The problem with hardware business is that it’s capital intensive: large, expensive product runs needed. Not many are happy to upfront the bill for a new, unproven, company. Whileas in software business, the upfront cost is fractions, and thus VCs love it more.
Thus, in hardware, funding comes from the existing players who already know the hardware business with its cyclic business and other associated risks.
I don't think it's a problem with how much capital hardware requires. Biotech startups require an order of magnitude more capital with tons more risk with regulatory approval yet the biotech VC industry is huge - the amount invested annually frequently exceeds all of tech VC. Most of the startups that go public do so with zero revenue, let alone profit, and everyone is perfectly fine to bankroll them through clinical trials even though they're all or nothing.
I think there's two problems with hardware: first the marginal profit per unit doesn't scale so to make more profit you have to sell more widgets. The same is mostly true for biotech but the profit margins on a drug are usually >95%, with a much higher ceiling, and are heavily recurring, often for the life of a patient. Since biotech customers are mostly insurance companies, the value of a drug is easy to calculate based on its quality of life improvements and past deals.
Second, success is very all or nothing for hardware companies. Each hardware startup will have a limited number of possible acquirers who specialize in their field so they either become profitable and go public or fail. On the other hand, failed tech companies get acquihired by the tech giants and pharmaceutical companies acquire tons of companies before they even finish clinical trials. Any startup that makes it past phase 3 trials has a 99% chance of getting acquired by a pharmaceutical company so the economics of investing are very enticing, despite the massive capital outlays.
miohtama|1 year ago
Thus, in hardware, funding comes from the existing players who already know the hardware business with its cyclic business and other associated risks.
throwup238|1 year ago
I think there's two problems with hardware: first the marginal profit per unit doesn't scale so to make more profit you have to sell more widgets. The same is mostly true for biotech but the profit margins on a drug are usually >95%, with a much higher ceiling, and are heavily recurring, often for the life of a patient. Since biotech customers are mostly insurance companies, the value of a drug is easy to calculate based on its quality of life improvements and past deals.
Second, success is very all or nothing for hardware companies. Each hardware startup will have a limited number of possible acquirers who specialize in their field so they either become profitable and go public or fail. On the other hand, failed tech companies get acquihired by the tech giants and pharmaceutical companies acquire tons of companies before they even finish clinical trials. Any startup that makes it past phase 3 trials has a 99% chance of getting acquired by a pharmaceutical company so the economics of investing are very enticing, despite the massive capital outlays.
dartos|1 year ago
One (A SINGLE) photolithography machine is like $4B.
There’s no way for a new player to enter the CPU market