Consumer hardware has always been a tough market to crack, but the COVID-19 crisis made it even harder.
TechCrunch surveyed five key investors who touch different aspects of the consumer electronics industry, based on our TechCrunch List of top VCs recommended by founders, along with other sources.
We asked these investors the same six questions, and each provided similar thoughts, but different approaches:
- Hans Tung, managing partner, GGV Capital
- Dayna Grayson, co-founder and general partner, Construct Capital
- Cyril Ebersweiler, general partner, SOSV
- Bilal Zuberi, partner, Lux Capital
- Rob Coneybeer, managing director, Shasta Ventures
Despite the pandemic, each identified bright spots in the consumer electronic world. One thing is clear, investors are generally bullish on at-home fitness startups. Multiple respondents cited Peloton, Tonal and Mirror as recent highlights in consumer electronics.
Said Shasta Venture’s Rob Coneybeer, “With all due respect to my friends at Nest (where Shasta was a Series A investor), Tonal is the most exciting consumer connected hardware company I’ve ever been involved with.”
Besides asking about the trends and opportunities they’re pursuing in 2021, the investors we spoke to also identified other investors, founders and companies who are leaders in consumer hardware and shared how they’ve reshaped their investment strategies during the pandemic. Their responses have been edited for space and clarity.
Hans Tung, GGV Capital
Which consumer hardware sector shows the most promise for explosive growth?
For consumer hardware, offering end users a differentiated experience is extremely important. Social interactions, gamification and high-quality PGC (professionally generated content) such as with Peloton, Xiaomi and Tonal is a must to drive growth. It’s also easy to see how the acceleration of the digital economy created by COVID-19 will also drive growth for hardware.
First, services improved by the speed and reliability of 5G such as live streaming, gaming, cloud computing, etc. will create opportunity for new mobile devices and global mass market consumers will continue to demand high-quality, low-cost hardware. For example, Arevo is experimenting with “hardware as a service” with a 3D printing facility in Vietnam.
For enterprise hardware, security, reliability and fast updates are key competitive advantages. Also as a result of 5G… manufacturing automation and industrial applications. Finally IoT for health and safety may find its sweet spot thanks to COVID-19 with new wearables that track sleep, fitness and overall wellness.
How did COVID-19 change consumer hardware and your investment strategy?
One opportunity for consumer hardware companies to consider as a result of COVID-19 is how they engage with their customers. They should think of themselves more like e-commerce companies, where user experience, ongoing engagement with the consumer and iteration based on market feedback rule the day. While Peloton had this approach well before COVID, it has built a $46 billion company thinking about their products in this way.
For example, some consumers felt the bike was too expensive so instead of responding with a low-end product, the company partnered with Affirm to make their hardware more affordable with pay-as-you-go plans. A Peloton bike is not a one-and-done purchase; there is constant interaction between users, and the company that drives more satisfaction in the hardware adds more value in the business.
Entering 2021, in what way is hardware still hard?
Hardware is still hard because it takes more to iterate fast. The outcome for competitors relative to speed-to-market can be dramatic. For example, every year I look at future generation of EVs with lots of innovations and cool features from existing OEMs but see very few of these making it to market compared to Tesla and other pure players that are cranking out vehicles. Their speed of execution is impressive.
Who are some leaders in consumer hardware — founders, companies, investors?
- John Foley, founder and CEO of Peloton. John and the Peloton team have cracked the code on the integration of community experience and hardware.
- Sonny Vu, founder of Misfit and founder/CEO of Arevo, maker of ultrastrong, lightweight continuous carbon fiber products on demand. Experienced founder and team with 3D printing manufacturing know-how at scale are now able to offer breakthrough consumer and industrial products at competitive prices.
- Manu Jain, head of Xiaomi’s business in India where Xiaomi is the #1-selling smart phone. He built the Indian operation from the ground up; had zero dollar marketing budget for the first three years; and localized manufacturing for all Xiaomi phones sold in India.
