If you haven’t heard of Juicero yet, it’s the latest smart kitchen revolution: a connected cold-press juicer for the home. Introduced at US$699, it is now priced US$399 with packs ranging from US$5 to US$8. The company raised US$118.5 million from investors and is facing criticism because Bloomberg journalists found that they didn’t need the machine to squeeze juice out of the packs.
As the world’s most active investors in early stage hardware startups with well over 100 companies in our portfolio, we learned a thing or two about hardware and investment. Here are our thoughts on Juicero‘s story.
The Juicero team built a machine and an ecosystem with consumables, and shipped a quality product. We invest in startups at the prototype stage and know first hand that getting to market is not easy.
So first, kudos.
Second, they managed to raise significant funding (US$118.5M). This is also a hard task. Even if you have an exceptional background, the bar for every round you raise is higher: more milestones, more numbers, more proof.
Third, Juicero is developing B2B relationships. It seems well suited as it can save, for instance, staff time. The enterprise sector has long lead times, higher requirements, and is typically reluctant to buy from startups who might disappear overnight. Fortunately, with over US$100 million in funding, Juicero is likely to stick around for longer than most.
Let’s get past the accolades and look into the problem and its possible causes.
Juice Vs. Kool Aid
The outcry does not come from the fact that Juicero raised lots of cash and tried to impose a razor / razor-blade model. It stems from mostly from the perceived value dropped due to two issues:
First, due to Bloomberg’s demonstration, some customers felt they were taken advantage of: having “the force to lift two Teslas” appears to be more than what was needed. And users can’t tell anymore that story to brag to their friends.
Second, in an effort to lock out third parties, the connectivity effectively cripples the machine for very little perceived benefit in its daily usage. More – maybe adding insult to injury for some – these benefits seemed, again, oversold.
The setup of Juicero demonstrates the divergence of interests between the company and its customers.
How could such a project be funded? Well, precisely because founders and investors can think of it as SaaS company – with its magic words “recurring revenue” and the exciting lifetime-value calculations that ensue.
While it is now clear that “physical computing” and the reinvention of consumer devices, health tech and robotics is going to impact the physical world more than any app could do, many U.S. investors only want to fund SaaS hardware.
Of course, we also love SaaS. We funded a handful of such companies like Bartesian (the “Keurig for cocktails”), and even Voltera (a printer for circuit boards – they sell conductive ink, naked boards and more). Some are exploring the option, like Nomiku (who just raised funding from Samsung), offering pre-packed meals to prepare with their sous-vide cooking device. Hell, even robots can be sold “as a service” like Simbe (for retail inventory) or Avidbots (for commercial cleaning).
Yet, while it is the long-term goal of the majority of our investments, it is not the only option, and it should not be forced onto a product. Many of our investments are not SaaS – look at Makeblock, a STEM robotics company who just raised US$30 million or Revols, who instant created custom-fit earphones (and scored Canada’s highest Kickstarter).
With two decades of investment in mostly software, today’s VCs are unfamiliar with hardware. They treated the Juicero like a black box due to its claims of technical wizardry, and supported features that made it looks more like SaaS. Investors familiar with Shenzhen’s supply chain (the “Silicon Valley of hardware”) might be more diligent.
Juicero Might Still Do Well
Despite the outrage, things are not played out for the company, thanks to four barriers:
- Convenience: as long as using the machine is more convenient than a two-minutes hand-squeeze, it will have a market.
- Chicken-and-egg: until there are enough machines in the wild, there will likely not be third parties providers.
- Trust: for food products, people do care about quality and origin. Especially customers who were ready to pay $400 and $8 per juice pack.
- B2B relationships: while consumers might consider alternatives, B2B customers like hotels who want to use it to provide additional services won’t take chances on third party providers until they are 100% proven.
In summary, it won’t be so easy to beat a well-funded company who developed its own infrastructure and is already doing enterprise deals.
There Are Other Ways To Build Companies
Putting the consumer first is fundamental. Beyond that, hardware startups can be built with a focus on founders ownership, capital efficiency and profitability. Did Juicero need that much time and money to build this machine? Did it have to be so expensive to do what it does?
Sure, Silicon Valley investors can be patient – the Q&A site Quora celebrated its eight anniversary, has raised a total of US$226 million, and only recently looked into monetization. But for founders who want to control their fate, profit is the only real answer.
This means optimizing timing and their use of resources. Numerous HAX startups got to market with a hardware products with less than US$1 million in funding. The WAZER waterjet cutter might not have four tons of force but it has enough pressure to cut titanium.
We wish the best to Juicero as they get out of this PR hiccup. As we wrote above, there are plenty of reasons to buy the product and for the company to do well. We also look forward to seeing the next iteration, which might address the issues.
Sometimes what founders need to adjust their ideas is simply a little squeeze.