for connected hardware startups.

1. Strong exits 

Several companies, most notably GoPro AND Fitbit, have shown investors that hardware startups can grow at a faster rate than software-only startups. This also includes the amount of profit that they generate despite challenges in distribution and manufacturing.

2. Combining hardware and software 

The problem that most hardware startups run into is commoditization, and as more hardware startups release different kinds of connected hardware products to the market, it actually opens the door for software to interact with customers and become part of a brand. The growth of the connected hardware sector is reflected through the growing number of startups and the amount of funding they receive. The connected hardware sector will most likely keep growing, and the amount of investment from VC is also expecting to hit a new high. All in all, the hardware community will have a clearer idea about how to grow and where its potential lies.

3. Higher rate of feedback for startups

Although traditional hardware companies can only rely on revenue and returns for feedback, startups dedicated to connected hardware somehow get more frequent feedback about product usage, retention, and churn. It also gives investors better ideas about younger hardware startups.

So if your hardware startup is about to take off but worries about the prospect of funding, we hope the information above can help you gain more confident in the future of your startup.