Apple’s smartwatch and iPhone announcements last week set off a wave of excitement among consumers and investors.

But they also highlighted a harsh reality for start-ups — it’s nearly impossible to compete with big brands in consumer electronics.

Those following in the footsteps of DJ, GoPro, Fitbit or Keurig are now finding it hard to raise funds beyond an early seed round. With well-funded companies like Juicero failing and Intel shutting down its wearables division, investors have cooled on consumer electronics in 2017.

Veteran hardware investor and general partner at SOSV, Cyril Ebersweiler, explained: “Investments in consumer hardware are down, partly because some of the consumer and internet-of-things devices haven’t really delivered. Other start-ups are doing well but taking longer to scale than most investors would like.”

At HAX, a hardware-focused accelerator funded by his firm, a majority of startups in the latest batch are focused on anything but consumer devices, Ebersweiler said. Instead they are making niche health and medical devices, or industrial hardware like systems for use in logistics, farming and manufacturing.

The same thing was seen at Y Combinator, another prestigious accelerator, where hardware startups in the last batch included zero consumer electronics companies, but did include companies working on autonomous and unmanned aerial vehicle tech.

So which hardware companies are in a good position to raise venture capital these days? A mid-year report from Osage Partners’ Natasha Azar noted, “‘Big swing’ investments are on the rise in areas such as quantum computing…edge processors, robotics and non-traditional computing.”

Ebersweiler said this could become a lasting cycle. When investors don’t make big, follow-on investments in them, hardware start-ups won’t go after the biggest opportunities in consumer markets. That’s because it takes a lot of money to manufacture and market devices (let alone hire great tech talent) when you’re up against Apple, Amazon and Google.

Source: Tech CNBC
Rather than fight Apple and Google, investors are backing niche and enterprise hardware