Key Attributes Investors Look For In Promising IoT Hardware Startups [Report]

2. Attracting investors

What elements do investors want to see in an IoT hardware startup?

Here are the core elements that investors want to see, as per Jiani Zhang of IBM:

1. Disruptive Potential: Just as Uber and Lyft transformed transportation, your IoT startup needs to demonstrate its potential to disrupt existing markets or create entirely new ones. This means having a unique product or service, securing beta customers, and showing readiness to scale up. Nest, a home automation company, is a fitting example. Despite operating in a crowded marketplace, Nest’s innovative approach was disruptive enough to attract Google’s attention, leading to a successful acquisition in 2014.
2. Monetization Strategy: Cisco’s prediction that IoT could generate over $19 trillion of value in the coming years sets a high bar. Yet, a report from CapGemini Consulting underscores monetization as a substantial challenge. To attract investment, startups must outline a clear, viable, and sustainable path to profitability.
3. Essential Value: While the IoT market is vast, many consumers still view many IoT products as “nice to have” rather than “must have”. To secure funding and achieve lasting success, startups need to demonstrate that their products provide essential value. This means understanding the customer’s needs deeply and illustrating how your IoT solution meets these needs in a unique way.

“A lot of people think about IoT in the area of sensors and wirelessly connected things, such as lights that turn on through an app. But actually, the Internet of Things is about much more than that; it’s also about the insights and capabilities that connectivity provides and how these new capabilities can create better value.” (Jiani Zhang)

In the following sections, we’ll introduce and filter critical aspects of attracting investors to your IoT hardware startup using real-world examples to illustrate each point, split into 3 modules:

• 1. The product proposition
• 2. Business viability
• 3. Risk and growth management

Module 1: The Product Proposition

1. Compelling Vision 

Set the stage with a compelling vision that articulates how your IoT hardware startup will revolutionize a specific industry or consumer behavior.

In the rapidly evolving landscape of IoT, a compelling vision is not merely an option—it’s a necessity. As an entrepreneur in this space, your vision should captivate your audience, inspire your team, and most importantly, resonate with potential investors. It must articulate how your IoT hardware startup will revolutionize a specific industry or consumer behavior, setting the stage for transformative change.

Consider the case of Tesla, for instance. Elon Musk’s vision wasn’t just to build electric cars; it was to accelerate the world’s transition to sustainable energy. This vision transcends the company’s product—it describes a fundamental shift in the way we live and interact with our environment.

So, how can your IoT hardware startup craft a similar compelling vision?

Here are three key components you need to address:

1. Identify the Change: Your vision should clearly state the change you want to bring about in the world. Are you aiming to revolutionize healthcare with wearable technology that predicts illness before symptoms appear? Or perhaps your startup plans to disrupt the manufacturing sector with smart sensors that drastically improve efficiency? Define this change explicitly.
2. Express the Impact: Once you’ve identified the change, articulate the impact it will have on your target industry or consumer behavior. How will your IoT product or service transform lives, businesses, or even entire industries? Your vision should paint a vivid picture of this future state.
3. Underline the Unique Approach: What differentiates your vision from others in the space? How does your approach or technology uniquely enable this transformation? It’s critical to underline this aspect to stand apart from potential competitors and to establish your unique value proposition.

In crafting your vision, remember that it’s not just about what you want to achieve—it’s about why it matters. Your vision should inspire belief in the future you’re trying to create, a future where your IoT hardware startup is leading the charge in transforming an industry or consumer behavior.

The following video resources will help for a better understanding of the topic:

• Vision Statements, in Business, in Stories, in Life | Andrew Mancini | TEDxHobartHighSchool
• What It Takes: Vision, Mission & Culture
• The way to success for IoT startups

2. Innovative Product

Detail the unique selling proposition (USP) of your IoT hardware. What sets it apart in terms of technology, usability, cost-effectiveness, and scalability?

At the heart of any successful IoT hardware startup is a product that disrupts the status quo, providing an offering that is unique, innovative, and of high utility to the consumer. Your product’s unique selling proposition (USP) should transcend mere novelty—it should establish a new standard in technology, usability, cost-effectiveness, and scalability.

Consider the case of Ring, a home security and smart home company. The Ring Video Doorbell, their flagship product, revolutionized home security with its innovative integration of video, IoT, and consumer-friendly design. Not only does it allow homeowners to see who is at their door, but they can also interact with visitors remotely, providing both convenience and enhanced security. This unique combination of features and its seamless user experience set Ring apart in a crowded market, contributing to its acquisition by Amazon in 2018 (source).

The following video resources will help for a better understanding of the topic:

• Value Props: Create a Product People Will Actually Buy
• How to Design Hardware Products with Hosain Rahman (How to Start a Startup 2014: Lecture 17)

Module 2: Business Viability

1. Strong Business Model

Define how your startup will generate revenue. Outline your pricing strategy, cost structure, and path to profitability.

A compelling vision and unique product are critical, but without a strong business model, your IoT hardware startup may struggle to gain traction. The business model should clearly articulate how your startup intends to generate revenue. It should define your pricing strategy, cost structure, and the pathway to profitability.

A prime example of a successful business model in the IoT space is that of Fitbit. The company sells wearable fitness trackers and smartwatches, but it has also expanded to offer a premium subscription service. This service provides users with more in-depth health data and personalized insights, creating a steady revenue stream in addition to their hardware sales. The dual revenue model — product sales combined with subscription services — has been successful in driving growth and providing value to customers and investors alike (source).

