Rapid Hard-Tech Emergence: Trends and Innovations

The Resurgence of Hard Tech

My decision to join SOSV’s HAX, a venture program supporting early-stage hardware entrepreneurs, initially met with skepticism from colleagues in the technology sector. The prevailing belief was that hardware development was simply too challenging. However, this viewpoint failed to recognize the significant and accelerating evolution occurring within the hardware landscape.

The traditionally slow and arduous path to hardware innovation is being superseded by a dynamic and promising new approach. This shift is driven by substantial opportunities at a civilizational scale, particularly in areas like climate change, where software solutions alone are insufficient.

Ambitious Goals for a Sustainable Future

Currently, while collaborating with founders within the HAX program, it’s common to encounter plans aimed at achieving substantial global impact. For example, Seppure aims to “reduce the world’s energy consumption by 10%”.

Similarly, Unspun is focused on “eliminating all waste in the apparel supply chain,” and Green Li-ion is working to “make global battery recycling 5x more profitable.”

Underlying Economic Trends

These ambitious undertakings are indicative of broader megatrends shaping the global economy. These trends center on critical needs such as decarbonization, infrastructure modernization, supply chain resilience, and the complete digitization of established industries.

Accelerated Innovation

The availability of advanced and increasingly affordable technologies – including machine learning, sophisticated sensors, and innovative nano materials – is enabling greater ambition and significantly faster product development cycles.

Influential figures like Bill Gates and Elon Musk have acknowledged this potential, while major institutional investors like Blackrock are increasing pressure to address climate-related risks. This has also fostered the growth of communities like The Engine, New Lab, and Greentown Labs, which share a similar vision to HAX.

Beyond Traditional Hardware

The breadth of this emerging landscape has led us to redefine HAX’s core focus. We no longer concentrate solely on “hardware” but instead embrace the term hard tech.

This reflects both the inherent difficulty of these ventures and the fact that they extend far beyond the scope of consumer hardware devices and home-based IoT solutions that characterized the early 2010s.

A New Wave of Innovation

A new generation of hard-tech founders, investors, and technologies is emerging, signaling the arrival of a substantial wave of innovation. These early indicators suggest a significant shift is underway.

The Convergence of Software and Physical Technologies

For the past thirty years, the notion of “software eating the world” has held true, primarily targeting areas where implementation was simplest. However, the advancements achievable within purely digital, screen-based systems are reaching a point of diminishing returns, offering only incremental improvements in specialized sectors.

As highlighted by Ubiquity Ventures, a shift is occurring towards “software beyond the screen.” This signifies a move beyond purely digital solutions.

The Rise of Hard Tech and its Impact

The confluence of cost-effective robotics, AI-powered sensor data integration, consistent network access, and advanced materials is creating a powerful new technological foundation.

This integration is poised to unlock substantial value for consumers, enabling businesses to achieve gross margins exceeding 80% – a level previously thought exclusive to SaaS companies.

Companies emerging from programs like HAX are demonstrating this potential.

Addressing Larger Challenges

The synergy between hardware and software allows for the tackling of more complex, industry-wide problems than software-only approaches.

This combined approach offers solutions that were previously unattainable, opening up new avenues for innovation and growth.

• Robotics provides the physical capability.
• AI enables intelligent operation.
• Connectivity ensures seamless data flow.
• Supermaterials enhance performance and durability.

These elements, working in concert, represent a fundamental shift in the technological landscape.

Drawing Parallels to Tesla: Disrupting Established Industries

Analysts examining Tesla’s remarkable growth over the last decade, transforming it into a major automotive manufacturer, frequently highlight the company’s “software-led” strategy. However, Tesla’s success was fundamentally driven by substantial advancements in hardware, specifically in battery technology, motor design, manufacturing processes, and distribution networks.

A similar dynamic is currently unfolding within large, multi-trillion dollar sectors like energy, construction, and agriculture. Investors seeking opportunities within these areas must demonstrate courage and a willingness to invest in tangible technologies to realize significant returns.

Progress demands ambitious ventures, such as the fusion energy reactors being developed by Commonwealth Fusion Systems, the emissions-free steel production pioneered by Boston Metal, and the affordable MRI technology from Deepspin.

Similar to Tesla’s impact on transportation, while software can initiate possibilities, true industrial revolutions originate from breakthroughs in the physical realm.

The Importance of "Hard Tech" Investment

Focusing on hard tech – innovations in physical materials and processes – is crucial for identifying high-growth potential.

These advancements often require significant capital investment and a long-term perspective, but the potential rewards are substantial.

Consider these examples:

• Commonwealth Fusion Systems: Pursuing commercially viable nuclear fusion.
• Boston Metal: Developing a method for producing steel without carbon emissions.
• Deepspin: Creating more accessible and affordable medical imaging solutions.

