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Monday, June 27, 2022

Hardware Is Not That Hard Anymore

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Hardware is the enabler for digital services, new business models and real world digital ecosystems and platforms. Tech giants have been acquiring hardware companies and many of the unicorns are hardware heavy. Or how do companies like Square, iZettle, GoPro, Beats, Oculus, Fitbit, Nest and Dropcam sound to you.

Software development became easier through open source and cloud and the hardware is on the same path with outsourced manufacturing and deliveries, fixes made on-the-air and so forth. As Sam Altman from Y Combinator put it, “All the reasons that have made software so successful are beginning to happen with hardware. So much can be done so quickly, prototyped so rapidly, and the costs are so low.”

While hardware is less and less expensive to develop, produce and ship and, in some cases, becomes commodity, it is the ultimate value carrier and user interface needed by all the businesses. Combination of enabling hardware and value increasing software creates great added value for customers and great customer lock-in with potential to scale-up and build long-lasting ecosystems for businesses.

IoT, wearables and AR/VR, with a need of hardware, will rule the market in the near future with the estimated market potential of hundreds of billions. In addition, digitalization luring into even most traditional industries require hardware to enable these business opportunities.

Hardware focused accelerators like Bolt in Boston, Buildit in Estonia and the mother of all accelerators Y Combinator in Silicon Valley are easing the development of new hardware startups. Also the savviest venture capitalists have entered the hardware business and venture capital investments into hardware startups are growing much faster than the industry in general.

Even though the hardware startups have 2.2 times higher exit valuations compared to mobile and internet startups – and made five of ten largest deals lately, the hardware market is still well under served representing less than ten per cent of all venture capital investments.

In Finland, the ecosystem developed during the Nokia era and all capabilities in hardware development and manufacturing that are now scattered all around, provide a perfect platform to develop great hardware companies. Instead of thinking yet another social networking service or mobile game company, why wouldn’t you invest with us into the most mind blowing hardware companies that will change the market.

This post is written by Ville Heikkinen. As a partner at Butterfly Ventures, an early stage focused start-up development and venture fund management company, Heikkinen works in the frontline of Finland’s startup ecosystem.

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