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Why NextFab Ventures upped its initial investments for hardtech startups to $100K

As a funding slowdown is expected in the coming months, the venture arm of the Philly-headquartered makerspace rolls out a new funding structure for its hardtech portfolio.

The Burro team at NextFab in 2019. (Courtesy photo)

Makerspace and tech community NextFab has been investing in Philly-area startups in the hardtech category — that’s the intersection of hardware and software — for nearly a decade. Now, it’s quadrupling its investment size from $25,000 to $100,000.

To date, NextFab’s venture arm, NextFab Ventures, has invested in companies that have gone on to raise more than $62 million and employ hundreds in the mid-Atlantic, per the org. Robotics and autonomous vehicle startup Burro, respiratory device company Strados Labs and Pennovation-based IoT startup Strella Biotechnology are in the fund’s portfolio.

Historically, these first investments have been $25,000 in cash and up to $10,000 of in-kind contributions. But portfolio companies and other quickly growing startups have expressed the need for a change, NextFab said. Its new investment structure includes $60,000 in cash and $40,000 of in-kind support, which includes product development, business development and human resources services — essentially, access to NextFab designers, business experts and engineers who can become an “extension” of the teams in its programs.

“We are typically one of the first investors in pre-seed stage hard tech ventures when very few other investors or organizations are willing to write them a check,” NextFab Director of Venture Services Todor Raykov told Technical.ly. “We feel more comfortable doing this than others, because we have a great product development team of industrial designers, electrical, and mechanical engineers who serve as an extension of the startups we support during the early stages.”

Providing entrepreneurs with seed capital and product development support “de-risks” the investment for other, larger investments down the road, Raykov added. When looking to invest in a company, NextFab Ventures considers a few things, but at the heart is that the product meets at the intersection of hardware and software.

“We believe that the combination of the two is capable of solving some of society’s most challenging problems in the healthtech, cleantech and agtech arenas,” the director said.

NextFab Ventures also look for a team of at least two people who have already built a physical prototype of their product, done customer discovery work, and proven its market exists. And while many of the portfolio’s companies are based in Philly, the org is generally looking for a mid-Atlantic presence so they can use NextFab’s resources and stay connected with its network for contract manufacturers and investors such as Ben Franklin Technology Partners, Raykov said.

With the change in investment amount, Raykov believes the org will be investing in four or five new companies a year, and will continue to operate its follow-on fund to further support for companies that are already in NextFab’s portfolio — especially as a significant funding slowdown is expected in the coming months, he said. The ultimate goal is to get a hardtech startup to a Series A quickly.

“Once they achieve this, these ventures are typically on track to build businesses that have a substantial impact and bring tangible improvements to the world,” Raykov said.

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Companies: NextFab

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