L’Atelier met up with Barbara Belvisi, co-founder of the Hardware Club, an international community of startups specialising in the development of electronic products.

Hardware now has the wind in its sails

In September 2015, US venture capital firm Bolt drew attention to the explosive growth in funding for hardware startups. According to Christopher Quintero, an associate at Bolt, funding in this field has now risen to over thirty times what it was in 2010. In recent years we have also seen some successful IPOs and acquisitions – Nest, GoPro and Fitbit being high-profile examples.

Startups are nowadays attracting enormous interest from investors. However, it is still a tough task to build a successful hardware startup. So is the old dichotomy between software ventures – said to be easier to develop – and hardware startups still valid today?

L’Atelier interviewed Barbara Belvisi, co-founder of the Hardware Club, a select club whose mission is to support and help hardware startups to scale up their business through a powerful network of partners and funding sources.

Le hardware a le vent en poupe

So what exactly are the goals of the Hardware Club?

Barbara Belvisi: The idea for the Hardware Club arose two years ago from two basic observations: on the one hand, increasing awareness of the hardware revolution that we have been seeing for several years now, and on the other, the fact that startups in this field are still having to cope with some serious challenges. The number of hardware projects is increasing worldwide, but hardware entrepreneurs today still find it really difficult to identify good partners to help develop their products, to set up distribution networks to sell overseas, and to unearth sources of finance.

My co-founder, Alexis Houssou, and I started our careers in the investment field, so we decided to launch the Hardware Club, a startup support organisation which is run on the basis of sound financial expertise.

Today Hardware Club membership numbers 205 companies in 28 countries. We’ve received close to 3,000 applications since we launched around eighteen months ago. We select between 6 and 8% of those to join us.

The Hardware Club is neither an accelerator nor an incubator. It’s a select club of companies at various different stages of development which make electronic objects. In our portfolio we have both seed-stage startups – they need to at least have a working prototype before they apply to join – and companies at a more advanced stage.

Companies can join our community free of charge. We don’t ask for a stake in their capital in return. They gain access to all our resources, i.e. over a hundred partnerships with major firms such as [multinational electronics contract manufacturer] FoxConn, [global manufacturing services company] Jabil, and [electronics manufacturing services provider] Flextronics on the production side, and Boulanger, Fnac, Best Buy, Amazon and Walmart on the distribution side. We also invest directly in our member companies. Last year we made ten investments and we’re currently looking to step up the rate. Les exits marquantes des start-ups hardware

You have offices in Paris, Taipei and San Francisco. What does this international presence give you?

Well, the Hardware Club was founded in France but it was vital to establish ourselves internationally. However, it’s no coincidence that this was a French initiative. France has been and continues to be fertile ground for hardware development. Well before the arrival of Apple on the scene, France was the champion country for consumer electronics.  We have a huge number of engineers with a great talent for product development and some world-famous designers. Huge companies have emerged in the telecommunications sector – such as Alcatel, the flagship of the French hardware ecosystem.

However, from the first quarter after our launch, we set out to develop an international network, hence the three-pronged France – China – United States setup. The fact is that it is extremely rare for hardware firms to sell only in one market. They rapidly tend to take on an international dimension.

The Hardware Club therefore has a hybrid structure in terms of its support for startups. Do you have any competition in what you’re doing?

What we call the ‘hardware revolution’ began in 2011. Sales of Apple’s iPhone in 2007 entailed a drastic reduction in the cost of components, spread the appetite for electronic devices among the general public, and gave rise to a new concept: connected objects. At the same time, 3D printing arrived, making prototyping easier, followed by the emergence of crowdfunding platforms, and these have helped the rise of hardware startups. As of 2011, practically all accelerators and fablabs have focused on one essential phase in the hand-holding of hardware startups, namely prototyping. We come in at a later stage, so we complement rather than compete with these organisations.

Are we talking here about an ideal model for venture capital firms? In other words, should tomorrow’s VCs be drawing inspiration from your model?

Well, if you look at financing models for current startups, it’s quite clear that there’s a need to bring to the table more than just capital. Resources are needed, plus expertise, knowhow and a network, if a startup is to grow.

One of the US models that has inspired us is Y Combinator, the largest startup accelerator in the world, which also invests directly in promising ventures. Then there’s Andreessen Horowitz, the renowned Silicon Valley venture capital firm. The operations team there is currently larger than the investment team – which goes to show that support and assistance is a crucial aspect of startup financing and of VC strategy as well! At the Hardware Club, we take a community approach to resources, centring on a specific sector. We believe this constitutes a new VC model.

Among your Club members, could you give us some examples of projects that you’ve invested in?

Our projects cover many different areas, from robotics to connected objects. For example, we met the founders of Prynt when they were just graduating from the [prestigious French higher education and research institute] École polytechnique. At that time they had no more than a rough outline of their project, in the shape of a PowerPoint presentation! Today they have a team of 25 people and have opened an office in San Francisco. They’ve raised over $2 million and we’ve been investing since the very earliest days of this fledgling company. It’s a great French success and they have managed to develop fast overseas as well. Also in our portfolio is Lima. This was the first ever startup to collect over a million euros via Kickstarter. It then grew rapidly in the United States. Keecker is also one of our members. Founded by a Frenchman who had worked for Google, it is developing a multi-functional robot for the connected home. You can use its 360-degree camera as a video film projector and also to watch over your house.

In addition, we’ve invested in Reach Robotics, which is developing the first robot-toys that incorporate augmented reality. Another of our members is Kano, maker of a computer kit that children can put together, which also helps to familiarise them with coding.

Among Hardware Club member projects that have received a lot of media attention are the high speed train HyperloopMisfit, which makes physical activity trackers and was bought by Fossil (US maker of clothes and accessories) and Whistle, which is developing connected dog collars, recently acquired by Mars Petcare.

Legend has it that it’s harder to build a hardware startup than a software startup. What’s your view?

Well these are two very different things, not least as regards the in-house expertise required. A hardware startup generally has only one business model: make a product, sell it, and turn a margin on it. An entrepreneur in the hardware field therefore needs to be able to manage the manufacturing side, decide on product price, get it out on to the shelves and generate a margin.

Now, it’s unlikely that tech entrepreneurs who were previously in software will be able to develop these sorts of skills. However, hardware startups do suffer from a shortage of funding. For the last thirty years, traditional venture capital companies have mainly concentrated on financing the software sector. The business mechanisms that underlie the funding of hardware startups differ hugely from the software business. When it comes to hardware, investors must be prepared to inject more capital in the company upstream to finance the prototyping, tooling-up and product launch. This should mean fewer rounds of financing than for software startups.

Nevertheless, there are still quite a number of financiers who have yet to familiarise themselves with this type of financing and indeed this approach to investing, as it differs considerably from the world of software and applications.

By Pauline Canteneur