The rapid hard-tech emergence – ClearTips

When I joined the team at SOSV’s HAX, an enterprise program designed to help early-stage hardware founders, my friends in tech nodded their heads. Had I not learned yet that hardware is too hard? What they didn’t see was a hardware scene that was rapidly evolving in contrast to its glacial reputation. The old hard-knock hardware playbook has given way to a new, much more exciting one; Civilization-level opportunities such as climate are emerging to meet, which software alone can solve.

Today when I work with the founders in the HAX program, it’s common to create incredible (but feasible) plans to “reduce the world’s energy consumption by 10%.” sepure, on “Eliminate all the waste in the apparel supply chain” unspun or with “Make global battery recycling 5x more profitable” green li-ion.

Such ambitions reflect emerging mega-trends in the global economy, centered around demands to decarbonize, modernize infrastructure, secure supply chains and fully digitize traditional industries.

The tools and techniques to move forward – from machine learning to sensors to nanomaterials – are more powerful and affordable than ever, allowing for higher ambition and much faster times to market. Visionaries like Bill Gates and Elon Musk have taken note, institutional giants like BlackRock are pressing for climate recklessness and we saw the rise of HAX like-minded communities The Engine, New Lab, and Greentown Labs.

The scope of this new world is so broad, in fact, that we no longer define HAX’s thesis around “hardware”; we call it hard take, both because it’s tough, as well as tough, as well as moving far beyond the early 2010s of personal hardware devices and home IoT.

What is emerging around us is a new generation of hard-tech founders, investors and technology With some early signs for an impending hard-tech tidal wave.

If “software eats the world,” hard tech teeth it

The past three decades have been defined by “software eating the world,” and it’s been feasting on the lowest-hanging fruit. But our screen-based, server-based digital world is limited by modest gains in niche markets. As our friends at Ubiquity Ventures say, it’s time for “software beyond the screen.”

Affordable robotics, AI-powered sensor fusion, seamless connectivity and super content are merging into the technology stack to unlock massive new phases of value for customers. Many HAX companies are operating businesses with gross margins in excess of 80%, which industry experts said a while ago that only SaaS companies could achieve. Even more, the hardware + software combination can tackle more critical problems in industries than software alone.

Learn from Tesla: Take Big Shots in Big Industries

When industry experts explain Tesla’s unexpected growth over the past 10 years to become a mass production automaker, they point to Tesla’s “software-based” approach. The truth is that Tesla’s ascent has focused on deep hardware innovation in battery, motor, manufacturing and delivery models.

The same equation is playing out in major, multi-billion dollar industries such as energy, construction and agriculture. Investors looking for opportunities in these categories will need to be bold, but they will get disproportionate returns if they include hard takes. We have to take big shots like the Commonwealth’s fusion energy to move the world forward nuclear fusion reactor, Boston Metals emission free steel or deepspin low cost MRI. As with Tesla and transportation, software may take away opportunities, but industrial revolutions come from innovation in the physical world.

New doors open for B2B sales

Addressing these massive opportunities requires partners and customers on an industrial scale. Startups can’t afford to go it alone. Traditional advice for startups is to avoid corporate partners because they are scary, slow-moving beasts who can’t operate at startup pace. The reality is that large corporations have significantly increased their appetite for emerging hard-tech startups and many have established pipelines to engage with higher-risk, more complex tech. Number of corporations that have ventured over the years Deals have more than doubled And are already in motion for many other industry-wide upheavals.

This enables startups to enter the corporate, B2B markets more quickly, driving millions in revenue for many B2B hard-tech startups that were previously limited to their software-only peers. This is attributable to an increase in VC capital for the same firms as well as a change in HAX’s own makeup. Since our launch in 2012, the HAX B2B portfolio has grown from 10% to 70% of our total investments, and includes the fastest growing early-stage companies.

It’s easier and cheaper to tool hard-tech companies

Technologies and strategies for spinning early-stage, hard-tech startups have advanced by orders of magnitude in less than a decade. The price of 3D printers had dropped from $20,000 to $200. Printed circuit boards ship around the world in a matter of days (even in the midst of a wild supply chain crunch). Hundreds of thousands of suppliers exist online ready to build and ship components overnight. It’s worth it for an early-stage founder on a slim budget to build an impressive and revenue-generating prototype. As a result, hard-tech founders can zero in on their core technology developments and accept many of the things previously considered “difficult”. Similar revolutions are the backbone of the new hard tech world, similar to the rise of APIs, AWS and “no-code”, which exposed new applications to software.

PhDs are a symbol of the future

Since hard-tech commercialization is no longer a quixotic pursuit, more PhD and post-doc companies are signing up to start. It is routine for HAX startups to be a PhD founder, or to have years working on a doctoral thesis (Over 40% of SOSV Climate 100 Companies 100 Have at least one PhD founder). They are responding to more entrepreneurial nudges directly from universities, but also driven by the call for bigger, civilization-level technology challenges like climate.

This is not an easy road for investors because, almost by definition, the work coming out of a university lab bench is very advanced, somewhat speculative and lacking a proven market. In other words, hard-tech startups are usually in very deep water, and expert leadership and insight are at a premium. As a result, many VCs are choosing scientists and engineers for their investment teams, lest they risk missing out on the next generation of great founders and industry-shifting startups. We are at the beginning of a golden era of opportunity for our best minds in science and technology.

These highlights from HAX’s emerging hard tech growth are not a prediction of years to come, but rather a reflection of what the HAX team is going through every day in our portfolio. We have been stunned by the quality of the ideas, the founders’ ambition and the speed of execution of projects, which many years ago were written off as impossible. Sure, it’s still tough, but more entrepreneurs and investors are moving into tougher technology as it becomes an indispensable force for decades to come.

Disclosure: Ned Desmond, former COO of ClearTips, is now Senior Operating Partner at SOSV.

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