Hopes high for gadgets of tomorrow
The next tech sensation could be hatched just across the border in Shenzhen
Not so long ago, if you wanted a cheap knock-off iPhone or accessory, or a part for anything electronic in Shenzhen, Huaqiangbei district was the place to go. But its notorious reputation is changing because of a growing cluster of electronic hardware start-ups developing smart devices.
This trend is driven in part by accelerators such as Highway1 and HAXLR8R (pronounced Hack-celerator), which have been running so-called boot camps to help start-ups tap into the enormous components supply network in Shenzhen and bring their inventions to market more quickly.
"You can get access to small and medium-sized factories producing electronics, plastics, materials and mechanics, which help companies to make prototypes faster and cheaper than anywhere else on the planet," says Cyril Ebersweiler, managing director of HAXLR8R.
"Also, you are actually prototyping with components being used at scale, which means that you can move from prototyping to actual manufacturing in a very efficient way."
Twice a year, HAXLR8R selects 10 applicants from around the world to join an intensive programme based in Shenzhen. Each start-up receives US$50,000 in seed funding, plus mentorship and office and workshop space to develop prototypes.
HAXLR8R is spread across two floors of a commercial building, a warren of spartan rooms where workbenches share space with a coffee machine and an electric guitar.
The 111-day programme culminates with a "demo day" in San Francisco, when the start-ups make presentations to venture capitalists and investors.
Fifty start-ups have emerged from the HAXLR8R programme since it began in Huaqiangbei in 2012; gadgets now in the pipeline include a device that allows pet owners to play with their animals by remote, and a bluetooth-enabled headset designed to prevent drivers falling asleep at the wheel.
Highway1 is a similar incubator scheme run by product development services company PCH International. Its start-ups spend just two weeks in Shenzhen to learn how to work with factories.
"We offer US$50,000 seed funding in exchange for 4 per cent to 6 per cent equity of the start-up," says PCH communications manager Gareth Ingham. "It's a four-month education programme; we provide mentorship and guidance from leading figures across the tech sector, and office and machine-shop space in San Francisco with access to state-of-the-art equipment."
By working out of Shenzhen, HAXLR8R's Ebersweiler estimates that start-ups can save up to 90 per cent of the cost of developing prototypes - an important consideration for a "cash business" such as hardware innovation.
But Jason Gui, co-founder of Vigo, finds savings have been even higher for his start-up. The team used just US$25,000 to develop its anti-fatigue headset for drivers, a fraction of the US$1.5 million it might have cost them in the US.
"We spent only US$10,000 to purchase raw materials and hire casual staff, with another US$15,000 on living expenses," says Gui, whose three-person team all graduated from the University of Pennsylvania last year.
"Things move really quickly in Shenzhen. If we need to have something custom made with an industrial 3D printer, we can get the component back in less than 24 hours, when it may take a week in the US."
Huaqiangbei district is something of a paradise for hardware entrepreneurs. Sometimes billed as the world's biggest electronics market, it has entire buildings dedicated to selling microchips, mobile phone components, LED displays and the like, with hundreds of moulding factories providing speedy prototyping services a short cab ride away.
Instead of having to wait three weeks to have a key component shipped from, say, Silicon Valley, young technopreneurs can simply pick it up from a retailer across the road, or even place an order through Taobao, the mainland equivalent of eBay.
In fact, half of the complexities that hardware start-ups face come from manufacturing, says Yu Chuan, CEO of Flexbot, a maker of airborne robots with image-recognition capabilities.
Last year, Yu and his team designed a smartphone-controlled nanocopter fitted with a tiny Wi-fi camera and launched it through funding platform Kickstarter. It raised more than US$560,000 from nearly 4,700 pre-orders.
But the manufacturing process took much longer than expected, and they couldn't ship the the Wi-fi cameras to customers until August.
"In actual manufacturing, you have to face complicated situations with suppliers, as well as problems from tooling, testing, mechanical design and many other areas after receiving tens of thousands of orders," Yu says.
For decades, technological innovation has been dominated by internet and software-focused start-ups in Silicon Valley. However, the balance has shifted with a hardware renaissance, combining cloud computing with smart devices fitted with networks of sensors.
Building on the so-called Cloud of Things concept, entrepreneurs are trying to connect smart devices with the existing internet infrastructure and cloud services. It's expected to revolutionise traditional sectors from locks to cars.
