San Diego's HardTech Labs opens cross-border hardware accelerator to tap Mexican manufacturing

By Michael Carney , written on March 18, 2014

From The News Desk

In yet another signal that we’re in the midst of a full blown hardware renaissance, the San Diego startup community got its first manufacturing-focused accelerator. HardTech Labs (HTL), which bills itself as a cross-border operation, aims to give founders access to low-cost manufacturing infrastructure in the Mexican towns of Otay Mesa and Tijuana.

HardTech is in the process of raising a targeted $20 million initial fund, according to HTL co-founder and Origo Ventures managing partner Derek Footer, which will allow the group to fund the first four accelerator classes. HTL participants will receive more cash than your typical accelerator program offers, with as much as $150,000 available upon entering the program and an additional $300,000 on exit based on demand and production needs. Of course, hardware startups cost significantly more than those dealing only with software. They also seem more likely to see meaningful impact from expert mentorship, given the number of moving parts in a physical supply chain.

HTL is targeting three classes per year with up to 30 companies per class, with target participants expected to be within six to nine months of beginning commercial manufacturing. The first official class is slated for September, but a so-called “class zero” of Seven companies will begin the program in April. Class zero participants will not receive an upfront investment – as HTL is still fundraising – but will have access to office space, mentorship, and manufacturing infrastructure, as well as the potential to earn production financing upon the conclusion of the program.

Footer calls HardTech an umbrella organization -- a consortium of participants all along the hardware production value chain. In the US, the program curriculum will be facilitated by the Ansir Innovation Center incubator and Origo, while participants will have access to the FabLab San Diego 3D-printing facility and the Co-Merge co-working space. South of the border, HTL has partnered with the Tijuana Economic Development Corp.’s Ignitus innovation program and legal and technical consultancy MINK Global.

Collectively, these entities aim to help early stage ventures shape their product ideas and business models, develop prototypes, and ultimately graduate to full-scale commercial manufacturing and fulfillment. Each will contribute a combination of capital and services in exchange for equity in startups accelerated through HardTech.

“It’s a lot harder than people think to set up manufacturing, in Mexico or anywhere else,” Footer says. “It takes more than just negotiating a contract. Hardware is not software. With software you can do if from anywhere in the world. With hardware you need to have a physical presence and to put eyes on the product.”

San Diego has a history of hardware technology success, led most notably by Qualcomm and a number of related wireless supply-chain vendors. The region is also home to a number of robotics and medical devices companies. At the earlier stage, pocket drone company AirDroids completed a $929,212 Kickstarter campaign on March 8th, receiving backing from 1,946 contributors.

HardTech isn’t the first hardware and manufacturing-focused accelerator, but it may be the first to take advantage of the infrastructure available immediately across the US-Mexico border. In the Bay Area, groups like Highway 1Lemnos Labs, and Haxlr8r focus on Chinese manufacturing, as does Cambridge’s Dragon Innovation. In Los Angeles, a new VC called Tylt Lab recently launched to take advantage of the region’s manufacturing and fulfillment infrastructure.

Mexico offers a compromise between Asia’s low-cost (although less so than in the past), but similarly low-touch manufacturing option, and the comparatively high-cost, high-touch domestic alternative. The region doesn’t have the capacity currently to produce tens of millions of units of complicated products like smartphones, but for any company coming off a Kickstarter and looking to produce tens to hundreds of thousands of units at modest cost and with a high degree of control and flexibility, Mexico represents an attractive option. As a short drive from HardTech’s downtown San Diego operation, it’s a significant competitive advantage.

Of course, no discussion of Mexico would be complete without addressing the obvious security concerns. The country has been gripped in a brutal narco-terror war for the better part of a decade and venture-backed gringos making regular trips south of the border would make for good kidnapping targets. But the Otay Mesa area in question is much less dicey than the broader narrative suggests, according to Footer.

“I think the perception, at this point, is much worse than the reality,” he says. “We’re traveling less than one mile from the border, and it’s a clean, heavily guarded area. There’s really no security issue.”

For founders willing to take Footer and his partners at their word, there’s a lot to be gained through participating in a program like HardTech’s:

“A lot of founders we’ve talked to have said something to the effect of, ‘We want to be in San Diego. We have the means to go elsewhere, but if you can make it realistic for us to stay, we’d love to,” Footer says.

HardTech’s hope is that with a combination of additional hardware-focused capital and access to local manufacturing infrastructure and know-how, the city’s gorgeous sunny skies will be too hard to leave behind.

[Image via Wikipedia]