- Jim Xiao, founder and CEO of Mason, a rising star who is creating “mobile infrastructure as a service.”
- Irving Fain, founder and CEO of Bowery Farming. Irving and his team are on a mission to reimagine modern farming.
Is there anything else you would like to share with TechCrunch readers?
Worry less about trends and build products that resonate with customers.
Dayna Grayson, Construct Capital
Which consumer hardware sector shows the most promise for explosive growth?
It is especially hard to change consumer behavior. It’s even harder to predict when changes will happen and over what time periods, and that’s why new consumer hardware and devices can be difficult to introduce — they require lengthy planning and development cycles and it’s difficult to iterate on the design and functionality to adjust to feedback and meet demand. However, the behavioral changes required by the pandemic over the last 10 months opened new consumer activity that accelerate and create net-new demand that is now waiting for better products.
We have become much more connected over the past 10 months. We may have considered ourselves connected pre-pandemic but if that amounted to even 50% of our time, it’s now normal to be connected 70%-80% of the time. That’s a huge shift in a very short window. Our demands for virtual productivity, in particular, skyrocketed, and we expect our devices and home systems to enable deeper compatibility
This is a great opportunity for consumer hardware innovation. Better hardware is needed to support at-home productivity for work or for leisure. I’m excited for hardware that can give more personalized control over our daily health tracking, food preparation or “smart home” centralized controls. There have been innovations in many of these sectors but our needs have been recast in a world where we demand much more from these systems daily to keep us connected completely virtually.
As we start to venture out and about on a more regular basis again, micromobility is another sector where high-quality, design-forward consumer hardware could flourish as we reimagine the more personalized ways to create daily commuting.
How did COVID-19 change consumer hardware and your investment strategy?
At Construct, we invest in what we call the foundational industries of our economies that have yet to be fully tech enabled, such as manufacturing, logistics and transportation to name a few. Our focus and thesis as it relates to consumer hardware is based on fundamental shifts that need to first happen in manufacturing processes and supply chain automation. COVID-19 has exposed weak links in both that all but halted production and on-time delivery of many essential products at various times in the last 10 months.
The supply chain simply could not pivot to new demand quickly enough and as we recover from the pandemic, the hangover for manufacturing and supply chain is real. This is a top priority to invest in fixing.
As it relates to consumer hardware, design and production cycles of hardware need to enable fast, iterative release cycles similar to those that we enjoy in software development. This enables test-and-learn behavior to fulfill consumer demand. As new consumer hardware ideas come to fruition, the best entrepreneurs will take advantage of improvements in the design, production and delivery cycles. And, we’re looking for founders who not only further these agile development capabilities but also who capitalize on these capabilities to release innovative hardware more quickly.
To be more specific, there are massive companies to be built when you can scale up additive manufacturing and leverage data and communication across the supply chain. And as entrepreneurs seize on new methods of production in some of the consumer hardware markets I mention above — health/fitness, home connectivity and food preparation — big ideas and companies will take shape that more rapidly incorporate user feedback. The ability to grow and innovate with agility is a key trait of some of the most successful founders.
This is normally when CES takes over the news cycle. Do you think trade shows will survive COVID-19? If so what will they look like and how should hardware startups approach them?
The days of being packed shoulder to shoulder in a ballroom room are over. But the consumer hardware community is vibrant and dynamic, and folks still want ways to come together to share ideas and show off innovation. It is easy to present ideas and innovations remotely but it’s very hard to sense reactions and feedback remotely. The “buzz” is missing in a remote environment. I think the best trade shows post-pandemic will focus on capturing the vibe of the crowd that can only be appreciated by synchronous and often, live presence.
Entering 2021, in what way is hardware still hard?
