Beyond SKUs: Dipping Our Toe Into Hardware Investments

Often the best way to learn is just to do it and same holds true in venture. When Homebrew launched two years ago, Satya and I knew that smart hardware was going to be important to our Bottom Up Economy thesis but also that neither of us yet had meaningful experience working alongside the best hardware entrepreneurs at the seed stage where we invest. And since our model is to typically play a leadership role in financings, providing value beyond capital is an important promise we make to founders. So we figured that we had three choices to close the gap:

  1. Go Big Immediately: Fund 1-2 Hardware Startups With Our $500k-$1m Checks & Hope We Picked Good Ones
  2. Stay On Sidelines: Spend Time Researching, End Up With Market Map. Then Make Investments.
  3. Learn Alongside the Best Founders: Make Several Smaller Supporting Investments in 2014. Write Lead Checks 2014-15.

We selected #3 believing that you can’t practice from the sidelines. Over the past 12 months we’ve made three investments in smart hardware companies which we believe have the potential to be amazing innovators and huge businesses. One was launched today – home wifi via eero – the other two are operating companies which haven’t yet announced Homebrew as an investor. In all three cases we were lucky enough to be welcomed in by founders who knew we were to help but also to learn from them.

During the twelve months we looked at many interesting devices. Some we dismissed out of concern for the challenges of production, pricepoint or lack of market demand. There were many that I’d describe as compelling SKUs but the path to platform was fuzzier. What I mean is, it’s really hard to build a venture-scale business selling individual hardware products at retail pricepoints. And at seed stage you’re working off a prototype and *maybe* some crowdfunding data. The question in our mind was always, assuming you put this hardware in a sufficient number of business/consumer hands, how do you keep making revenue and even increase LTV without ever having to sell them another SKU?

We couldn’t be happier with the three companies we’ve backed and it gave us confidence last fall to write a co-lead check into a very early carbon fiber manufacturing technology startup with our friends at a local incubator. Having gotten our bearings and now able to articulate how Homebrew is a great investor partner to these types of companies, Satya and I are excited to more aggressively back more early hardware teams. You might even see some gracing our WhatIfs list.