These companies represent the type of bold innovation needed to reshape major industries. They demonstrate that while software plays a role, it is the underlying hardware advancements that will ultimately drive transformative change.

Expanding Avenues in B2B Sales

Significant opportunities are now emerging for business-to-business (B2B) sales growth. Successfully navigating these expansive possibilities necessitates collaboration with partners and customers operating at an industrial level.

Startups often receive counsel to steer clear of corporate partnerships, based on perceptions of inflexibility and slow decision-making. However, the current landscape reveals a marked increase in large corporations’ interest in innovative, hard-tech startups.

Corporate Venture Capital Growth

Many established companies are actively establishing channels to connect with startups presenting higher risk profiles and dealing with intricate technologies. Over the past several years, the volume of corporations participating in venture capital deals has more than doubled.

Furthermore, a growing number are preparing for the widespread disruptions already underway across various industries.

Accelerated Market Entry for Startups

This trend allows startups to penetrate corporate B2B markets with greater efficiency. Consequently, many hard-tech startups are achieving revenue milestones at a rate previously seen primarily among software-focused companies.

This acceleration in revenue generation is also attracting increased venture capital investment to these firms, influencing the composition of investment portfolios like HAX’s.

HAX Portfolio Shift

Since its inception in 2012, the proportion of HAX’s portfolio dedicated to B2B ventures has risen dramatically. It has expanded from 10% to 70% of total investments.

This shift encompasses a significant majority of the fastest-growing companies within the early stages of development.

• Key takeaway: Corporate partnerships are becoming increasingly vital for hard-tech startup success.
• Impact: Faster revenue growth and increased VC funding are direct results of this trend.

The Reduced Complexity and Cost of Launching Hard-Tech Companies

Significant advancements in technologies and methodologies have dramatically simplified and reduced the expenses associated with initiating hard-tech startups over the past decade.

The cost of 3D printers, for example, has experienced a substantial decrease, falling from $20,000 to just $200.

Furthermore, printed circuit boards can now be delivered globally within days, even amidst considerable supply chain disruptions.

Expanded Access to Manufacturing Resources

A vast network of hundreds of thousands of suppliers is readily available online, capable of manufacturing and shipping components with rapid turnaround times.

This accessibility empowers early-stage founders, even those operating with limited financial resources, to create compelling and revenue-generating prototypes.

Consequently, hard-tech entrepreneurs can concentrate their efforts on core technological advancements, relying on readily available resources for previously challenging aspects of development.

Parallels to the Software Revolution

This shift mirrors the impact of APIs, AWS, and “no-code” platforms, which spurred innovation in the software industry.

Comparable revolutions are now forming the foundation of the evolving hard-tech landscape.

These developments allow for a greater focus on innovation and less on logistical hurdles.

• Reduced prototyping costs enable faster iteration.
• Global supply chains provide access to a wider range of components.
• Focus on core technology accelerates development cycles.

The current environment is exceptionally favorable for those seeking to bring new hard-tech solutions to market.

The Increasing Prominence of Ph.D.s in Entrepreneurship

The commercialization of complex technologies is now a viable pursuit, leading to a surge in Ph.D. holders and postdoctoral researchers launching their own companies. It is increasingly common for startups supported by HAX to be founded by individuals with doctoral degrees, or those who dedicated significant time to doctoral research. Over 40% of companies within the SOSV Climate 100 boast at least one founder holding a Ph.D.

This trend is fueled by both increased encouragement from universities and a growing recognition of the need for groundbreaking technologies to address significant global challenges, such as climate change.

Challenges and Opportunities for Investors

Investing in these ventures presents unique difficulties, as innovations originating from university laboratories are often highly complex, somewhat theoretical, and lack established market validation. Essentially, hard-tech startups frequently operate in uncharted territory, demanding exceptional leadership and specialized knowledge.

Consequently, many venture capital firms are actively recruiting scientists and engineers to join their investment teams. This strategic move aims to prevent them from overlooking the next wave of exceptional founders and transformative startups.

We are currently witnessing the beginning of a particularly favorable period for talented individuals in science and technology.

HAX's Observations and the Future of Hard Tech

These observations regarding the growth of hard-tech within HAX’s portfolio aren’t forecasts, but rather a direct reflection of the developments the HAX team witnesses daily. The caliber of ideas, the founders’ drive, and the rapid progress on projects previously considered unattainable are truly remarkable.

While challenges remain, an increasing number of entrepreneurs and investors are entering the hard-tech space, recognizing its inevitable importance in the decades ahead.

Disclaimer: Ned Desmond, formerly COO of TechCrunch, currently serves as a senior operating partner at SOSV.