The world we used to live in — the one which revolved around using low-cost money to pump up ARR — is gone.
It got here to a screeching halt with rising rates of interest, and it’s not on its way back anytime soon. VCs responded as VCs do: by quickly shifting from a “growth-at-all-costs” mindset to specializing in quick profitability while funding metrics shifted from just revenue and growth to including costs as well.
For the reason that starting of Q2, a spur of corporations, including hardware corporations, have come out of the gate and commenced raising money. The Silicon Valley Bank (and, more recently, Free Republic Bank) debacle has been relatively short-lived, but, given the multiple rollercoasters the industry has been on, one has got to wonder where the goal posts are nowadays.
There’s no debate that the SaaS game has modified, and yet a consensus on Series A funding metrics for these corporations hasn’t emerged. Nonetheless, it is just not too difficult to guess that it might be roughly around double the revenue bar at the identical or lower cost. It’s a difficult proposition, but a transparent and tangible goal to strive for — and one that can’t be applied to hardware corporations without revenue of their early stages.
So how can a hardware company raise a Series A amidst yet one more “recent normal” on this post-low-interest-rate era?
Commit to having deployable hardware
Most hardware corporations barely get their product to operate — and may only achieve this using their very own engineers and technicians. Hardware in this case is just not deployable on any meaningful scale.
On the Series A stage, VCs need to know that they’ll pump money right into a product that can start going into the market. This doesn’t mean that the product must be pitch-perfect; it just means it must be sufficiently mature to operate in a more unconstrained environment outside of the startup lab.
On the Series A stage, VCs need to know that they’ll pump money right into a product that can start going into the market.
Use your ratio of engineering support per hardware as a metric for whether your product is deployable in the best way it must be. If you might have one engineer for the hardware piece you’re deploying (to not be confused with non-engineer technical support personnel for purchasers), you wouldn’t have a deployable product.
Now, at a one-to-four ratio, the unit economics turn into more reasonable. As a stretch goal, it’s best to goal to get the human out of the loop entirely, but all the pieces eventually boils all the way down to unit economics.
In case you’re hitting 70+% gross margin at an inexpensive price, you then can afford to have more support — nevertheless it goes to be exceptionally difficult to take care of as an early-stage company with an immature product.
