- Raising venture capital implies an aim to grow the company to a valuation of over $1 billion within 5-10 years, which for hardware typically requires at least $200 million in annual revenue.
- Hardware sales are 'hits driven' like video games, with one successful product needing to fund years of modest success, unlike recurring software revenue.
- Each stage of revenue growth for hardware companies becomes increasingly complex and costly, with operational costs rising in discrete chunks.
- VCs are incentivized to push for growth at all costs because their business model requires $1 billion exits to return profits to limited partners.
- Founders should be aware of the growth requirements that come with VC funding and consider alternatives like bootstrapping or small investments if they are not experiencing exponential growth.
- Successful hardware startups like Simplisafe, Peloton, and Bellabeat have used VC funding after achieving product-market fit, while others like Lumos and Moment started small.