Hardware startups seem to be “in” one minute and “out” the next in Silicon Valley. For years, venture capitalists wouldn’t go near hardware startups. They were, as Wired put it, “the ugly stepchild of venture capital.” This started to shift a couple years ago thanks to cheaper parts, rapid prototyping, and crowdfunding. However, the tide is turning once again. VC investments in hardware now seem to be slowing. We’re seeing a drop in funding to IoT, for example, and fewer deals in smart home hardware.
We’ve also seen some big failures in consumer hardware. Take Lily, a drone startup that raised $34 million in preorders in 2015 and announced in January that it will not be going into production. Or consider Google’s acquisition of Nest, which has been described as a “disaster.” Pebble is another example. The smartwatch startup sold to FitBit for a fraction of what it received during previous acquisition offers (and less than it raised in funding).
However, a drop in interest from U.S. VCs doesn’t mean hardware startups are left with no options. In fact, it opens up the opportunity to seek out funding in China, where VCs are not making the same mistakes. Chinese investment and home field advantages will spur the next era of innovative companies.
Here are five reasons why...