As someone deeply passionate about the field of robotics, I want to share my insights in a two-part blog series. This first post will delve into the current state and the challenges faced by startups in the hardware sectors. The second part will explore the future of these sectors.
Introduction to the Challenge(s)
In 2012, fresh out of university with an MS in Computer Science, I embarked on a journey to pursue a career in robotics and quickly realised that the field was fraught with numerous problems. Determined to overcome these obstacles, I embarked on what I called “Jasmeet’s Moonshot” – a personal mission to mold the hardware sectors by solving the problems plaguing it and bring to life the vision I had conceived in 2008, a world brimming with robots and automation.
Thus began my decade-long endeavor to address each challenge in the Indian robotics landscape. These became individual startups tackling – accessing quality international hardware (RoboRium), advanced skill development (JMoon MakerSpace), R&D career advancement (JMoon Labs), and establishing a marketplace for prototypes (MakerMandi). Through many such experiences, I gained valuable insights into all business models and user adoption in hardware.
Engaging in conversations with professionals across 13 countries, it became evident that the challenges faced by hardware startups were not unique to South Asia. At this juncture, I had a choice: either expand my startups gradually into new regions to solve those problems or focus on addressing the most significant obstacle that kills many hardware startups in their early phase – FUNDING.
Understanding Failure of VC Investments in Hardware
Numerous well-funded robotics startups, including Rethink Robotics, Mayfield Robotics, Jibo, Anki, and others in social robots failed. Several common factors contributed to these failures:
Lack of Funding
Rethink Robotics, maker of Baxter robot, and more recently Karakuri both closed due to insufficient funds. In the last five years, venture capital heavily favored software over hardware, with a 91:9 ratio. Despite over a thousand US institutional venture funds, credible hardware investors are scarce, totalling less than a dozen.
Lack of Support
Startups need guidance in achieving Product-Market Fit (PMF) quickly, developing effective monetization models, accessing resources for Minimum Viable Product (MVP), and establishing connections with manufacturers for scalability. I’ve successfully tackled these challenges and gained operational knowledge over the past 10 years but firms investing in hardware startups often lack this crucial early-stage support and monitoring.
Boston Dynamics, owned by Hyundai Motor Group since 2020, has flourished with their expertise in manufacturing, production, and commercialisation, after being previously owned by Google X (2013) and SoftBank Group (2017).
Investment & Scaling Mismatch
VC firms may not prioritize hardware as much as software, affecting portfolio priority and follow-on funding. Return timeline for hardware startups lacking value added support is longer than standard fund’s exit period of 4~5 years. The scaling can be accelerated by providing relevant resources.
B2B SaaS startups usually secure around $15.6 million in Series A funding, while hardware companies, needing more capital and strategic direction, generally receive about half that amount (~$8M). Their path to “successful market validation” often involves crowdfunding, multiple grant raises, which slows down the growth.
Perception Challenges
VCs find hardware investments challenging due to the perceived belief that “Hardware is Hard“, germinating from long development times, high market entry costs, supply chain complexities, regulatory hurdles, and scalability concerns. These challenges are not inherently more daunting than obstacles in web3, fintech, SaaS, or CPG industries. If hardware posed truly insurmountable difficulties, smartphones wouldn’t exist today.
Today hardware prototype development is fast and cost-effective due to technological advancements, challenging the perception of slowness and high costs.
Lack of Operator Expertise
Hardware startup founders, often with product backgrounds, need substantial operational guidance in their early stages. VCs may lack expertise or networks in hardware, posing challenges in offering effective guidance to hardware startups in their portfolio. For instance, a health tech-focused VC might find it difficult to advise a robotics startup addressing hospital needs during the COVID-19 pandemic.
Proficiency in the domain requires hands-on operator experience or sustained focused investments.
Lack of operator understanding also leads to communication gaps between the founders and investors which in turn has multiple ramifications for the sector on both sides.
Competition
Startups face challenges competing with multinational corporations in fields such as industrial robotics. Dominated by established companies for decades, automotive and retail demand substantial resources for deploying large robotic systems. Smaller startups, constrained by limited funding, find it difficult to compete. Fortunately, the hardware sector with the highest growth potential till 2030 lies elsewhere.
Despite these challenges, the robotics sector continues to thrive, driven by the unwavering passion and dedication of bootstrapping founders and engineers working tirelessly in the field. CES showcases a multitude of hardware startups every year, demonstrating the sector’s resilience and potential for growth.
Read Part 2, where we will explore the exciting future of hardware and AI, and the cutting edge of this transformative industry.
Additional articles about Investors and their relationship with hardware startups and the related industry overall: