Shaun Arora and Noramay Cadena are the cofounders of Make in LA, an early-stage hardware accelerator and venture capital seed fund at the center of a growing community of hardware startups in Los Angeles. Established in 2015, Make in LA has funded, mentored, and graduated three cohorts of hardware startups, each one completing an intensive four-month program designed to help hardware startups turn their ideas into working products. Since Arora and Cadena see thousands of early stage projects, either as applicants or program members, we asked them for their take on the accelerator/incubator landscape, and to distill their experience into seven pieces of advice.
Q. How do you know when you’re ready to consider an accelerator or incubator? What’s the difference?
Incubators are a great place to go if you’re doing something that’s highly regulated or takes a long time to get to market. That’s part of the reason why there are so many cleantech, biotech, and medtech incubators. An accelerator is a great place to go if you want to learn quickly and attack a key market.
Q. So how should a maker decide? What projects sync up better with an accelerator vs. an incubator?
People who do well in accelerators are often looking for a large market to attack, and are comfortable with the speed, accountability culture, and high standards that come with an accelerator. So if they have a vision for a company that is VC-backable, a company that wants to grow to a $500 million valuation — then they may consider an accelerator. On the other hand, if they are still exploring, an incubator might be a better fit. For example, many of the makers we meet have multiple projects, and they’re advancing slowly on all of them, trying to figure out which ones customers dig. At this stage, they are probably better off at an incubator.
Q. What kind of agreement do you have with the startups you accept?
The startups we accept get $75,000 for about a 7.5% stake in the company. Everyone gets that deal at the beginning of the program, although we are open to the option for a smaller investment and stake for companies that have traction such as seven-figure sales. After the four-month program, we have an option for a follow-on investment: an additional $75,000 for an additional equity stake.
Q. Why Would Your Choose an Accelerator in LA, as opposed to the Bay Area, Boston, or New York?
We think that LA is in the ideal spot for an early stage hardware accelerator. We have a mix of capital and hardware unlike any city. In terms of capital, there are numerous early stage options like angels, angel networks, accelerators, incubators, venture, and even super angels and celebrities. We have 200+ languages spoken within our city limits, allowing our founders to do customer discovery on a global scale. And the hardware side is even more interesting.
For example, because our local port handles 46% of all US imports, our ecosystem includes best-in-class logistics and packaging. Because of our rich universities such as UCLA, USC, Caltech, LMU, and CSUN, we graduate more PhDs and engineers than the Bay Area. We have the largest manufacturing workforce in the US, and factories for many mature manufacturing companies such as Boeing, JPL, and Raytheon. That ecosystem makes it a great place to grow new hardware companies like SpaceX, Ring, Hyperloop, DAQRI, Neural Analytics, and uBeam. In fact, we are watching 170+ hardware companies moving through the local ecosystem as we speak. You can too.
7 Tips for Hardware Startups
1. Don’t Work in Isolation — Share it!
During the early stages of building a company, a founder will build the type of solution that works for him or her. If the founder is working away in a garage without the benefit of constant input, he could end with a product that is loved by one, instead of a product loved by many. Don’t be afraid to share. We see a lot of makers who are overprotective about their idea. They don’t want to share it.
But there have been many cases where a team went out there, talked to the world, and they received uncomfortable, but valuable, feedback. That’s obviously a good thing, because they realized a critical flaw early on and were able to correct it before going to manufacturing. Too often entrepreneurs don’t feel comfortable sharing their invention because they worry about someone stealing the idea. They worry about counterfeits. Yet it’s very rare that you have an idea that’s not going to get better by sharing it, and learning how other people respond to it.
2. Keep Your Focus on Manufacturing, not Prototyping
Making a prototype is very different than going into mass manufacturing. A lot of times, a founder’s sweat equity in the prototype isn’t factored into the assembly cost, nor is it factored in with how to scale the production. So, just because she made one, doesn’t mean that she can take the same process and make 100,000.