For example, Google acquired Nest Labs, a maker of sensor-driven devices for the home, for US$3.2 billion in January. In June, Apple introduced HomeKit, a digital platform that enables people to control connected gadgets in the home with their smartphones. In August, Samsung acquired SmartThings, another fast-growing start-up that provides a similar open platform for smart home devices.
Silicon Valley's hardware revival and a growing number of start-ups dreaming of making the next world-changing gadget have given rise to an array of Shenzhen manufacturers that specialise in making prototypes of experimental devices.
Seeed Studio, an open-source hardware facilitator, is arguably the most influential. Founded in 2008 by Eric Pan Hao, an electronics engineer from Chongqing, the service has grown from three people to 200 within six years. Last year, Seeed recorded revenues of 50 million yuan (HK$63 million) by providing a one-stop prototyping service and small-scale assembly for foreign makers.
Pan says more than 90 per cent of Seeed's business comes from overseas start-ups and DIY enthusiasts. "We accept small orders for between 10 and 10,000 units, and a rush job takes only three days," he says.
Ma Rui, China Venture partner with a Silicon Valley incubator 500 Startups, has been a keen observer of the hardware renaissance, particularly in China, where there is maker space in every major city.
But while the incubator has funded about 850 start-ups from more than 40 countries, less than 5 per cent of its portfolio is in direct hardware companies, Ma says.
Their greatest success in the hardware sector was MakerBot, which was acquired by Strataysys last year in a stock deal worth US$403 million.
At HAXLR8R, Spark Labs is arguably the most successful of the 50 start-ups. By July this year, it had raised US$4.9 million in seed and Series A funding.
Its main product, Spark Core, is a Wi-fi enabled and cloud-powered development platform that helps manufacturers turn regular equipment into internet-connected devices. It also provides an operating system and data visualisation toolkit for hardware products and customers. Last year, it raised nearly US$568,000 from Kickstarter for its Wi-fi development board, which drew more than 5,500 backers in a pre-sales campaign.
Other promising start-ups from the incubator include Avidbots, a developer of commercial cleaning robots, and Rational Robotics, a company developing robots for painting car components.
Robotics could be the next emerging field for HAXLR8R, Ebersweiler says.
"It's an exciting area with lots of opportunities," he says. "The old business model for commercial robots generates revenues from sales or in-store service charges, but a new model could be having a team of robots and rent them out."
Avidbots allows its customers to buy its floor-sweeping robot for US$7,500 and scrubbing robot for US$13,500, or they could rent the robots for US$4 and US$6 per hour. The second option helps property management companies cut their manpower cost.
Both robots use the latest laser-mapping technology to plan the most efficient cleaning path, and they can communicate with each other in a swarm mode to avoid cleaning an area twice. A customer can also control the robots remotely by smartphone.
However, Ma of 500 Startups says it's difficult to predict the future of hardware accelerators and start-ups, as the business model is relatively new.
"Accelerators depend heavily on other parts of the ecosystem to flourish, so it is difficult to make sweeping statements, especially as everyone is searching for their own approach," she says.
"For us, we are targeting the earliest stage start-ups; about one-third will make it to a Series A multimillion-dollar raise."
Whether or not Flexbot takes off, Yu reckons they have had an invaluable experience with HAXLR8R.
"Accelerators from the US and Europe are accomplished in turning products into a brand and developing their unique business models. Silicon Valley has a mature infrastructure for start-ups, from mentorship and venture capital, to public relations and media exposure," he says.
"But such an ecosystem for tech start-ups is not developed in Shenzhen or other mainland cities."
Some connected gadgets being developed by HAXLR8R
Nomiku: a Wi-fi-connected sous-vide cooking device that allows people to cook with precisely temperature-controlled water. It has raised more than US$1.1 million from two campaigns on the crowdfunding platform Kickstarter, and sold more than 5,000 units.
Everpurse: a purse that charges smartphones wirelessly.
Petcube: allows pet owners to watch, talk to and play with their animal companions at home from anywhere using their smartphones.
Vigo: a Bluetooth-enabled headset (above) that monitors drivers' blinking patterns to detect signs of drowsiness and give them a nudge whenever needed.
Darma: a cushion that monitors the user's sitting posture, heart rate and respiration pattern to determine overall stress levels.
Shot Stats: a smart racket dampener designed to improve tennis players' performance through instant swing analysis.
For more information, go to kickstarter.com