When I joined the team at SOSV’s HAX, a venture program designed to help early-stage hardware founders, my friends in tech shook their heads. Hadn’t I learned yet that hardware is too hard? What they didn’t see was a hardware scene evolving rapidly in contrast to its glacial reputation. The old hard-knocks hardware playbook has given way to a new, vastly more exciting one; emerging to meet civilization-level opportunities, like climate, that software cannot resolve alone.
Today when I work with with founders in the HAX program, it is normal to build incredible (but feasible) plans to “reduce the world’s energy consumption by 10%” from Seppure, “eliminate all waste in the apparel supply chain” at Unspun or “make global battery recycling 5x more profitable” with Green Li-ion.
Ambitions like those reflect emerging mega-trends in the global economy centered around demands to decarbonize, modernize infrastructure, secure supply chains and fully digitize traditional industries.
The tools and technology to move forward — from machine learning to sensors to nano materials — are more powerful and affordable than ever, which allows for higher ambition and far faster time to market. Visionaries like Bill Gates and Elon Musk have taken note, institutional giants like Blackrock are piling pressure on climate negligence and we witnessed the rise of HAX’s like-minded communities The Engine, New Lab and Greentown Labs.
The scope of this new world is so broad, in fact, that we no longer define HAX’s thesis around “hardware”; we call it Hard Tech, both because it’s hard, as in difficult, as well as moving far beyond the initial scope of early 2010s personal hardware devices and around-the-home IoT.
What’s emerging all around us is a new generation of hard-tech founders, investors and technology with a few early signals for the hard-tech tidal wave coming.
If “software eats the world,” hard tech gives it teeth
The last three decades have been defined by “software eating the world,” and it’s been feasting on the lowest hanging fruit. But our screen-based, server-based digital world is increasingly limited to marginal gains in niche markets. As our friends at Ubiquity Ventures say, it’s time for “Software Beyond the Screen”.
Affordable robotics, AI-driven sensor fusion, uninterrupted connectivity and super materials are merging into the technology stack to unlock massive new tranches of value for customers. Many HAX companies are operating 80%+ gross margin businesses that not long ago industry experts said only SaaS companies could achieve. Even more, the hardware + software combination can tackle more significant problems across industries than software alone ever could.
Learn from Tesla: Take big shots at big industries
When industry experts look to explain the unexpected rise of Tesla in the past 10 years to become a mass production automaker, they point to Tesla’s “software-led” approach. The truth is Tesla’s ascent centered on intense hardware innovation in batteries, motors, manufacturing and distribution models.
This same equation is playing out in dominant, multitrillion-dollar industries such as energy, construction and agriculture. Investors on the hunt for opportunities in these categories will need to be bold, but will find disproportionate returns if they include hard tech. To move the world forward, we will need to take big shots like Commonwealth’s Fusion Energy nuclear fusion reactors, Boston Metal’s emissions free steel or Deepspin’s low-cost MRIs. Just as with Tesla and transportation, software may kick off opportunities, but industrial revolutions come from innovation in the physical world.
New doors open for B2B sales
Addressing these massive opportunities requires partners and customers at industrial scale. Startups can’t afford to go it alone. The traditional advice for startups is to avoid corporate partners because they are scary, slow moving beasts that can’t work at startup pace. The reality is that large corporations have noticeably increased their appetite for emerging hard-tech startups and many have set up pipelines to engage with higher risk, more complex technology. In the last few years the number of corporations doing venture deals has more than doubled and many more are priming for the industry-wide upheavals already in motion.
This enables startups to get inside corporate, B2B markets more quickly, which accounts for many B2B hard-tech startups scaling to millions in revenue at a pace once formerly limited to their software-only peers. It also accounts for the surge in VC capital to those same firms as well as the shift in HAX’s own make-up. Since our start in 2012, the HAX B2B portfolio has grown from 10% to 70% of our total investments, and that includes a majority of fastest growing early-stage companies.
Tooling hard-tech companies is easier and cheaper
The technologies and strategies for spinning up early-stage, hard-tech startups have advanced by orders of magnitude in less than a decade. The price of 3D printers had dropped from $20,000 to $200. Printed circuit boards ship around the world in just days (even amongst wild supply chains shortages). Hundreds of thousands of suppliers exist online ready to make and ship components overnight. It’s reasonable for an early-stage founder on a slim budget to build an impressive and revenue-generating prototype. As a result, hard-tech founders can zero in on their core technology development and take for granted many things formerly considered really “hard.” Similar to the rise of APIs, AWS and “no-code” that unleashed new applications for software, similar revolutions are the backbone of the new hard tech world.
PhDs are the future icons
Because hard-tech commercialization is no longer a Quixotic quest, more PhDs and post-docs are signing up to start companies. It’s routine for a HAX startup to have a PhD founder, or one that spent years working on a doctoral thesis (more than 40% SOSV Climate 100 companies have at least one PhD founder). They are responding to more entrepreneurial nudges directly from universities, but also are inspired by the call for big, civilization-level technology challenges, like climate.
It’s not an easy road for investors because, almost by definition, the work that comes off a university lab bench is going to be very advanced, somewhat speculative and lacking a proven market. In other words, hard-tech startups are usually in very deep waters, and expert leadership and insight are at a premium. As a result, many VCs are picking up scientists and engineers for their investment teams lest they risk missing out on the next generation of great founders and industry-shifting startups. We are at the start of a golden era of opportunity for our best minds in science and technology.
These highlights from HAX’s emerging Hard Tech rise are not a prediction of years to come, but a reflection of what the HAX team sees happening in our portfolio every day. We are stunned by the quality of ideas, ambition of the founders and the speed of execution against projects that not many years ago were written off as impossible. Sure, it’s still hard, but more entrepreneurs and investors are moving into hard tech as it becomes an inevitable force for the coming decades.
