notes on bolt’s “Hardware by the Numbers” series on hw startups:

part one – team + prototyping

  • in the founding team, need a hacker and a dealmaker / hustler
    • to scale need 8 employees: ME + EE + FW + ID/UX, FE + BE, Marketing/Sales + Ops
    • a 50-50 split of equity is rare – usually someone brings a little more to the table – lots of other equity advice.. option pools too.. tax advice..
  • prototyping: typically takes at least six months in core product dev from ideation through final, functional prototype
    • build something new (something physical) every week..not necessarily functional, but something to test a feature or the look/feel of something
  • get solid relationships with 30 customers at least to get relevant, statistically significant feedback
  • initially, don’t stress about patents

part two – financing and manufacturing

  • a VC leading a financing round will want to own 20%
    • VCs will want you to be an outlier – getting to $100M in revenue in a few years
    • mean pre-money valuation is $4.5M for priced seed rounds (east coast startups, btw) – but the interest / quality of the investor is more important than the valuation
  • average companies do four rounds..so try to sell under 25% of the company in each round
  • companies get commits from 10% of investors they ask – try to pitch in tranches of five
  • average hardware crowdfunded campaign raises only $92k
  • target 18 months of runway – and know it takes 3-6 months to fundraise, and you want to either be fundraising or focusing on product, not both
  • in first year of production, a CM wants to see $1M of BOM leaving the factory – and they will want that figure to accelerate
    • it can take 3 months to finalize negotiations with a CM
    • typically you’ll be quoted 180days for a CM to do its work, but it often stretches into 1yr territory
    • optimize your specialized parts but let the CM find the cheapest SMD resistors.. they’re better at it than you
    • injection molds are like $6.5k each and you’ll porbably have 5-50 different molded parts – it’s 2x more expensive in the US, takes 2x longer, and can’t be later shipped to China because tooling standards are different
  • certifications – you’ll probably need at least one and it’ll cost about $15k
  • think about packaging..it doesn’t have to be expensive, but it’s not free

part three – logistics and marketing

  • recommends buying insurance on your container ships – they can fall overboard :o and it’s a 4-5wk journey
    • $2.1k to move a single container across the pacific
    • air freight is 10x the cost
  • 3-5% of the BOM is paid in customs fees
  • expect to pay 2-5% of the BOM on logistics providers
    • moving a pallet from CA to NY is $1k and takes 4-5 days
  • expect 10% return rate – and realize that handling this is expensive
  • recommends just giving 10 units away per week for a $50 COGS product – more effective than a PR firm, he argues
  • a full day photo shoot with a pro photographer is $3-5k but adds a lot
    • most launch videos cost $7k
  • expect only 2 / 100 web visitors to purchase a product online, brick and mortar stores are critical

part four – retail + exits

  • online retailers take 15-20% of the final sale price
    • big box or specialty retailers are far higher 40-70% – the apple store, for instance, takes about 50%
  • licensing will only make you 5% MSRP or 2%, more likely
  • look for recurring revenue opportunities..
  • average successfully exited, VC backed company takes 6yrs, $42M raised and goes for $242M
  • 23 founders make under $10M after an exit (and taxes)