March 20 news According to foreign media (VentureBeat), hardware startups seem to have poured into Silicon Valley in the past minute, and quickly withdrawn in the next minute. The U.S. venture capital has not touched the hardware creation enterprise for many years. As Wired Magazine stated, hardware creation has become an edge area that is not seen for venture capital. A few years ago, the situation changed slightly due to lower parts costs, rapid prototyping and crowdfunding. However, the trend is now returning. Hardware-oriented venture capital presents a slowing trend. For example, investment in IoT declined and smart home hardware transactions decreased.
On the other hand, consumer hardware companies have also been derailed. The drone startup Lily raised a prepayment of US$34 million in 2015, but suddenly declared failure in January of this year. Google’s initial acquisition of smart home company Nest was later considered “a disasterâ€. Another example is the creation of Pebble, a smart watch, and the price that FitBit eventually acquired for Pebble was only a fraction of the previous offer price. (Compared with Pebble's investment and valuation earlier in the day, it's heaven and earth)
U.S. venture capital circles are no longer interested. The hardware startups that are waiting to be sent to China will seek funds. China's investment and advantages in the home field will inspire a new era in the next innovative enterprise. The reason is as follows:
cut costs
China is famous for its low cost. In the past, China used to be a synonym for cheap products and cheap labor. It has now become the primary market for hardware companies. One of the main reasons for the failure of the hardware company is that the money is not enough, or the price of the product is high and sales are difficult. For industries that have complained about high production costs, choosing affordable parts and labor is crucial.
Faster market speed
Listings and delays in the availability of hardware products are always inevitable. This is especially true for newly inexperienced companies. A study by CNNMoney found that 84% of the top ranked projects on the Kickstarter, a well-known foreign crowdfunding platform, have posted delays. Engineering, design, and hardware production are complex and error-prone. The combination of factors makes it easy for people to underestimate the time it takes to bring a product to market.
The United States is not good at providing a simplified and rapid system dedicated to the development of hardware products, but this is China's specialty. Over the past 10 years, China has invested heavily in infrastructure. Hardware startups hope to reduce delays and bring their products to market as soon as possible, and China will be able to meet this demand.
Eager consumers
China, with a population of 1.4 billion, is the most populous country in the world, and it is also a country full of enthusiastic consumers of technology and electronics. The crowd is the market. China's leading VR and other cutting-edge technology adoption. Hardware products perform well in China, and startups can choose to enter Chinese consumer groups without having to worry about the US market.
In addition, the Chinese market is incredibly competitive. This efficient screening mechanism means that if a founding company can succeed in China, subsequent entry into the United States will have better expectations. Due to the reproducibility of consumer electronics, it is not sustainable in the United States. And Chinese companies can always expand faster and cheaper. Chinese companies never have to worry about being outdated.
Venture investment
Compared with the role of hardware-creating companies in the United States, the Chinese VC market has become increasingly enthusiastic about hardware creation. Chinese start-ups are basically completing Round A financing at home. Many Chinese venture capitalists rely on hardware to make money or use it as a means to manage their money, so they will be optimistic about the opportunities in the hardware industry.
In addition to the money itself, Chinese venture capitalists offer many other benefits. They understand what is needed to build a hardware product and also look at every aspect of the design and manufacturing process when evaluating an investment, not just blind investment. U.S. VCs are more accustomed to rapid software development, and Chinese investors are more confident in the slow manufacturing process of hardware products. Chinese investors are focused on solving real market demands and have enough patience to see the vision come true.
After all, it is a manufacturing country
The Chinese economy is based on the manufacture and mastery of the supply chain. China has the best manufacturing infrastructure in the world and becomes an ideal venue for hardware companies to bring their ideal products into reality. This huge advantage can help reduce barriers to entry, speed time-to-market, and reduce errors—all at low cost.
Another advantage that can be provided by a dynamic Chinese manufacturing industry is that manufacturers usually invest directly in companies that they have partnered with. The manufacturer is in the role of an investor and works closely with start-ups to develop deeper and more transparent cooperation with the startup companies. It helps the startup companies to reduce their pitfalls, accelerate their progress, and ensure product delivery. A good example of this is China's Shenzhen Valley Ventures. Shuanggu Valley recently established an incubator in Palo Alto with its Chinese partners.
In China, companies have more opportunities to build trust with manufacturers and treat them as partners rather than contractors. American companies are not used to this set. U.S. companies either have headaches for manufacturing industry terminology or worry that manufacturers will steal their IP. The lack of mutual trust often results in delays in product delivery.
The American venture capital industry may not be interested in hardware creation, but China is definitely welcome. Hardware creation companies should embrace this opportunity to make full use of all the conditions China can provide, instead of just treating it as an assembly production site. (Sun Wenwen)