I already mentioned challenges in manufacturing and supply chain. Something that is persistent in hardware is the fact that there is always that moment when you have to freeze your design and hand it off to the manufacturer, whether it is a contract manufacturer or in-house. This creates a “no turning back” point that makes hardware risky and hard from a value creation standpoint. I’ve seen some tools and technology that allow for more true-to-final prototypes to be built rapidly and cost efficiently, but we have a long way to create true agile development in hardware.
Who are some leaders in consumer hardware — founders, companies, investors?
The wave of connected fitness has surfaced a set of incredible founders and companies, who are all leaders in their own right: Brynn Putnam of Mirror, Aly Orady of Tonal, Bruce Smith of Hydrow, Will Ahmed of Whoop, to name just a few.
David Hyman, the founder of Unagi, has brought an elegant micromobility device to market and is competing aggressively against massive companies from Asia.
In regard to investors, there are a lot of co-investors we admire in the space: Larger funds such as Lux Capital, Eclipse or Kleiner Perkins to name a few. Seed funds such as Founder Collective, First Round, Homebrew, Pear.VC, Vertex, Cowboy; and pre-seed funds such as Precursor, Dynamo, Schematic and Root Ventures.
Cyril Ebersweiler, SOSV
Which consumer hardware sector shows the most promise for explosive growth?
Everybody is waiting for new and mind-blowing experiences, and I guess we’ve all experienced the shortcomings or the magic of some IoT products over the shelter-in-place [orders]. Spatial and ambient technologies that work well will be in demand (audio or visual), while “holographic Skype” will invade households thanks to Looking Glass.
How did COVID-19 change consumer hardware and your investment strategy?
Over the years we have reduced our exposure to consumer hardware, as Amazon and others entered the smart home space with unlimited resources and no obligation to turn a profit on day one. COVID-19 has oddly been a positive since consumers are spending more time at home and are looking for upgrades, be it for work, education or entertainment. It’s a new beginning.
This is normally when CES takes over the news cycle. Do you think trade shows will survive COVID-19? If so what will they look like and how should hardware startups approach them?
Everybody has this love/hate relationship with CES, and frankly not being there after decades of visits seems odd to the point we probably all miss it somewhat. While it may take some time for trade shows to be fully “back,” it’s a tremendous opportunity (or obligation) for startups to experiment online and build new ways for people to experiment [with] their product, or be convinced it’s the best in class.
Entering 2021, in what way is hardware still hard?
It’s been a rough year for startups, between the supply chain disruption early on, difficulties to get to another country or to meet with manufacturers/distributors/clients … but amazingly things still got done and some had a tremendous impact on COVID-19 response (e.g., Opentrons launching the NYC lab testing facilities). We are probably at an all-time low for funding, which means it’s probably a good time to look into it again.
Who are some leaders in consumer hardware — founders, companies, investors?
Companies like Peloton are showing that it is possible to build a highly successful consumer hardware company and its recipe is being studied thoroughly by many. Both Sonny Vu (of Misfit fame and now with his new startup Arevo) and Tony Fadell are references, although their knowledge and investments now span across all aspects of hardware including robotics and clean technologies. Oh, and folks at True Ventures of course thanks to their stellar investments in Fitbit, Ring and Peloton.
Bilal Zuberi, Lux Capital
Which consumer hardware sector shows the most promise for explosive growth?
I am bullish on wearable devices still, especially for health monitoring in partnership with digital health, telemedicine and web/app-based health monitoring plus physical activities. It will be interesting to see who is able to find interesting partnerships for distribution versus trying to mass broadcast to consumers, which is an expensive proposition.
How did COVID-19 change consumer hardware and your investment strategy?
During COVID-19, as we tried to switch our lives to “online mode,” we realized the shortcomings of our physical infrastructure. We could more easily upgrade our cameras, screens and microphones, but how to get better diagnostic data to physicians for telemedicine appointments, how to get better health and physical stress data to health advisors or workout coaches? As online service companies become multibillion dollar enterprises, will they drive the adoption of consumer hardware at home?
