Inside Tony Hsieh’s Quiet Plan to Bankroll Hardware Startups
When Jen McCabe joined smartphone robot startup Romotive, the crew was still in its frantic post-Kickstarter afterglow—a flood of pre-orders, an apartment full of parts, nonstop sessions of assembling and shipping products.
Soon enough, though, the manic energy gave way to some cold realities. Even with relatively cheap components, cloud-based software, and enthusiastic crowdfunders, building hardware products just isn’t that easy.
“We faced this kind of valley of utter despair that most hardware companies face,” McCabe recalls. “You realize that you can’t make many more products in-house, and you can’t do it in the United States—you have to go overseas.”
They did just that, sending McCabe to China to scout contract manufacturers who could help make the next wave of Romotive’s “Romo” products. A 10-day factory tour turned into a six-month stay as the startup dealt with an unending list of things that need shepherding when you’re trying to get something built on the other side of the globe.
That round of suitcase living—followed by more 17-hour flights and 2 a.m. video calls with Romotive’s Chinese partners—left McCabe with a nagging feeling that, somewhere in the startup world, another group of wide-eyed dreamers would soon hit the same hurdle.
“Hardware is hard,” she says. “But it doesn’t have to be that hard.”
Now she’s hoping to do something about it. McCabe heads up the Nimbus Portfolio, a hardware-focused segment of the Vegas Tech Fund, Zappos founder Tony Hsieh’s $50 million early stage investment vehicle.
Nimbus has jumped into hardware investing without much fanfare, writing checks to a dozen or so startups, with more on the way. They range from a Star Trek tricorder-inspired mobile medical scanner (Scanadu) to a system of drop-off locations for package deliveries (Swapbox) and even a souped-up personal scooter device (WHILL).
Since it’s aiming mostly at the earliest stages of building companies, Nimbus’s average investment is about $100,000—although the fund has done some later-round investing, including participation in educational electronics startup littleBits’ $11 million Series B round.
McCabe recently told TechCocktail that Nimbus has invested less than $2 million since getting started in August. She also says that Hsieh’s Vegas Tech Fund hasn’t carved out a specific amount to bankroll hardware startups, leaving it as an open-ended project: “The end goal is to find and fund the next generation of founders. We haven’t put a cap on those investments yet.”
So, why is Tony Hsieh so interested in hardware startups? After all, you’d probably expect the founder of a company like Zappos to throw money into e-commerce, fashion, marketplaces, and websites rather than diving into the very specialized worlds of robots and drones.
The answer probably goes back to Romotive, one of the more prominent young companies backed by Hsieh’s venture fund, and Kickstarter, the crowdfunding website that has been a key factor in helping new gadget companies get off the ground.
In an interview with the Wall Street Journal, Hsieh said he first found out about Romotive by randomly reading one of Kickstarter’s e-mails highlighting projects on the site, back in 2011 when Romotive was trying to collect about $30,000 in pre-orders.
That campaign ended up bringing in more than $100,000 and, more importantly, helped Romotive land a $1.5 million seed round from Hsieh and other backers. The startup moved from Seattle, where it had been part of the TechStars program, to Las Vegas as part of Hsieh’s larger effort to build a startup community and revitalize a part of the gambling mecca’s downtown.
Early last year, Romotive concluded that it needed to relocate once again, moving to the San Francisco Bay Area so it could be closer to the engineering talent that would be needed to expand the company further. McCabe, who stayed in Las Vegas, wanted to put her hard-won experience in early stage hardware to use—and soon enough, she was wading through hundreds of startups, looking for potential investments for Hsieh’s venture fund.
Although Hsieh’s larger project is focused on building up Las Vegas, hardware companies don’t have to move to Sin City if they get a check from Nimbus. The Vegas Tech Fund does want its companies to come to town periodically, however, helping to contribute to the community by talking at local schools, for instance.
Startups can reap some benefits from their trips to Hsieh’s headquarters, too. In October, McCabe says, the fund had a four-day summit with founders and mentors, meant to help scrappy startup teams get a head start on some of the hurdles inherent in making real-world products that often require far-flung manufacturing and supply chains.
“I want other hardware companies to not have to make the same mistakes that we had to [at Romotive], to not have to go through this utter morass of trying to figure out manufacturing to make 1,000 of something,” she says. “One of the biggest needs these startups have is, `Who has done this before and how do I get access to them?’ These are people we’re on a first-name basis with.”
Nimbus is certainly entering the scene at a heady time for hardware startups. Accelerator programs focusing on robotics, connected devices, and assorted gadgetry have been cropping up from coast to coast—Bolt in Boston, the TechStars-affiliated R/GA Accelerator in New York, and Lemnos Labs and Highway 1 in the San Francisco area—not to mention international efforts like Shenzhen, China-based HAXLR8R.
Kickstarter has continued to be a hotspot for hardware entrepreneurs, with connected devices contributing in a big way to the $480 million pledged by some 3 million people using the site last year. Competitors also have sprouted up, such as Boston-based manufacturing consultant Dragon Innovation’s new hardware-specific crowdfunding site.
Despite all of that enthusiasm, some traditional startup investors are still wary of hardware businesses. Some reluctance is probably warranted—even the poster boys for the new era of hardware entrepreneurship have found roadblocks to building really big businesses. As the hardware investors at True Ventures wrote in an exhaustive recap, “these startups are not for the faint of heart. Innovation curves are longer in hardware, and you’re dependent upon a huge host of suppliers and partners.”
Pebble, the Kickstarter star that generated more than $10 million in pre-orders for its smartwatch, had to deal with plenty of manufacturing delays once it started digesting the unexpected flood of consumer interest. Others, like Boston-area 3D printer startup Formlabs and Bay Area-based connected-home superstar Nest, have hit legal roadblocks with patent lawsuits from established competitors.
McCabe says it’s clear that the new rules for building electronics companies are still being written. But, she says, “eventually, it’ll be as easy to start a hardware company as it is to start a software company.”
“We’re going to see many more of these small, artisanal makers become manufacturers of consumer products that hundreds of thousands of people know and love,” McCabe says. “It’s honorable work to build something that goes into someone’s home and lives in their presence. There’s this tie to their life that you don’t have if you’re building software.”