Will AI make hardware deals hot again?
Plus: LPs grab leverage over GPs, and VCs find 2nd funds to be a speedbump
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Once the beating heart of the tech world, VC investment in consumer hardware has languished—but generative AI hardware startups could shift that mindset.
Despite quarterly deal totals declining for nearly a decade, some VCs are now running full speed into hardware investing, PitchBook's Jacob Robbins reports.
Even Vinod Khosla, the founder of Khosla Ventures, wrote in a column yesterday for The Information that new AI devices will bring a "fundamental shift in human-computer interaction" that favors speech over screens.
First, companies must convince VCs that their hardware can be lucrative.
"I don't think people really take a moment to think about what's actually hard about hardware," said Julian Eison, managing partner at Next Ventures, whose firm has backed AI hardware startup Humane and Oura, which makes a wearable health device.
"As an investor, I run toward this type of risk."
Big LPs secure increasingly bespoke terms amid tight fundraising
Amid a tight fundraising environment, some PE lawyers have reported an uptick in the use of separately managed accounts, PitchBook's Marie Kemplay found.
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These customized fundraising arrangements enable LPs—typically the biggest check writers—to negotiate concessions from GPs in exchange for large commitments, in keeping with LPs' broader push to consolidate their GP relationships.
37% of first-time VCs might not be able to raise a second fund
2021 was the heyday for new entrants in venture capital: First-time fundraising reached a peak of $14.7 billion, including more inexperienced managers without bulletproof track records or networks. Now that LPs have retreated, those same fund managers are in trouble.
More than 247 first-time managers that closed funds between 2019 to 2021 won't be able to raise a sophomore fund, estimates PitchBook analyst Max Navas . Those particularly at risk of being incapable of raising a second VC fund will likely be managers of funds with less than $10 million in commitments and those in emerging US markets.
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