How can a hardware startup with good technology and enough money still fail to deliver? According to research conducted by the Wharton School of the University of Pennsylvania in March 2015, the broad failure rate of technology projects on Kickstarter—meaning at least one backer considered the project a failure—was over 10%. Chad Xu, the co-founder and managing director of Shenzhen Valley Ventures (SVV) argues that the majority of hardware delivery fails because it is not designed properly.
Importance of inner design
“It’s not the factory, it’s the design that determines whether the production is feasible or not,” Chad says. “Outsiders, like investors and customers don’t understand why hardware startups can’t deliver the product. But inside people like us, we know if a product is properly designed on the inside or not. If it’s not properly designed inside, even Foxconn can not deliver it.”
If the hardware’s design is not done properly, it will be difficult for a factory and its suppliers to manage the supply chain and production. This can affect the entire production from parts and components subcontractors to the factory.
“When Smartisan’s founder built its phone, he saw how Foxconn was helping Apple to manufacture and that the delivery was very smooth. He thought if Smartisan uses Foxconn, then his smartphone will be in a good shape,” Chad explains.
However, this thinking led to a failed launch. They were using the same factory as Apple, yet they couldn’t deliver the product.
“The reason was the design. When we say design, this can be divided into mechanical housing and the electronic parts. Apple has a good design for both, which allowed a smooth production,” Chad remarks. “The core value is created by the software and algorithm. The hardware serves as a carrier.”
What China needs
Spending 25 years in the hardware industry, Chad Xu co-founded Zowee technology in 2004, to help in R&D, manufacturing and sales of 3C products (communication, computer, and consumer electronics). The company was listed on the Shenzhen Stock Exchange in 2010. Chad started Shenzhen Valley Ventures in March 2015 to invest in hardware startups, but he wanted to do more than that. He wanted to help them deliver their products to the market.
The hardware companies that SVV has invested in include Waterbit, a US company providing soil monitoring solutions for farmers to improve farming efficiency, Arraiy, which creates complete computer vision for the film industry, and GeoEar, which is developing an earthquake forecasting algorithm that can predict earthquakes 7-15 days before they happen. According to SVV, GeoEar’s system is now being deployed by the State Seismological Bureau of China. Still, many companies that SVV invested in hail from outside of China.
“I’d say that for the foreseeable future, the US will be in the lead in fundamental research,” Chad says. “China is still putting effort into catching up, especially in basic science research. The country is still falling behind in basic math, chemistry, semiconductors, new materials, and physics.”
Chad, however, remarks that China is taking the lead in some parts, such as mobile payment technology and application.
“The good part is that China has a huge market, and the market itself is creating the demand. And it has the most comprehensive hardware ecosystem in the world,” Chad says. “Comparison between the countries is not necessary, now that all the fundamental research and other resources are shared and everything is becoming a global asset and we have access to it. What matters is how to take advantage of these research achievements and resources.”
How to deliver your product
“We are investors, but fundamentally, we want to help them deliver their product 100% to their customers,” Chad says.
In order to help startups with their expertise, SVV invested millions of dollars in developing and testing machines that a startup may not be able to afford. These machines allow startups to test their hardware’s ability to endure high and low temperatures, humidity, EMC (electromagnetic compatibility), and EMI (electromagnetic interference).
“Startups need these testing machines. They normally have to make a reservation at third-party institutions to test their hardware. It’s expensive and takes a long time. If you fail one test, you still have to come back and go through the test again,” Chad says.
The test lab is only available for portfolio companies that SVV has invested in.
“We don’t want to be just the money guy, we also want to be the design guy. We have mechanical engineering, electronics, and firmware people in-house to help startups design and deliver the product on time,” Chad says.
SVV is also building up hardware engineering and commercialization platforms for startups, VCs firms, and schools. They are now investing in AI and IoT, which Chad believes will improve their core business value and efficiency.