My favorite piece of VC news in 2015 – Formation 8 launches a new fund dedicated to hardware and rebrands it as Eclipse.vc(http://techcrunch.com/2015/11/04/de-formation-8/). The second best is Peter Diamandis announcing Bold Capital Partners. We don’t officially know their portfolio yet, but with Peter in action I’d expect more Hyperloop / X Prize kind of stuff. I’m just missing an Elon Musk VC vehicle here.
Now, with my background in science and physics, I love hardware innovations, and I’ve been a fan of F8 since Oculus and, of course, Hyperloop Tech, a hyper-ambitious startup inspired by Elon Musk’s white paper that suggests sending humans and cargo at almost the speed of sound through an empty tube from LA to SF. But being a realist, I can’t help to ask: if software is eating the world, why bother with hardware? what value can hardware provide to a VC that software can't?
It’s no secret that the vast majority of VCs shy away from investing in hardware, and for well-known reasons. Hardware is capital-heavy and slow; hardware doesn’t forgive mistakes and ‘pivot’ is a curse word; incremental opportunities in software are just so much more abundant; finally, you’ve got to understand technical details, and that’s quite a barrier. So where’s the upside?
The first guess could be that F8 is just really, really inspired by their killer of an exit with Oculus and want to do more of that. A decent reason, but I believe there’s more to it.
The latest wave of software innovations is enabled at least equally by hardware. The dot-com wave came when the world got broadband – fiber optics, routers, and IEEE_802.11. The post-2008 growth is fueled by mobile – smartphones and cell towers. These are transformative changes, in Peter Thiel’s language, that enable huge numbers of valuable incrementals. And we’re clearly looking at a few coming soon: AR/VR, IoT, smart cars, smart grids – to name the obvious.
So is Eclipse aiming to dominate these platforms before they arise as the new realities? If so, is this the right time? Which one will change the world first? And how does Hyperloop fit into that? Or, perhaps, it is a conscious shift towards transformation, not purely driven by financial expectations?
Luckily, I don’t have to guess – I’ll have Eclipse’s partner Seth Winterroth to answer my questions at the Hardware Investing panel at MIT VC & Innovation Conference next Friday. Better yet, he’ll be accompanied by Maria Thomas, formerly Chief Consumer Officer at SmartThings, an IoT company, and Nikhil Garg, a Partner with Black Coral Capital, a Boston energy VC, both of whom know how hard, slow, and capital-intensive hardware still is.
By Aleksandr Rakitin - Managing Director of MIT VC & Innovation Conference and MBA 2016 candidate at MIT Sloan