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How can hardware companies raise a Series A in the post-low-interest-rate era?

The Changing Landscape of SaaS Funding

The world we used to live in — the one that revolved around using cheap money to pump up ARR — is gone. It came to a screeching halt with rising interest rates, and it’s not on its way back anytime soon.

VCs responded as VCs do: by quickly shifting from a “growth-at-all-costs” mindset to focusing on instant profitability while funding metrics shifted from just revenue and growth to including costs as well.

Since the beginning of Q2, a spur of companies, including hardware companies, have come out of the gate and started raising money. However, one has to wonder where the goal posts are today. There’s no consensus on Series A funding metrics for hardware companies.

How to Raise a Series A for a Hardware Company

Commit to Having Deployable Hardware

Most hardware companies barely get their product to function — and can only do so using their own engineers and technicians. Hardware in this situation is not deployable on any meaningful scale.

At the Series A stage, VCs want to know that they can pump money into a product that will start going into the market. This does not mean that the product needs to be pitch-perfect; it just means it has to be sufficiently mature to function in a more unconstrained environment outside of the startup lab.

Use your ratio of engineering support per hardware as a metric for whether your product is deployable in the way it needs to be. If you have one engineer for the hardware piece you are deploying (not to be confused with non-engineer technical support personnel for customers), you do not have a deployable product.

Show Tangible Proof of High-Quality Demand

Hardware companies must be able to show tangible proof of high-quality demand for their products. This means they can show that customers are willing to buy the product at a price point that is acceptable to the company and the market.

Hardware companies can also show demand by demonstrating how their product solves a problem that customers are willing to pay to solve. By identifying a specific problem and demonstrating a solution, hardware companies can attract investors who can see the potential value in the product.

Create a Path to a Sustainable Business Model

Hardware companies need to show investors that they have a path to a sustainable business model. This means the company has a clear plan for generating revenue and can do so at a profit.

A sustainable business model also means having a plan for scaling the business. VCs will want to know that the company can grow and continue to be profitable in the long term.

Provide Evidence of Strong Intellectual Property

Hardware companies need to show investors that they have strong intellectual property. This means startups must have a patent portfolio that protects the company’s inventions.

To attract investment, hardware companies must also have IP that is defensible against potential infringement claims. This means conducting thorough patent clearance searches before launching new products to avoid legal issues down the road.

Conclusion

Hardware companies need to focus on deployable hardware, proving the high-quality demand for their products, creating a path to a sustainable business model and demonstrating strong intellectual property to raise a Series A in the post-low-interest-rate era. By offering investors a comprehensive view of these metrics, hardware startups can prove that their products have the potential to succeed and thrive in the market.

FAQ

What is a deployable product?

A deployable product is a product that is sufficiently mature to function in a more unconstrained environment outside of the startup lab. At the Series A stage, VCs want to know that they can pump money into a product that will start going into the market.

How can hardware companies attract investors?

Hardware companies can attract investors by showing tangible proof of high-quality demand for their products, creating a path to a sustainable business model, demonstrating strong intellectual property, and focusing on deployable hardware.

What is a sustainable business model?

A sustainable business model is one that generates revenue and can do so at a profit. VCs will want to know that the company can grow and continue to be profitable in the long term.

What is a patent portfolio?

A patent portfolio is a collection of patents owned by a company. Hardware companies need to have a patent portfolio that protects the company’s inventions and is defensible against potential infringement claims.

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