The following video resources will help for a better understanding of the topic:

• Startup Business Models and Pricing | Startup School
• Anu Hariharan – Nine Business Models and the Metrics Investors Want

2. Proof of Market Demand 

Validate your business model with proof of market demand. Use market research data, customer testimonials, or early sales figures to demonstrate market interest.

Investors need more than just assurance that your product is unique or that your business model is sound. They need concrete evidence that there is a substantial market demand for your IoT hardware. This proof may come in the form of market research data, customer testimonials, or early sales figures. A startup that can demonstrate real, quantifiable market interest stands a far better chance of securing investment.

An excellent example of this principle in action is Peloton, the at-home fitness company known for its interactive exercise bike. Before seeking significant investment, Peloton used Kickstarter to both gauge and generate market interest. The successful crowdfunding campaign not only provided evidence of demand but also resulted in a base of passionate early adopters, further strengthening the case for investors (source).

The following video resources will help for a better understanding of the topic:

• Designing a Customer-Centric Business Model
• Ben Einstein: The Art of Building a Hardware Startup – Pioneers Festival 2013
• The Real Product Market Fit by Michael Seibel

3. Experienced Team

Investors invest in people as much as they do in ideas. Present the qualifications and experience of your team, highlighting their industry expertise and success in similar ventures.

A stellar idea can only go so far without the right team behind it. Investors understand this and often place significant emphasis on the qualifications and experience of a startup’s team. The knowledge, skills, and previous successes of your team members can greatly increase an investor’s confidence in your venture.

Consider Nest Labs, the smart home company. Before its acquisition by Google, one of Nest’s key selling points was its leadership team, notably the presence of co-founder Tony Fadell, a former Apple executive often referred to as one of the “fathers” of the iPod. Fadell’s proven track record in delivering popular, innovative products was a significant factor in attracting investment and eventual acquisition by Google (source).

In highlighting your team, emphasize not only their individual qualifications but also how their combined experience and skills make them uniquely suited to make your startup a success in the IoT hardware space.

The following resources will help for a better understanding of the topic:

• ‘’This makes the role of experienced and diverse teams, like the one demonstrated by the expert panel at the competition, even more crucial. The varied backgrounds and expertise of such a team can help navigate these challenges and set the startup on the path to success.” (Tony Fadell)
• 5. The Founding Team

4. Financial Projections 

Provide a clear picture of the potential financial return for investors. Include realistic yet ambitious projections of revenue, expenses, and profitability.

Investors will be keen to understand the potential financial return your IoT hardware startup could deliver. Providing realistic yet ambitious financial projections is critical. This includes forecasted revenue, projected expenses, and the timeline for achieving profitability.

Consider Ring, the smart doorbell company, as an example. Ring’s early financial projections outlined a clear path to profitability, showing how increased sales volume would lead to lower unit costs and higher margins over time. These projections were validated when Ring was acquired by Amazon for over $1 billion, providing substantial returns to their early investors (source).

When presenting your financial projections, ensure they are based on solid assumptions and robust market research. It’s crucial to strike a balance between optimism and realism, demonstrating that your startup is a promising investment opportunity, but without overpromising on the potential returns.

The following video resource will help for a better understanding of the topic:

• Pre-revenue financial projections 💸 wow angel investors

Module 3: Risk & Growth Management

1. Growth Strategy

Lay out your strategy for scaling the business. This might include expansion into new markets, the launch of additional products, or the formation of strategic partnerships.

The growth strategy of your IoT hardware startup is paramount. Investors need to see a clear roadmap of how your startup will scale up and increase its market share. This includes expanding your customer base, exploring new markets, and continually innovating to stay ahead of the competition.

Consider the example of Tile, the startup behind the compact Bluetooth trackers that help users locate their lost items. Tile’s growth strategy included expanding their product line, partnering with other companies to integrate their technology, and pursuing global markets. This approach not only increased their customer base but also made their product more ubiquitous, driving significant growth (source).

The following video resources will help for a better understanding of the topic:

• The growth hacks that made these startups
• Sean Ellis talks about the 3 stages of Growth Hacking Success

2. Exit Strategy

Give investors a sense of your long-term plans. This could be an eventual sale of the company, an IPO, or an acquisition of other businesses.

While your focus as an entrepreneur may be on building and growing your business, investors will be interested in your exit strategy. This could be an initial public offering (IPO), acquisition, or management buyout. An exit strategy provides investors with an understanding of how and when they can expect a return on their investment.

GoPro, the action camera company, provides a notable example of an exit strategy. After creating a popular and highly sought-after product, GoPro went public in 2014, allowing early investors to realize a return on their investment (source).

The following video resources will help for a better understanding of the topic:

• How do startup exits work?
• Exit Strategy for startups

3. Risk Mitigation 

Acknowledge the risks and challenges inherent in your venture and detail your plans to mitigate them. This shows that you’re not only ambitious but also realistic and prepared.

Risk is inherent in any startup venture, but investors will want to know that you understand the potential challenges your IoT hardware startup may face and have strategies in place to mitigate them. This can include technological risks, market risks, regulatory risks, and financial risks.

An excellent example of risk mitigation in the IoT hardware space is Sonos, a manufacturer of smart speakers. Sonos anticipated the risk of technology obsolescence and built a software platform that could continuously update and improve their speakers even after they had been sold. This approach has allowed Sonos to stay ahead of technological changes and maintain its competitive edge (source).

The following video resource will help for a better understanding of the topic:

• Startup Story #10 – Risk Mitigation for Startups