80. Hardware Investing, Part 2 (Avidan Ross)

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Today we cover Part 2 of Hardware Investing with Avidan Ross of Root Ventures. In this segment we address:

  • Examples of Trojan Horse hardware businesses that Avidan has invested in
  • Many view hardware as very capital intensive, more difficult to commercialize and thus, too risky in an already very risky asset class. What’s your response to this and why do you think that now a good time to be investing in hardware?
  • There are clearly some advantages that software companies have over hardware companies. Can you talk about the distinct advantages that hardware-centric startups have over that of software?
  • Are there certain hardware business models that you target and do you think it’s possible we will see more SaaS-like, subscription-based models with hardware products in the future?
  • How is your approach to dealflow and connecting with founders or potential founds different, considering the areas you’re investing in?
  • Any other thoughts on hardware or core science that you’d like to touch on for the listeners before we wrap things up?

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Key Takeaways:

1- The Extremes of Consumer Experience
In today’s interview, Avidan talked about how we are living in an increasingly digital world. Where processes are automated and experiences are virtual. But, in parallel, consumers are craving increasingly real, analog, physical experiences. People want to express their identities through customized products with brands that reflect their sense of self. It’s odd to think about the balance in my own life between technology-centric, virtual time and that which is completely unplugged, appreciating real-world, physical things around me. In a way, it seems that fat tails of consumer experience are emerging. And from Avidan’s standpoint, it’s the intersection of hard, physical products leveraging soft technological advancements that may hold the biggest opportunities.

2- Platform In or Platform On

Recently, we’ve spent a lot of time discussing platforms that companies have built which allow others to build upon them. Examples including the iPhone, Slack and Tesla have been cited as brilliant examples of the platform approach, allowing a form of crowdsourced innovation. But Avidan mentioned another example today that we haven’t spoken much about. Not platforms that others are building on but rather platforms that can be built in to others products or services. Here we discussed Uber and how their platform that efficiently connects providers and consumers, is one that can be built in to a number of other businesses. It would not be very surprising to see many companies ‘powered by Uber’ in the future.


3- Hardware, Why Now?

10 years ago it was not possible to innovate in hardware the way it is today. There were a number of factors Avidan mentioned including: Wifi was not ubiquotous, Bluetooth was not ubiquotous, cell providers were charging an arm and a leg to get access, amongst many others.

Now hardware startups, courtesy of innovation like Arduino, can do rapid hardware prototyping w/ cloud connectivity, for thousands of dollars, vs millions. Here Avidan brought up the example of Nest, who did not raise a $750k angel round; they raised $20-30M out of the gate.

Today, hardware innovation has incredible potential and economic viability due to:

* ubiquioutous connectivity
* unlimited processing
* connectivity to other data streams and
* the ability to prototype very cheaply

And, as mentioned in my blog post, Hardware as an Anchor, it can function as the beginning of a long-term, healthy, annuity if the value is there. Which relates to this week’s Tip, which is called:


Tip of the Week:   Delightful Trojan Horses