Hardware Companies Win VC Appeal, Too

Social media companies may be the Wall Street darlings of the hour, but electronics hardware companies are proving they can put the shine on a venture capitalist's nickel.

Though long considered riskier than software investments — mostly because of the costs associated with prototyping, supply chain and inventory management, and mass manufacturing scaling — pockets of hardware development are catching the eyes of venture capitalists.

Consumer electronics companies and hardware makers are being helped by the buzz around the Internet of Things, machine-to-machine connectivity, wearables, mobile health and lifestyle trends, and big data management. Also, as crowdfunding ventures pique interest in hardware design viability and wider availability of 3D printing starter kits makes it easier to prototype devices, there's been a trickle down affect in the VC community.

The Wall Street Journal recently reported that “U.S. venture capitalists completed a record 31 fundraising deals for consumer-electronics makers last year, eclipsing the previous high of 29 in 1999,” citing data from DJX VentureSource. VCs poured $848 million into hardware startups in 2013, nearly twice the prior record of $442 million set in 2012, the story said. Although the recent uptick represents less than 3% of the total 2013 VC investment, it's a notable gain over the less than 1% the hardware space commanded between 1992 and 2011, according to the WSJ.

Some of the investment attention is coming from typical Bay Area-style incubators building their portfolio uniquely around early-stage hardware startups. Lemnos Labs is one such VC. The San Francisco company, which announced a $20 million fund a few weeks ago, targets investments in a few key hardware sectors such as robotics, aerospace, transportation, agriculture, and connected devices.

Two hardware startups that won Lemnos Labs funding are 6Sensor Labs and Ceres. 6Sensor Labs “builds sensors to help people with food allergies eat more confidently and safely” and its first product measures gluten in food, according to the Lemnos Labs press release. Ceres helps farmers monitor crops via unmanned aerial vehicles (UAVs) and aerial photography that shows where water should be applied and where there are clogs or leaks in irrigation lines. Additionally, the 10 companies already in Lemnos Labs portfolio, funded via a previous $1.85 million fun, have since raised a total of $35 million in funding, notes this CNET article.

Other funding is being funneled through existing tech companies that keep their eye on hot potential products. For instance, chipmaker Xilinx recently led a $16 million Series G financing round to fund Aquantia, whose 10Gigabit Ethernet ICs help fuel cloud computing and large-scale datacenter deployments. And, contract manufacturer Flextronics last year created Lab IX to “help disruptive hardware technology companies cross the chasm from prototype to production” and has five companies in its portfolio, with specialties including sensing, biometrics, 3D imaging, and touch technology.

But the VC trends are not only Silicon Valley-centric. Even in places like Cleveland, Ohio's Health Tech Corridor, there's a growing interest — namely in the biomedical space — to nurture regional collaborations designed to take lab ideas to production, or as they say, “from bench to bedside,” as this story points out. The article says the Cleveland-area healthcare companies attracted $201 million in venture funding in 2013, citing a survey by the business development agency BioEnterprise.

Which disruptive hardware developments do you hope will make VC waves in the coming quarters? How will the supply chain gear up to meet these new electronics needs?

1 comment on “Hardware Companies Win VC Appeal, Too

  1. Hailey Lynne McKeefry
    April 16, 2014

    Perhaps the openness to investing in software is the awareness that future will put more devices into more hands than ever before. Even a small profit can add up if you sell millions of something.

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