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  • Tony Dobaj

Traditional Fundraising is a Bad Joke for the Pre-revenue Bootstrapped Hardware Startup

Updated: Nov 1, 2019

Introduction

As they say, hardware startups are hard. But why are they hard? In this post we’ll be musing about not only why but also the extended ramifications of these reasons, and also about how seemingly ridiculous the traditional fundraising process is. And I must clarify that when I talk about the “bootstrapped hardware startup” I’m referring to individuals that see a real impact problem to solve and throw caution to the wind, quit their day job and go for it. What I’m not talking about is institutional entrepreneurs that already have a paid support system that’s either a company or a University of government agency. Sour grapes or legitimate gripes? You be the judge.

why hardware startups are hard

There are some obvious answers to this question, foremost of which is cost. While putting up a website or writing a mobile app costs next to nothing, developing even the simplest hardware MVP costs literally tens of thousands of dollars in ECAD and MCAD software, PCB’s, components, injection molds, assembly, test equipment, programming, regulatory, and the list goes on. Getting it right the first time, either because of market fit or technical issues, almost never happens, and every iteration costs as much as the last. This doesn’t even include the specialized knowledge and experience required to do something as “simple” as biasing a transistor, or deciphering MCU memory maps. On the other hand, modern development tools for web and app development are WYSIWYG, accessible to just about anybody with a reasonably sophisticated knowledge of computers, and who born after 1980 doesn’t have that? This of course is a gross oversimplification of the reality of starting any kind of tech company, but these differences are true and meaningful, and should not be discounted.

Then there’s the vision – we’ve all grown up with software, web sites and smartphones, so all it takes is creativity to envision a better way or novel problem to solve. But without at least a rudimentary knowledge of electronics it’s impossible to know what’s possible. And then there’s the complexities of mass production, and the money it takes to build inventory, support a physical product, shipping, landing costs. Again, the list goes on and on and the costs rise in lockstep. And all of the things every startup confronts – marketing, sales, distribution, promotion, payroll, etc – are there as well. I’m not stating these facts for the sympathy vote but rather to provide context for some observations about the fundraising process

observations on fundraising

Here are some observations that I don’t necessarily understand rationale for or consequently have useful guidance to aspiring hardware entrepreneurs. But knowledge is power and perhaps some useful guidance will emerge.

Traction

This is a word that gets thrown around a lot, but it’s a silly shell game. For investors, this word means one thing and one thing only – profitability. And for all the reasons stated above, for the bootstrapped hardware startup, this is virtual impossibility.

Eye Candy

What is with the preponderance of “booth babe” presenters? This is a socially inept practice that panders to old white men and needs to stop. This observation is not peculiar to hardware startups but is particularly offensive to those of us that risk our very livelihood in pursuit of a meaningful vision.

MVP

This term is also paraded around as some sort of achievable step before full production. Also a shell game, for investors this word means salable product.

Startup

Let’s just agree that if you’re profitable, you’re not really a startup. And if you’re profitable, and you need somebody else’s money to grow, what does that say about your ability to run a company? Why are these people sucking up oxygen at “startup” pitch fests? Go run your business and leave the investor funds to those that actually need it.

Risk and Vision

Of course, nobody gets into the position to be an angel by pissing away their money on ill-conceived projects. On the other hand, those entrepreneurs that are courageous enough to do something visionary have already accepted an enormous amount of risk and fully understand that this is the price of admission for solving real problems. I’m honored to know a number of folks that are committed to their vision, and had I the resources would invest in any one of them. Why? Because these folks are the “special forces” of entrepreneurs, sent in to the most dangerous situations and will risk their lives to achieve the mission. The app developer is a drone pilot that goes back to video games if the mission fails – the bootstrapped hardware founder is crawling in mud and getting shot at every day and failure is not an option.

Pedigree bias

With all due respect to great institutions like Stanford and MIT, those graduates are not smarter or more capable because they’re from there, they’re just better connected. That’s not to say this isn’t important, but I believe pedigree is over-valued.

Doing good

Anybody that says “how” is immaterial should be marginalized. Putting sports logos on credit cards may be profitable, but why would anybody support wealth without value? There are so many other endeavors that make the world a better place and are just as profitable.

Trying to help - really??

The so-called "incubators" and "accelerators" make grandiose altruistic claims of just trying to help startups, but there's never any constructive feedback accompanying the dear john letter. While I cannot claim to know what goes on behind those curtains (because their process is transparent as thick mud) I suspect it's the same process that drives venture capital and private equity - maximal return at minimal risk, period. They have no interest in helping you, and if your value proposition doesn't include 10x ROI in 4 years and you're not already 2 years down that path, then don't waste your precious time filling out their complicated and ridiculous applications. I wouldn't be the least bit surprised if they have a good laugh at some of the applications where a passionate entrepreneur has expended blood sweat and tears perseverating mightily over getting the wording just right only to receive a casual rejection with absolutely no feedback and another carrot stipulating that "most successful companies apply more than once". Don't take the bait.


“A fool and his money are soon parted.”

Thomas Tusser (1524-1580), an English poet and farmer

Conclusion

Unless you’re lucky/smart/privileged/connected enough to have traction and Beyonce as your spokesperson, my suggestion is to not waste your precious time and money on pitch fests and incubator applications. As if it wasn’t hard enough, these people don’t have time for you because your vision is too risky. Spend every red cent getting as far as you can with your technology, and then go to the folks that share your vision. This can be advocacy groups, customers, and yes, angels, but only ones that have demonstrated the willingness to invest in your vision, and the guts to see it through. Pursue something that allows you to feel good about what you’re doing and failure won’t be an option. Do you have other ideas about how to get the Sisyphean ball rolling downhill? Please share!

Tony Dobaj

Founder and CEO, Augmented Sense Technologies

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