Venture capitalists continue to watch the growing maker market carefully. MAKE invited four investors to participate in a panel discussion at the Hardware Innovation Workshop preceding World Maker Faire.
Meet the Panelists
Chris Dixon is a Partner at Andreessen Horowitz, hired away from eBay last year. Chris was a co-founder at Hunch, which eBay acquired in 2011, and SiteAdvisor, which was acquired by McAfee. Chris also invested in several tech companies prior to joining Andreessen Horowitz. Companies like Kickstarter, Foursquare, Dropbox, and Pinterest. He said that Andreessen Horowitz invests in all stages of company development and is interested in robotics and drone companies.
Zack Schildhorn is Vice President and Director of Operations at Lux Capital. Zack’s focus includes investments in new materials, and technologies that connect the digital world with the physical. He was heavily involved in his firm’s investment in Shapeways. Zack described Lux as “money that matters”, giving an investment in cleanup technology for the Fukushima nuclear power plant disaster as an example.
Matthew Witheiler is a Principal at Flybridge Capital Partners. Over the past year and a half, Matt has gotten Flybridge interested in hardware investment. He also sits on the board of Dragon Innovation and is an observer on the board of several other companies. Flybridge invests in consumer technology and enterprise IT companies.
Eric Wiesen is a General Partner at RRE Ventures with a focus on next-generation consumer products and manufacturing. Eric has a hardware background himself. His own first company made hardware for 3D graphics and animation companies. RRE was an investor in MakerBot as well as Quirky, a company that brings a social community network into product development.
What has changed in the hardware investment landscape?
Chris: “Hardware companies are using components found in smartphones. This has dramatically decreased cost and increased the quality of parts. There are more software components built into hardware, which plays to the strengths of Silicon Valley/Alley and may help them fend off large manufacturing competitors.”
Matt: “It has become easier to prototype with development platforms like Arduino and BeagleBone. It’s easier to get money through crowdfunding like Kickstarter and Dragon. You can market test your products with crowdfunding.”
How do you decide the right market size for an investment?
Eric: “I don’t really look at it that way. I have to believe there will be a market for the product in the future. That said, if you want to build a billion dollar business you need to have a multi-billion dollar market place.”
Chris: “You can do a lot of early stage VC without opening a spreadsheet. You ask yourself is this a general product or a niche?”
Zack: “The calculus for a VC is pretty simple. Do they believe the product will return the VC’s investment? Not every business needs VC investment.”
Matt: “For some product an investor looks at, he could envision 20 million units being sold, but it might not be a pick for VC investment.”
Eric: “The market has to be big, but also not taken by large, competent, well-run companies.”
Is it important for a start-up to have a portfolio rather than a single product?
Chris: “In a lot of early stage investing, you are investing in the entrepreneur, not the product. Eisenhower said something like, ‘Planning is indispensable. Plans are over-rated.’”
Eric: “You need to have a feel for what problem you are solving. If you are good at story telling, and can tell a story with depth about how a product or portfolio of products will meet problems. You have to have something more than just one thing that will solve one problem at one time.”
How important are patents for a company you are looking at?
Eric: “Companies are not expected to come in with ‘issued Intellectual Property’ (IP). I like to see freedom to operate and a plan for how to develop IP. Is it patentable?”
Zack: “IP is one part of a bigger picture: defensibility. It’s like a castle with multiple defenses. I look for an exclusive market, a team that is hard to replicate, etc. It’s much broader than just a patent. I ask myself if this company will be one of only a few competing in their market.”
Chris: “I consider patents to be bad for innovation, but that’s the world we live in. You do need to ensure you are protected.”
Are there still investment opportunities in the 3D printing space?
Chris: “I would love to see more opportunities there.”
Eric: “The number of households with 3D printers is still minuscule. There’s lots of growth potential. We’re only in the first or second inning.”
Zack: “Accessibility has increased. There’s a tool-set emerging that is exposing people to the technology. Technology has reached the stage where in some instances 3D printing has moved from prototyping to manufacturing. Invisalign for example.”
That was all the time the afternoon’s agenda allowed for, and the panel quickly wrapped up.
The relationship of capital investors to the maker market is something to keep an eye on. They clearly have a role to play, and they bring more than their money to the table. Business relationships and experience to advise a new CEO can be a major advantage for a start-up if they find the right investor for them. That’s a strong distinction from crowdfunding, which definitely has its own role for hardware start-ups.