TiE fighters have great margins

Money in Hardware

Hardware is hard. Hardware is hard. Ok we got that off our chest. But sometimes, hardware is rew-hard-ing too.

1. Fitbit IPO, now valued at $6.8B

There are some cool interviews here. It is also notable that for Jeff Clavier (@jeff) from SoftTech VC, who was a one-man “super angel” fund back in 2008, his $125,000 series A check in 2008 turned into $124m. Well, it’s not so extreme since SoftTech maintained or topped up its share in series B and series C but still. It’s good news for sure.

Series A lead True Ventures, joined by Brad Feld (@bfeld) and the folks at Foundry Group in series B (whom Clavier convinced to join) must be quite happy too.

At the time of writing the valuation went from an IPO at $4B to $6.8B. It is deemed a success, though I always feel uneasy when I see such thing: founders raise capital mainly at introduction, which means they left lots of money on the table. Those who benefit most from a low introduction price are:
(1) prior investors (those who hold stock and can sell right away- founders generally have a 6 months lock-in)
(2) the bank doing the roadshow + introduction (they have a cheaper deal)
(3) their friends (hedge funds, pension funds) to whom they pre-sold shares to ensure the IPO would sell enough of them
(4) retail investors (the average person)

Basically, low-ball introductions prevent founders/their company from capturing the whole value of the stock (when you consider the whole point of an IPO is raising capital…). There is also a “greenshoe” option for bankers and friends to milk an IPO even more. Instant profit!

Founders can’t really complain publicly as nobody has incentive to empathize. When Facebook “over-optimized” its introduction, it was perfect on the financial side but many short-term investors (also called speculators) were not too happy. Sadly, employees with stock were also a bit upset and it did not help new hires either.

Anyway, at such valuation and raising $700m, they’ll do alright for some time. Also, it raised only $66m since inception so the capital efficiency is hard to beat.

Last, let’s note that Fitbit was founded in May 2007 so it’s just 8 years to IPO. That sounds about right.

2. Recon acquired by Intel for $175m

They do an AR google-glass-like thing for sports and else. Recon was founded in 2008. Crunchbase says it raised $17m in three series A. Growth was probably not as fast as expected to do three rounds in the same range. One of the rounds was lead by Intel and is not documented — we could imagine something in the $5-$10m range so a total of maybe $25m.

To do some napkin maths: three rounds mean probably 20% dilution each time, so founders are in the 40% range and there seem to be 2 co-founders and a few VPs. With an option pool, etc. probably still 20%+ for the 2 founders so about 10% each, or $10–15m after taxes. Enough to enjoy the Summer :)

For investors, the valuation for the three As were likely not too far apart, probably <$60–80m so investors did 2–4x in less than 3 years. Let’s hope they’ll bet again on hardware!

3. More investors for hardware!

  • Formation8 announced it was keen on hardware with a $100m fund. They made their first money with Oculus and seem excited by the field.
  • Root Ventures (not Root Capital) announced a $30m hardware fund.
  • VC Accel and drone leader DJI announced a $10m drones fund (Accel just invested $75m into DJI).
  • Meanwhile, our very own HAX continues to grow: from $25k in 10 startups in 2012 to $100k + $200k matching funds in 30 startups this year. That’s up to $9m deployed in one year. Not bad for a hardware accelerator. We must be Beliebers, or something. It’s a good thing HAX is backed by an evergreen fund, it simplifies paperwork! On the downside, candidates are multiplying and doing the selection is harder than ever.

4. Many big rounds in hardware

DJI ($75m), 3DR ($100m), Softbank Robotics Holding ($236m), Canary and a few more. Rounds are going up. Hardware unicorns in the making!

Partner @ SOSV — $700m VC fund for Deep Tech (biology, robotics, etc.) | Digital Naturalist | Keynote Speaker | Angel Investor

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