The ability to establish a supply chain, and the ability to perform quality checks throughout the process, and all the intricacies of machine setups — that’s all very important. It’s easy for makers to take for granted the availability of parts, the quality of incoming material, the durability of production-grade materials, and the various glue choices at hand as one transitions to manufacturing. And so one of the things that we help our entrepreneurs do is prototype on mass manufacturing equipment. We find that the more they know about the process, the better their ability to troubleshoot future problems, the better their specs are going to be when they go out to manufacturing, and the more empathetic they’ll be to their contract manufacturer. And they also develop an understanding of which design features can make manufacturing easier or harder.
3. Frontload Your Mistakes
We remind entrepreneurs to “stay ugly” for as long as possible. This applies to both prototypes and the pitch. In an accelerator, we are helping our founders make mistakes in a safe space. They learn from fundamental flaws in their product or their approach to the market. However, if they put time into making their product pretty, two things happen: they have less time to test, and they are less open to feedback.
It happens too often: a founding team avoids testing for certain things, only to discover a related mistake a year or two later. And that mistake might be a death blow, or waste a lot of people’s time and money. We want our founders to be curious, to frontload mistakes. And then we work to move beyond that and not make that same mistake twice.
4. Have Strong Beliefs, but Hold Them Loosely
This is based on a similar saying we’ve heard from venture capitalist Fred Wilson. Many in the venture capital world model this characteristic: believe in something passionately while being open minded to a better idea. It is a way to trigger a debate without being a bully.
For example, one of us may have strong opinions that umbrellas are poorly designed and should be outlawed until we can come up with a variation without tiny pins at eye-level. However, if you had a strong reason why your umbrella needed to be shaped that way, we wouldn’t dig in our heels — you can persuade us, and we’re open to playing around with it.
5. Be Willing and Able to Dumb Down Your Idea
I (Shaun) need to hear an idea dumbed down. And not just because I am dumb, which I often am. When you design and engineer a product, it’s easy for you to discuss how superior your product features are, and then the jargon starts to flow. We always want our founders to get feedback from a broad array of technical and non-technical people. For example, today I was explaining to someone about our “hardware for blockchain” program. And then he asked, “What is block chain?”
In the moment I had slipped into jargon talk. But when forced to explain it simply, I had to find a new language that would get the other person as excited as I was. I had to think through fundamental questions like “Why is this important?” “Why are we doing this?” and, “What does that mean?” It’s helpful to ask these questions on a regular basis, to ask good questions clearly so we can get great answers back.
6. “Make Every Detail Perfect and Limit the Number of Details to Perfect”
That’s a quote from Jack Dorsey (co-founder and CEO of Twitter, and the founder and CEO of Square). We like it because making every detail perfect is what we all try to do, and it comes naturally to many. Yet restricting the number of details suppresses our natural tendency to build and improve. In hardware, we can easily run into the issue where we add features and in doing so add costs quicker than we add value. It’s easy to catch yourself trying to add features. Do you ever say things like, “Wouldn’t it be great if the product had this?” or “If we only added this one feature the product would be better.” Or “If we add Alexa to our devices that would solve everything.” As you make your product better, you add complexity and cost.
For example, examine how much margin it increases and then how long it will take to repay the upfront engineering and non-recurring engineering (NRE) costs to execute that scope change. We have to pause more often and ask the question, “Is this the right thing to do for the business as a whole?” The answer is often “Yes” in many cases, but sometimes we may find that we add features merely because of a perceived advantage, without consideration to the return on investment. And it’s not just development costs and timelines that get moved. The customer value proposition may change as well. Is the audience going to be the same audience when you start adding new features? How do you communicate these new features?
7. Think Long Term
The best accelerators think long term. Noramay likes to say, “A long term outlook is good karma.” And what we’ve learned is that in order to do it successfully, for the benefit of our investors and the companies we support, our entire community needs to be aligned.
We work with very, very early stage companies, and that means that returns from them are expected several years into the future. Our commitment to our portfolio extends beyond the boundaries of the accelerator program and we seek partners who understand and buy in to that commitment. We know that, if our portfolio teams are successful, then the LA ecosystem is successful. Additionally, this theme extends beyond our portfolio and impacts the way we serve the community as a whole.