Taiwan’s Hon Hai Precision Industry Co. and Taizo Son’s Mistletoe Inc. are among the investors in a €25 million (about ¥3.1 billion) venture fund that will back startups developing new hardware products.
Hardware Club Fund I has closed its first round of financing, and additional fundraising later this year may increase its total value to as much as €50 million, general partner Jerry Yang said in an interview in Tokyo.
Other limited partners include France’s Bpifrance Financement SA, insurer Credit Mutuel Arkea SA and Japan’s DG Incubation Inc.
While a flood of money from venture capital firms, hedge funds and mutual funds has made it easier for startups to raise money, almost half of total financing last year went to software companies, according to a report from KPMG. At the same time, shares of GoPro Inc. and wearables maker Fitbit Inc. have plunged to less than half their initial offering prices.
“Software startups are easier to get off the ground, but by the time you start to grow there are lots of copycats and you have to fight them off using capital,” Yang said. “For hardware, it’s more difficult to get going but easier to defend.”
Hardware Club Fund plans to invest in 30 to 40 companies over the next three years with deals ranging from €300,000 to €1.5 million in pre-seed, seed and Series A rounds. Most of the investments will happen in the U.S. and Europe, but the fund is also looking for promising startups in Japan, he said.
The fund is an extension of a community of the same name that was formed in 2014 to share resources and get hardware startups off the ground. Hardware Club picks participants based on the quality of their prototype, in return offering access to a database of 60 contract manufacturers and retailers, including Best Buy, Target and Harrods.
Some of its members have already managed to score impressive exits. Misfit Wearables Corp. was acquired by Fossil Group Inc. in 2015 for $260 million, while Mars Petcare bought Whistle dog collar for $117 million. Unlike traditional incubator and accelerator models, Hardware Club doesn’t own stakes in all of its participants. Of the 260 companies currently taking part, only 10 have received investments and those will be rolled over into the newly created fund, Yang said.
“The biggest appeal of Hardware Club is that its based on a first ever global community,” Son said in a statement. That kind of intense competition and experience sharing “can dramatically increase the chances of success.”
Mistletoe is also a combination of an early stage venture firm, incubator and entrepreneur-in-residence program. Son is a former head of GungHo Online Entertainment Inc., developer of “Puzzle & Dragons” — once the world’s best-selling smartphone title. He’s also the youngest brother of Masayoshi Son, chief executive officer of SoftBank Group Corp.
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