Despite Segway and Fisker, Kleiner Perkins keeps making hardware bets

By Carmel DeAmicis , written on July 31, 2013

From The News Desk

Hardware startups are traditionally viewed as risker investments than software companies. They're harder to monetize quickly, and they don't tend to generate the steep viral growth that many software companies boast. In addition, the logistics of managing a supply chain are trickier than distributing digital bits and bytes. Adjusting supply to meet demand is a betting game when hardware is involved, and one that requires a deft and experienced hand.

There's no chance for making better mistakes tomorrow -- hardware entrepreneurs have to get their product right the first time or suffer their customers' ire.

Kleiner Perkins Caufield & Byers (KPCB) experienced this firsthand. It largely missed the early boat on social, while it was focusing on incredibly ambitious green energy hardware startups.

We're not talking about a tiny little FitBit here. Kleiner lost big on companies like Segway and Fisker Automotive. It invested $38 million on Segway, and in a recent PandoMonthly John Doerr admitted that the product was an investment failure, no question. The firm invested an undisclosed amount on Fisker automotives, but making cars isn't cheap and Kleiner took part in almost every Fisker venture round. In recent months, Fisker drastically downsized its workforce and hired restructuring advisors. It hasn't built a car in almost a year, and companies are reportedly circling to purchase it if Fisker declares bankruptcy.

But despite these negative experiences, Kleiner Perkins isn't totally shying away from taking bets on new hardware startups. In 2011, it wagered on Nest, the smart thermostat, participating in the company's Series A round, and on Square, in its Series C. Its most recent investment is in home surveillance startup Dropcam, as part of the startup's Series C announced today. Kleiner Perkins is gambling that the connection between smart phone technology and physical consumer products will transform these traditional marketplaces, and that users are ready for it.

When Kleiner Perkins investor Trae Vassallo came across Dropcam, she knew she had found something worth funding. Dropcam creates small WiFi cameras with two way sound that stream video live to users' mobile phones. Consumers have gotten creative, and instead of just using Dropcams for home security they also use them to keep track of their children, monitor their kittens, or admire their pretty view when they're not home. The company is doing well -- its founders say its making millions in revenue. As we recently reported it has been preparing for growth, with plans to quadruple its staff over the next twelve months.

Kleiner Perkins investor Vassallo discovered Dropcam years ago. She was looking for a camera that would allow her to check in on her three kids when she was traveling for work. In researching options, she realized that all the cameras on the market were built by old school hardware companies that weren't harnessing new technologies. She wound up purchasing Dropcam's first product iteration: a traditional hardware camera hacked to add technology that would let users view the image remotely.

Back then, Vassallo reached out to the company about investing, but Kleiner Perkins had just missed Dropcam's most recent funding round.

Now, the firm has gotten another chance to get in on the Dropcam pot. After raising $17.8 million in its first two rounds, Dropcam has just announced that it finalized its Series C for $30 million, along with Institutional Venture Partners (IVP), Accel Partners, and Menlo Ventures.

With Dropcam finalized, Vassallo says she will continue to keep her eye out for opportunities involving hardware companies that harness mobile software. "I'm excited about embedding intelligence and connectedness in the physical world around us," Vassallo says. "And I'm excited about the potential these types of inventions have with how we interact with our home lives."

Kleiner Perkins is wagering on the new hardware renaissance, but based on its investments it seems to be hesitant about taking early risks. Although it participated in Nest's Series A round, for both Square and Dropcam the firm didn't place its bets until the more expensive -- and less risky -- Series C round. In contrast, they came in much earlier with the Segway and Fisker, taking part in early venture rounds.

They may be limiting the potential for another big blow up -- a la Fisker -- but they are also limiting the potential for a big home run.