

Ask PG & HN: Hardware VCs - ComputerGuru

Hi Guys,<p>I have a working prototype for a device that addresses the needs of a large and neglected sector of the tech market (the blind) and am looking for a VC.<p>What are your suggestions for a startup <i>with a finished product</i> looking to go big? I'm looking for the industrial connections, product advice, etc. that only someone in the field would have. The current hype is all about (web) software, but I have a hardware product I'm looking to make something out of it.<p>From what I've been told, the terms of hardware VCs are much more favorable towards startup founders than in the software world because (esp. with a finished product) the result is tangible and the founder has done all the hard work and then some and it's basically a more sound investment, but I don't if that's actually true.<p>I'm looking for investments in order to pay for the legal costs (several patents on this product), the development of a polished version instead of something hacked together in a workshop, as well as marketing and business costs.<p>Any advice on this matter is most welcome.<p>Thanks!
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pg
If you plan to grow the company to over $100m in annual revenues and want to
raise at least $750k now, go to VCs; if either of those is false you should
raise money from angels.

I wouldn't worry at this stage about how favorable the terms might be. That's
sort of like thinking about what to have as a snack when you get to the top of
Everest. It's very hard to convince investors to give you money, and VCs
especially. VCs invest in less than 1% of the companies that approach them. So
the first order of business is to convince anyone to invest in you at all.
After you do that you can optimize the terms.

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DaniFong
Hi ComputerGuru,

I guess the main question for me is, what stage are you at? Have you done
adequate manufacturing engineering? Worked on the factory contacts? Just
getting started on the science? Working on product refinement? A few demos out
and helpful?

In terms of investors that I know about, both Khosla Ventures and Kleiner
Perkins are willing to invest in hardware projects with huge potential: with
Khosla Ventures even at the science project stage. Angel investors are also
pretty good bets, due to the social good angle.

Due to your describing it as 'hacked together,' and the lack of IP protection
thus far (you should consider filing for provisional patents ASAP, they're far
less expensive), you're probably seed or series A stage for Khosla Ventures,
possibly too early for the other VCs that I know about, but potentially you
could also raise money from a variety of foundations and from NIH, for
example.

Good luck! If you'd like to contact me I can be reached at dani.fong at
google's mail service.

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ComputerGuru
Currently, the science is all complete, the hardware is pretty much polished
as is the firmware. The mechanical parts are the real problem; currently built
at local metal workshops and some CNCs.

I have a single demo unit that is working great, and have ideas for future
improvement that would need access to more than a local workshop. Haven't
actually gotten in touch with anyone for real manufacturing mainly out of IP
fears - I'm in the initial stages of talking to an IP lawyer now, but haven't
actually handed over any of the inner workings partially out of paranoia and
partially because I'm not sure what I'm looking for just yet. I'll take your
suggestion and look at provisional patents in a few.

Basically both the idea and the implementation are novel and are what I'm
looking to patent. The actual mechanical details are out of my field of
experience (computer engineering) and I have several different designs and I'm
sure someone in the industry would have better ideas as well - that's
something I'm hoping a VC could help me secure, somehow.

Thanks for the Khosla Ventures suggestion. I'll keep them in mind as I
formulate my list & next steps :-)

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DaniFong
Take some videos of the thing working, and post them somewhere that you track
and that's password protected. The reason for this is so that you can easily
show one person at a VC firm, who, if excited, can easily show the rest. A
working prototype is _the_ litmus test for VCs, who by the nature of their
trade can rarely be experts in everything.

If you've got the money to fast track a provisional patent, so that you can
say "We've filed a provision patent," it will give you major credibility, more
negotiating leverage, and in particular you'll have the IP that VCs want.

You definitely need to open the kimono a bit. In particular it is practically
unheard of that a patent lawyer will screw you -- more often they will just
take your money. A patent lawyer's entire career is ruined if they're caught
stealing -- whereas you could probably still succeed by out-executing and out-
innovating the competitors.

Best

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tptacek
I have never taken a hardware product to market, but I did have key roles at
VC-funded companies, co-founded a company we got funded, and in 2005 did the
VC tour on a hardware product.

What I'll say --- and again, don't take my word for it --- is that what you're
saying _may be_ the opposite of true. Hardware companies have a higher cost of
sales, supply chain issues, worse margins, and must carry inventory (sometimes
millions of dollars worth) to fulfill customers. The "hardware" part of what
we were doing was, for the VCs that got into real due diligence, the _least_
attractive part of what we were doing.

You may have a resume that is a mile long in hardware, and that may mitigate
some of the concern.

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ig1
Here's a common route:

1) Get provisional patents

2) Build a protoype of the finished product, if not possible then graphics
showing the final product when polished.

2) Go to a couple of big customers and show them your product + graphics and
get some letters of intent (we'll buy x many of this product)

3) Go to a bank with your letters of intent and get a loan against them. Banks
are experienced with this sort of thing, it's a pretty common route for new
inventors to go down.

4) Use the loan to tool up and get the product manufactured in a smallish
quantity

5) Fulfil the sales you've made and make more sales.

You don't need VC money to take a hardware product to market, most inventors
don't take VC money to get a product to market. But if you decide you do need
it for whatever reason then the more of these steps you take before
approaching the VC the more chance you have of getting funded.

Especially getting a patent and getting sales on the table.

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brk
I can possibly help you with some of this, the majority of things I've been
involved in have been hardware, not software.

I have a decent mutual NDA if you want to chat.

Not to be arrogant, but I'm busy enough and happy enough with my current gigs
that I don't have any motivation to steal your ideas ;)

I've been through most of the UL, FCC, CE-Mark and similar cert processes,
done parts relating to CNC, plastic injection mold, vacuum-form, PCB
design/layout/stuffing, packaging and so on.

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neurotech1
Check out <http://www.open-pandora.org/>

They are well on their way to completing a production run of 3,000 consoles
based on an open software platform, and have documented a lot of the steps
along the way to getting the device through manufacture.

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ephermata
You might talk with Mitch Altman, founder of Cornfield Electronics. Mitch has
a successful hardware business now, selling the TV-B-Gone remote among other
things. <http://www.tvbgone.com/cfe_main.php>

Mitch did it without needing VC. Mitch is also incredibly generous and
approachable; we've worked together in creating and running a hacker space. He
recently led a trip to China for people who wanted to learn more about
manufacturing there. If you sent him a short blurb + video he might be able to
offer some useful advice.

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onoj
Be very careful about what you want to achieve and why. Developing a product
and holding on to the business requires years of commitment and a solid cradle
to cradle strategy. Help lines, refunds, quality control and government
standards all come in to play. import export requirements, material quality
requirements not to mention differing taxation requirements per country and
state. Be clear on wanting to license the concept, sell the IP or actually
make a business. Not to mention that the profit on hardware is minimal
compared to content. (I worked in new business development for Philips
electronics for 6.5 years)

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Keyframe
I don't have anything smart to say except that I fully support you in your
endeavor!

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maxklein
How big is the market of the blind who can afford something like this? My
initial instinct would be that the market is too small.

~~~
ComputerGuru
The idea is to sell to intermediary agencies (such as human relief, NGOs) and
government contracts.

~~~
maxklein
How many blind people are there in the U.S? How old are most of them?

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Mz
Someone else has already mentioned the issue that handicapped people may not
have the money for something that helps them. A bigger problem can be that
handicapped people tend to be very resistant to change. We have a difficult
enough time doing anything and change can be especially hard and dangerous for
us. This is a serious obstacle to market development. If you haven't already,
I suggest you give some thought to it or you may find that there isn't enough
money in the world to make this fly.

Good luck.

