New Incubators Focus on Hardware

Photograph by David Paul Morris/Bloomberg

Axio's Arye Barnehama, left, demonstrates his headband that measures the user's focus at an event held by HAXLR8R.

Arye Barnehama had an idea for a headband that could measure a person’s level of focus. So last year, he recruited people with the know-how to design software and arrange circuit boards to help build it.

“We had a really great foundation for the company,” he said. But the inevitable question came: Now what? Startups like his that build physical things, rather than websites or applications, have had a hard time luring investors.

Barnehama turned to HAXLR8R (think: “hack” and “accelerator”), a new incubator program that specializes in developing electronics. HAXLR8R picked his group, called Axio, and eight other startups to spend more than three months in Shenzhen, China, where they designed prototypes, met with Chinese manufacturers and outlined business plans, all on a $20,000 budget.

Bob Baddeley, one of the entrepreneurs in the program, found the experience “intense.”

“We struggled with the basic things, like getting around and ordering food,” Baddeley said. Once overcoming those challenges, he made connections with suppliers in China that will come in handy later, he said. His startup, called Portable Scores, plans to sell miniaturized versions of scoreboards you might find in a school gymnasium.

HAXLR8R is one of several incubators that have sprung up recently to cater to the “maker movement,” which describes a generation of geeks who prefer to build physical things. The incubators are receiving many hundreds of applications from entrepreneurs with a passion for developing electronics, according to the programs’ founders.

Yesterday, entrepreneurs in HAXLR8R’s program took the stage to make their pitch to venture capitalists at an office in San Francisco.  The event was just like any demo day, as popularized by incubators like Y Combinator, except that instead of startups touting the latest mobile app for Google’s Android, there were designs of actual androids. Across the room, a robot resembling a footstool on wheels zipped around.

Cyril Ebersweiler, who founded HAXLR8R, said the similarities of his program to other incubators is by design. He has mentored entrepreneurs in the TechStars program and started a more traditional incubator in China, without the hardware focus, a couple years ago. Having guest mentors is common at incubators, but finding the appropriate people with an expertise in hardware was a challenge for Ebersweiler.

“Peer mentoring is probably more important than anything else in the context of hardware,” said Ebersweiler, whose program has attracted several hundred applicants. “We became a paradise for makers.”

San Francisco-based Lemnos Labs had its first demo day on June 6. Companies pitched investors on an electric guitar with a built-in amplifier, a high-end coffee maker and an industrial hamburger-making machine.

Lemnos gives each business $50,000 in exchange for a 10 percent stake and a sprawling office in San Francisco’s tech-friendly South of Market district, located near a TechShop, where engineers can use industrial-strength machinery for the work that can’t be done using the tools Lemnos provides. On an unusually hot summer day, Jeremy Conrad, who co-founded the incubator last year, navigated around a grinder, drill press and electrical bench before pointing out what makes Lemnos Labs different from, say, Y Combinator, and why it’s tougher to attract funding for electronics.

“Every VC firm out there has been burned by hardware in a big way,” he said. “At YC, you can apply without an idea. We can’t do that.”

Boston-based Bolt is another new incubator focused on physical products. Ben Einstein, the program’s founder, said his emphasis is on building profitable, not buzzy, businesses. He said venture capital firms often don’t know when or how much to invest in hardware makers because they are accustomed to funding app makers.

“We’re trying to limit the amount of money these companies need to get started,” said Einstein, who encourages the startups to license their technologies and make revenue sooner. “Most accelerators are like Hollywood — they want a single big hit. We want to build more stable companies that will succeed over the long term.”

Many hardware makers also have to create the software to make their products run, which adds to their challenges, said Vinod Khosla, founder of Khosla Ventures. His venture-capital firm has invested in Square, which makes a dongle that plugs into a smartphone for swiping credit cards, and Jawbone, which is known for its Bluetooth headsets and speakers. He recalled when Jawbone had to issue refunds for defective Up wristbands, which were supposed to track the user’s physical activity and sleep patterns.

“The more things you do that are unusual, the higher your chances of failure,” he said. “But the bigger the size of your win.”

The new crop of incubators are hoping they can keep investors focused on the potential for big rewards. The hardware developers might be a different breed, but they, like their software counterparts, can’t resist the allure of venture capital.

Before his presentation yesterday, Barnehama showed reporters his device for measuring brainwaves. He placed the black band on his head, furrowed his brow and stared at a tablet computer that was connected wirelessly to the gadget. The blurry picture on the screen sharpened to unveil a view of the countryside. That means his focus is sharp, he said.

As he was describing his grand vision for how the device would make users “better at understanding and manipulating your brain,” Barnehama’s eyes lit up at the sight of Alex Taussig, from venture-capital firm Highland Capital Partners. Still wearing the headband, he said, “I have a pitch coming up, so I think I need to get in the zone.”

–With assistance from Peter Burrows in San Francisco.

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