Jul
31
12



The return of venture backed hardware

Redpoint has invested in 2 hardware companies in the past few months: Sonos, makers of beautiful and simple wireless speakers, and Electric Imp, makers of tools to connect all electric devices to the Internet. We haven’t shied away from hardware in the past either with investments in TiVoDangerAvnera and Peel among others.

 

Sonos Speakers and Controller

Recently, hardware companies have been poping up in all kinds of places. Nest is building the next thermostat. E La Carte deploys tablets to restaurants. Ouya is kickstarting an Android gaming platform. Lytro has released a lightfield camera. Beats by Dre, SkullCandy market headphones and so on.

Hardware investments are blossoming because software is reinvigorating the market. Hardware companies face deeper logistical challenges, greater likelihood of margin erosion, and more complex go-to-market strategies than their software cousins. But subscription revenue streams like streaming music services or device remote control breathe life into hardware companies, driving ultimately higher margins and more sustainable revenue streams.

 

Electric Imp’s Development Board

In response to these trends, the hardware hacker community is flourishing. Winners at many Bay Area hackathons focus explicitly on hardware hacks using Arduino to commandeer electric devices. Others are building applications atop Raspberry Pi. These often teams comprise both hardware engineers and web engineer. Hardware represents new, exciting challenges to conquer.

It’s precisely this union of hardware actively communicating with software in novel ways that is electrifying venture capitalists. Hardware companies may always face additional complexity but the reward has never been larger: new markets, subscription revenue streams and phenomenal teams make for great investments.