175: Raising Hardware Funding via an Angel Investor

May 11, 2023

With Larry Richenstein, Long-Time Angel Investor

Hosted by Kevin Mako, President of MAKO Design + Invent

175: Raising Hardware Funding via an Angel Investor

Larry Richenstein is a veteran in the hardware sales, development, and investment industry with more than four decades of experience. As the CEO of WePower Technologies, his latest hardware venture, and an angel investor in the New York Angels network, he possesses a wealth of knowledge that he is eager to share with inventors, startups, and small manufacturers. In his upcoming discussion, Larry will cover essential information on angel investing, including the development stages necessary for pitching to a professional angel investor and how to deliver an effective pitch once granted an opportunity.

Today you will hear us talk about:

An angel investor is typically an independent investor or a group of investors who invest in startup businesses.
Angel investing is often considered the first round of funding before venture capital.
When it comes to products, there is a lot more that goes into them from a product development standpoint.
Measure twice, and cut once to ensure accuracy and efficiency.
You have to have all the development completed before seeking funding.
Ideas alone may not secure funding.
While a rough prototype may be interesting, it is generally too early for investors.
Investors are primarily interested in seeing a functional prototype.
De-risking the investment occurs the further you push the product down the road.
When looking for funding for hardware products, it is important to locate angel investors who specialize in that area.
Angel investors specializing in hardware exist and can be found.
To attract investors, it is essential to present a pitch that demonstrates a high probability of success.
Hardware and software are converging and becoming more intertwined.
Crowdfunding is a potent tool for validating market demand.
Instead of targeting a broad audience, niche industries can be targeted.
Feature creep should be avoided, especially in the initial product version.
Crowdfunding can be an alternative way to avoid relying on external investors.

EPISODE HIGHLIGHTS

3:20 – An angel investor is an independent investor or a group of independent investors that invest in companies at the very early stages of the business.
3:40 – Angel Investors look at startups that need funding, startups that are too early stage to get typical business financing options.
3:50 – After angel investing, startups usually go into VC (Venture Capital) financing.
4:00 – There are some venture capital firms that do some angel investing too.
4:20 – There are a lot of misconceptions when it comes to financing or getting investment for a hardware invention idea.
4:25 – Nobody invests in a hardware idea, they invest in the execution of a hardware idea.
4:30 – When pitching for investment money, you need both a good idea and good proof of execution of that idea.
5:00 – Hardware requires a lot more proof of the design and development of the product idea in order to raise angel funding.
5:30 – Moulds and tools, the start of manufacturing, is the most expensive part to get wrong in getting a new hardware product to market.
6:00 – At what point does an angel investor take a hardware product seriously?
6:15 – Hardware startups who apply for funding with just an idea won’t get any funding.
6:00 – Hardware startups that apply for funding with rough prototypes or mock-up prototypes might get some investor interest, but are still not yet good enough for serious investors.
6:20 – What angel investors really want to see from a hardware startup is a fully working professionally developed prototype.
6:55 – The further that a hardware inventor pushes the development of a product, the exponentially more investable and valuable your hardware startup funding prospect becomes.
7:00 – The more validation you prove to an investor, the less perceived risk the investor sees.
7:15 – Manufacturing is where products make money, so proving that you are ready for manufacturing is extremely important to a hardware startup trying to raise funding.
8:15 – How do you find angel investors to pitch for your hardware startup?
8:25 – First and foremost, find angels who invest in hardware products.
8:55 – Come into investors with a pitch that proves you have a high likelihood of success.
9:15 – Adding software to your hardware can improve the value of your hardware business.
10:00 – There are lots of ways to find out which angel investors invest in hardware.
10:50 – Ensure that you have a pitch that includes a strong plan for manufacturing, or even a manufacturing setup already in place.
10:55 – Show buyer intent like crowdfunding, letters of intent, or other buyer interest.
11:20 – Crowdfunding is a very powerful tool to prove hardware startup validation to investors.
11:50 – Niche products and niche industries are very powerful for hardware startups now because you can access the whole world of people that have that specific niche interest.
13:00 – Focus down your product to its MVP (minimum viable product) given that you can hyper-target niche industries, then expand from there.
14:00 – Avoid feature creep.
14:15 – An MVP is usually sufficient to get the hardware startup going, then expand from there.
14:20 – You may want to actually avoid investors, especially early on in the hardware startup journey, for many reasons.
14:30 – Crowdfunding can be a great way to avoid the need for early funding, as you use the backers to fund manufacturing.
15:00 – The earlier that you get investors, the more equity they are going to take and for much less investment money into the startup, so the further you push investment, the exponentially more capital you will be able to raise in the future.
15:30 – If you can self-fund, or friends and family fund, the product development to the point of even just a small manufacturing run and a small number of sales, you will be far more valuable and thus be able to raise exponentially more money possibly for even less equity than raising money too early.

EPISODE LINKS

Larry Richenstein Links:

LinkedIn | WePower Technologies

PTC Links:
https://www.ptc.com/
OnShape | Creo

Kevin Mako Links:
Instagram | LinkedIn | Quora | Facebook | Twitter

Partner: PTC’s best-in-class software solutions Onshape: The only cloud-native product development platform that delivers full-featured computer-aided design (CAD), integrated product data management (PDM) and enterprise analytics in a single system, and Creo: 3D CAD solution that provides designers with the most innovative tools to build better products faster, such as generative design, additive manufacturing, real-time simulation, IIoT, and augmented reality.

MAKO Design + Invent is the original firm providing world-class consumer product development services tailored to startups, small manufacturers, and inventors. Simply put, we are the leading one-stop shop for developing your physical product from idea to store shelves.

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