Hardware Trends 2016
HAX just released its annual Hardware Trends report at Disrupt Shanghai. It’s a great resource to update your knowledge on what happened in the IoT, robotics, health tech and consumer electronics fields. We caught up with co-author Benjamin Joffe (@benjaminjoffe), Partner at the SOSV-backed HAX hardware accelerator to ask about some of their takeways.
Why present this report at TechCrunch Disrupt Shanghai?
China has become the epicenter of the hardware world. Not only for foreign companies looking at manufacturing, but also for homegrown innovation. WIRED just published a documentary series on Shenzhen that explains it and is worth watching. When we completed this report we were surprised by the large number of Chinese hardware startups that were part of it. It is an exciting time for hardware – its impact on the world is very concrete, and “there is no app for that”.
Which hardware sectors are the most dynamic in China?
China is the clear global leader in drones with DJI and large several new entrants like Yuneec and eHang. Any foreign company building drone hardware that is not leveraging Shenzhen is going to have a hard time.
I was recently asking Elise Tchen Thebault, CEO of Parrot Asia-Pacific, how they deal with China. Her answer was that they consider themselves a Franco-Chinese company, because part of the “research” and lots of the “development” of R&D take place in China, even before manufacturing.
There are not many global companies like DJI yet. Xiaomi is launching new products in China and expanding to India but is threatened by Huawei, Oppo and Vivo. Who will be the next DJI and in which category is anyone’s guess. In the gaming world, Tencent recently made waves with its acquisition of Supercell for $8.6b, especially as Tencent already controlled Riot Games, makers of League of Legends – it is now truly a global gaming company.
Robotics seems to be a strong category
Yes. Aside from the badminton robot that made news but is still largely a prototype, there are quite a few products already on market: social robots, toys and more. China is hungry for robots of all sorts. From factory robots – Foxconn wants to replace 30% of its workforce by 2020 and would need cheaper industrial robots- to service and entertainment robots.
HAX has been investing heavily in robotics for the past 2 years and some of our US startups got attention like inventory robot Simbe (now testing at Target), and delivery robot Dispatch. We expect more Chinese startups to emerge soon.
How about consumer gadgets? Hoverboards were all the hype last Christmas. Where are they now?
Hoverboards were hurt by unscrupulous factories and importers. Some more mature players are emerging in the “personal transporter” category. A very strong one is Ninebot, who acquired Segway. They launched a smaller and much more affordable version in China and USA that is getting great reviews. In the US, they are leveraging the Segway brand and avoiding the term “hoverboard”. Companies like Xiaomi are commoditizing “easy” things very fast so investors are looking at either products with high technical barriers of entry, a recurring revenue component, or the ability to build a brand very quickly.
HAX had a good run with consumer devices, each standing out in its own way. We had five (soon six, with smart headphones Nura) reaching over $1m on Kickstarter, putting them in the world’s top 100 hardware projects, and dozens of projects between $100k and $1m. We found that beyond hardware, the positioning and messaging, promotion efforts and retail preparation were difficult but that good preparation helped tremendously.
How is the hardware investment scene in China?
It’s very hot. There are good and bad reasons. I was discussing recently with Jenny Lee, Managing Partner at GGV Capital who is a very active investor in hardware – she is a former drone engineer herself. She said Chinese hardware startups were attractive because they could go to market in 6 months instead of the 2 years it typically takes in the US. Now the problem is, as mentioned by Fan Bao, Chairman from China Renaissance, is that “many Chinese startups that shouldn’t be funded are still getting funded because of ample supply of easy money”.
Startup founders in China tend to think investment is the best way to reach the next milestone, which is often simply more investment, rather than making sure they deliver something unique and sustainable.
Beyond China, what are some interesting global trends?
The rise of health tech is very exciting – we are now well beyond step counters. There are devices to monitor, prevent, diagnose, coach, train and even heal. They cover physical and metal conditions. Among them are startups focused on IBS, BFRB, insomnia and depression. There are three exoskeleton companies that went public in 2014, including Japan’s Cyberdyne, now worth about $5b.
What happened to 3D printers and the maker movement?
It’s evolving. Makerbot-style 3D printers are getting commoditized (and the company is moving production to Shenzhenafter being a “made in USA” champion), but new technologies are coming to market to print faster, better or in new materials including fabric. New desktop and smart tools are coming to market able to work with a wide variety of materials with laser, smart CNC hand tools or even water jets. The possibility of micro-factories and mass customization are getting closer.
The maker movement itself is spreading with increased resources for education and prototyping. Unfortunately, the gap between makers and startups is widening. The technical barrier of entry, as well as investor and customer expectations are high.
One big topic is AR and VR
To conclude, why is HAX sharing such detailed report?
We create it as it helps us organize our thoughts and knowledge, as well as plan our strategy. As we saw robotics and health rise in the last report it became a strong focus of ours. With the emerging “infra” category we started Urban-X in New York with BMW / MINI, a program focused on “city-as-a-service” (that just graduated its first batch of startups). With the rise of Chinese startups, we just launched a program to help Chinese founders build global companies.
Second, better informed founders create better startups, and better informed investors will be more willing to invest. Most investors are waiting until there is “traction’ which for hardware often means the startup is shipping and selling well. They might be priced out or even not need investment then. Chinese investors, who are not afraid of hardware, are investing early and aggressively in US startups because the category is neglected by US investors and the deals are less competitive. Our approach is to find the best pre-product startups worldwide, put them together, bring them the best prototyping and manufacturing resources, then launch globally and access the best customers. All doing it fast and for less. Eventually, what matters to founders is to access the best resources, and build sustainable hardware companies. You can’t cheat with atoms.