The Return of Venture Backed Hardware

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Recently, hardware companies have been popping up in all kinds of places. Nest is building the next thermostat. Sonos sells seamless and beautiful soun systems. Thalmic Labs and Leap Motion are innovating in alternate forms of computing control. Electric Imp is building the platform-as-a-service to connect devices to the web via Wifi and so on.

Hardware investments are blossoming because software is reinvigorating the market. Hardware companies face deeper logistical challenges, greater likelihood of margin erosion, and more complex go-to-market strategies than their software cousins. But subscription revenue streams like streaming music services or device remote control breathe life into hardware companies, driving ultimately higher margins and more sustainable revenue streams.

In response to these trends, the hardware hacker community is flourishing. Winners at many Bay Area hackathons focus explicitly on hardware hacks using Arduino to commandeer electric devices. Others are building applications atop Raspberry Pi. These often teams comprise both hardware engineers and web engineer. Hardware represents new, exciting challenges to conquer.

It’s precisely this union of hardware actively communicating with software in novel ways that is electrifying venture capitalists. Hardware companies may always face additional complexity but the reward has never been larger: new markets, subscription revenue streams and phenomenal teams make for great investments.

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