I got an email from a tech entrepreneur with deep experience in silicon and imaging today: “Uh oh, even Matthias Wagner is getting dubious about components? In that case, the venture guys must be really down on components!”
On the contrary– I love components! However, they don’t always make good early-stage investments [have been meaning to start a rather sparse list of novel component startups that were successful early-stage investments]. Or rather, the way these investments are done often causes them to be bad investments for the first guys in (including the founding team). I see the same pattern repeated over and over:
- Interesting core technology, multiple potential markets.
- For sake of raising VC, focus on the biggest, fastest-growing market.
- Because you need to move fast, you hire a complete team from chip to systems to sales to several VPs.
- Burn a ton of money very quickly.
- Core component/materials take 5x longer than the initial optimistic estimate.
- Any more than the 2-3 engineers working on this core piece won’t speed it up.
- Cut your team down. If you’re lucky, raise a Series B at a crushing down valuation.
- Refocus on a less ambitious first market, just to ship something.
- If lucky and stingy — and the team is still motivated– live to see another day.