China drives growth in hardware start-ups

Article By : Rick Merritt

After outpacing the U.S. in the size of early venture rounds for hardware start-ups, China is set to surpass Japan as the second largest generator of patents worldwide.

Hardware start-up accelerators are expanding their markets and funding sources, with China driving the action, according to one pioneer.

Hax is among the first companies around the world teaching entrepreneurs rapid prototyping, crowdfunding, supply-chain logistics and marketing. They graduate classes multiple times a year in a business that’s all about volume and speed.

“Our goals are time to market and time to scale. We want to get 90% of our companies to ship a product, 90% of them to get to $1 million in revenue and 90% of them to get to $3 million,” said Cyril Ebersweiler, who claims the more than 200 start-ups in his portfolio netted nearly $500 million in revenue last year.

One of the accelerator’s current stars is Joy, which raised nearly $1.5 million on Indiegogo for its $69 Octopus smartwatch for kids expected to ship in July, 18 months after it was formed. Another is Makeblock, a China-based designer of educational robotic toys that has raised more than $30 million and already has 400 employees and its own retail outlets.

Launched in Shenzhen in 2011 as Haxlr8r, Hax initially focused on consumer markets and the emerging Internet of Things. In the past two years it has expanded significantly into health, business and industrial markets. Start-ups’ products range from devices to support better sleep to hyperspectral cameras for precision agriculture.

While crowdfunding remains central, Hax is also exploring new funding sources. It expects to try with a fertility start-up its first so-called mini-IPO under Regulation A+ rules in the United States. The bitcoin community is promoting sales of securities based on cryptocurrency that Ebersweiler said he expects hardware start-ups to try soon.

Hax_Kickstarter-table (cr)
Figure 1: More Kickstarter projects above $1 million are shipping products. (Source: Hax)

Separately, at least four insurance companies are now partnering with makers of various smart home devices, said Benjamin Joffe, based in Hax’s Shenzhen office.

Accelerators are getting more savvy, said Joffe. Five years ago, half of Hax’s first classes failed to get to market. Today more than 70% of them ship a product, he said.

Hax brought 80 of its companies to the Eureka Park start-up exhibit at CES in January, more than came from Canada and Japan combined, he said. “The gap between hardware start-ups and makers is widening,” he added, noting Hax shifted last year from attending Maker Faire to CES.

China is one of the biggest engines for growth in hardware start-ups, he said, noting Xiaomi alone has incubated several including Ninebot, a designer of electric scooters. It has outpaced the U.S. in the size of early venture rounds for hardware start-ups, and it is set to surpass Japan this year as the second largest generator of patents worldwide, he said.

The Hax event attracted about 200 people, including representatives of established companies such as Google, Hewlett Packard and Sony. An HP exec said the company decided it needed to have full-time staff watching the activity from hardware start-ups.

First published by EE Times U.S.

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