Hardware Curious
During an interview with an Associate candidate today, we got talking about hardware.
"Hardware" is a dirty word for most VCs (not unlike "Consumer"). To be fair, there's lots not to like about it. Speed to market is slow. Capital needs are high (meaning steep valuations and heavy dilution along the journey). Supply chains are complex. Iterating quickly is impossible. Revenue is often transactional/one-off, not recurring.
Be that as it may, it's hard to ignore the cases where "it works". Hardware-heavy Apple is a constant fixture in the battle to be the world's most valuable company - worth healthily north of $3,000,000,000,000 (yes, 0s for dramatic effect). Tesla is up there too (no need to repeat the 0s). Whoop and Oura dominate consumer health. Even Tonies, the story-telling box, is worth over $1bn. And Peloton... ahh Peloton.
So there are redeeming features. And in fact, I think hardware might be on the brink of a renaissance. As usual, AI is the agent of change.
Start with the pull: AI means a new constellation of hardware can be unlocked. Notetakers like Plaud, weird handhelds like Rabbit, humanoid robots like Figure. The hardware world is experimenting again, and that pulls ambitious entrepreneurs into the market...albeit there have been some casualties already (R.I.P. Humane - we barely knew ye...) The smartphone is a formidable competitor - being equipped with both eyes (camera), ears (microphone) and voice (speaker) - but I wouldn't be surprised to see other things spring up around the edges.
Now couple the pull with the push. AI is collapsing software moats. Competitors can build a great product with a small team incredibly quickly. Copycats spring up overnight. The tools that make it so much better to be a software tinkerer today also make it harder: just as Shopify simultaneously helped and hindered the eCommerce entrepreneur with both enablement and incredible competition. If you're an insider, barriers to entry are a feature, not a bug. Smashing them down rains chaos on a market.
The "hardness" of hardware, therefore, may be one of its most desirable qualities. If you happen to possess the right mix of vision, gall, salesmanship, nerve and luck, it might just be the best place to spend your time. After all, step one of building something iconic is to be different, and picking a hard starting point already puts you in a smaller pool of masochists.
Intellectually, then, it's interesting. But it still takes guts to do it, particularly as a small fund. You don't have the deep pockets needed for follow-on rounds. You're not the master of your own destiny. The trope is that you have to be contrarian in VC, but that only works to a point: you have to believe the Series A market will be there when the time comes, or even the best thing in the world goes to zero.
So in summary, I'm hardware-curious. I want to see what's out there, and I just might make a bet on something. As above, hardware can print a lot of zeroes when it goes well.