This is normally when CES takes over the news cycle. Do you think trade shows will survive COVID-19? If so what will they look like and how should hardware startups approach them?
There will be room for trade shows. I have not had a single hardware company in my portfolio say they are satisfied in life without trade shows. Physical products benefit from being in a single place, capturing the attention of buyers and customers, and being able to learn what the rest of the industry is up to. I believe trade shows will return, albeit in a modified form, and perhaps with a slightly smaller (bit more focused) audience.
Entering 2021, in what way is hardware still hard?
I believe everything we design, engineer, manufacture and use will go through an in-silico simulation process first. Until we figure out how to do that well, hardware development will remain expensive, noniterative and slow.
Who are some leaders in consumer hardware — founders, companies, investors?
Some of the more interesting ideas in hardware are coming from founders who worked in software but understood the shortcomings of hardware they used and are trying to find ways to improve said hardware devices by partnering with other founders. I also believe the separation between hardware and software is thin at best, which is great.
Is there anything else you would like to share with TechCrunch readers?
Watch for interesting business models that will propel hardware companies to higher-margin, recurring-revenue type entities. The excitement around Peloton, Apple Watch, Livongo blood glucose monitors, Evolv security systems, etc. revolves around their development of interesting software-related business models that are powered by their proprietary hardware technologies.
Rob Coneybeer, Shasta Ventures
Which consumer hardware sector shows the most promise for explosive growth?
Fitness, healthcare and wellness were already exciting consumer hardware categories pre-pandemic. From an already strong base, consumer demand for connected hardware products like Tonal and Peloton has exploded in popularity during the pandemic. Even with a clear end to the pandemic coming by the end of 2021, thanks to COVID vaccines, public market investors in Peloton have shown that they believe the “workout-from-home” trend will continue to grow rapidly post-pandemic as shown by Peloton’s stock price.
How did COVID-19 change consumer hardware and your investment strategy?
I think it really made startups and companies rethink their views on how hardware teams approach the design process. Developing prototypes became harder and takes longer. From a strategy perspective, the pandemic has made health, wellness and fitness opportunities far more interesting due to the growing consumer demand for those products.
This is normally when CES takes over the news cycle. Do you think trade shows will survive COVID-19? If so what will they look like and how should hardware startups approach them?
I think in-person trade shows will emerge as strong as ever once the pandemic is behind us. CES 2022 will be in person and will be a bit on the quiet side, but by CES 2023 the show will regain its historical scale. In-person trade shows offer opportunities for serendipity that simply can’t be recreated via videoconferencing. Most people who went to CES loved to complain about it, but the reality is we all miss seeing everyone in person.
Entering 2021, in what way is hardware still hard?
Throughout 2020, designing and building hardware was more difficult than ever. The pandemic impacted every part of a hardware business: startups couldn’t visit their overseas factories in places like China, social distancing made it far more difficult for engineers and designers to access shared prototyping resources and bottlenecks emerged all over supply chains ranging from jammed shipping docks to delayed component supplies. I don’t expect things to get any easier until the end of 2021.
Who are some leaders in consumer hardware — founders, companies, investors?
With all due respect to my friends at Nest (where Shasta was a Series A investor), Tonal is the most exciting consumer connected hardware company I’ve ever been involved with. The founder, Aly Orady, has delivered on his original vision and with the help of a world-class team has built a truly magical product. Tonal’s NPS scores and user engagement figures are the highest I’ve ever seen for a hardware product, and together with the pandemic has led to enormous sales growth and an extremely passionate user community.
Their trajectory is on a path that matches Peloton’s growth, and Tonal is well on the way to becoming just as much of a household “name” as Peloton. Other interesting consumer hardware companies include Eight Sleep, Oura, Rad Power Bikes and Skydio.
Is there anything else you would like to share with TechCrunch readers?
Tesla is arguably the most interesting connected consumer hardware company since Apple exploded in scale with the success of the iPhone. I think fitness is a category that can deliver enormous scale as well.