Can anyone chime in with tough experiences or learned-the-hard-way lessons on raising money for HW startups? What are the most common things entrepreneurs get wrong or not expect?
Don’t give in to the loud minority. Everyone has an opinion and they are entitled to it, but you can’t let them run your company. Avoid project scope creep and stick to your original plan unless there are extremely good reasons, especially beyond just keeping the peace.
Michael Armani
Founder, CEO @ M3D Inc.
I’m sure every founder has a different experience and set of circumstances. However, something that I see very often is HW startups raising less than they should. Calculate how much money you will need to hit your next milestones and then multiply that by three. THAT is how much you need to raise. If you are short of money in a software startup, you can delay payments, launch a partial site (MVP), and such… but with hardware, that is a different story. We have costs that we NEED to cover in order to get where we need to get. HW startups are hard.
Another one that I see often is ignoring banks. Banks are very necessary for HW startups. They can become really good partners as you get POs and need to produce to meet demand. Get started with a bank and credit line as soon as possible to build history and relationships.
Alright, hope this helps. There are probably a ton more, but these are two that come to mind quickly.
Best.
Santiago - CEO & Founder - Orange Chef
The rise of crowdfunding sites like Kickstarter are really great because it lets you know that the public believes in you and your project. It’s really easy to get swept up in the idea of starting a crowdfunding campaign to get your startup off the ground, but I think a really good lesson to remember is that you shouldn’t ignore more traditional methods of funding. Getting connected with a bank, establishing a credit line - that kind of thing. It’s harder to crowdsource without a prototype, so you’ll need some start up capital to get you running.
I can’t speak for other hw startups, but at Phonejoy we didn’t raise enough money early on (just $200k seed and $75k through crowdfunding). Mostly because we didn’t account for some of the challenges and possible delays, and we were hoping to exceed our crowdfunding goal by much more than just $25k. Because of that I had to raise funds in-midst of the product development, which wasn’t easy as we hadn’t had any good milestones yet. Fortunately, I managed to secure a small bridge round that took us to manufacturing our product. But it got really close for us and I almost failed the company at the time because of that.
Martin Kessler @kesslerhk
CMO @ Ambi Labs
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Martin
How did you raise your seed? Had you done it before?
Hey Feelthree,
We didn’t do it before, which is why we gave away too much equity and agreed to some pretty bad terms. Anyways, let’s not get into that. I could hold a lecture on this, but I can only recommend you to vet your investors closely. Ideally you will want somebody who has done multiple investments before and has had invested in hardware before. You typically best find angels through your network, conferences, other hardware founders in your area, and of course other angels (if they decide to take a lead on this) etc.
We were based in Hong Kong, so I can’t really speak for other areas.
Maybe you also want to look into joining a hardware accelerator like HAXLR8R (Shenzhen, China), Bolt (Boston/SF), or Highway1 (SF). They typically provide a little funding and come with a big network.
-Martin @kesslerhk
CMO @ Ambi Labs
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I made a lot of mistakes. Here are few comments/lesson-learned:
- Don’t waste time meeting with VCs/Institution at seed stage. You are too early for them.
- Cut the meeting short if the investor is asking you questions like “What if Google does this …? " What is Apple does that …?” … Too many “What-ifs” and you should look else where.
- Don’t ever ask an angel that didn’t invest to intro you to 3 of his friends.
- Perfect your company AngelList account and learn AngelList. We raised $1M of our $1.3M seed on there. AngelList is an awesome tool. Take advantage of it from day one. (I can go much more details on how/best-practices,etc on a different note)
Founder, CEO of Butterfleye
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