Moderator Presentation: Get inside of the head of an investor saying YES to high risk
Channel: Silicon Valley Web Builder
Date: 2021-05-16

In the late 1990s, building an electronic product company was a herculean feat. Components had to be designed from scratch. Firmware engineers spent months writing low-level code to control silicon. Communication stacks were written from the ground up. Assembly lines were built by buying capital equipment and hiring manufacturing workers. Distribution was dependent on retailers buying your first 5K units without any prior sales traction.

After 30 years, the story is different. No longer do startups spend months writing communication stacks for radios. They drop in a $3 pre-certified radio module with WiFi and Bluetooth with most of the functionality already in place. Hire a contract manufacturer who is willing to build a 10K unit each month. Similar to software, many hardest technical problems have been abstracted away. As starting a hardware startup has gotten easier, more founders have done so and competitive advantage or barriers to entry are today’s hard problems.

Fitbit and GoPro went public while significantly profitable, having raised only $77M and $90M respectively from VCs excluding capital from CMs. This is far fewer VC dollars raised than the average SaaS IPO. Fitbit scaled from $0 to $1.9B in revenue in 7 years while very few SAAS startups scale that quickly (SaaS public revenue average at 7 years is ~$90M). As hardware startups increasingly adopt software-like business models, it’s more common to see 45%+ gross margin business in GoPro, Fitbit, Dropcam, and much higher on the subscription or data storage product.

The “hard” part of any sector changes as old problems are solved and new problems appear in any startup history. The fundamental difficulties of building any disruptive company remain the same: team, market, distribution, and marketing. These are the problems that unite all companies trying to build value in the world. Our investor panel is going to share their insights in evaluating, assessing, and managing their high-risk ventures.