Lemnos Labs have gone from being laughed out of the room, to establishing a $20 million hardware fund


lemnos-labsJeremy Conrad wants Lemnos Labs, the hardware incubator he co-founded and which this week turned into its own VC fund, to eliminate a false choice he sees plaguing entrepreneurs in Silicon Valley. “There’s a real tragedy for me in seeing great mechanical people feeling like they have to choose between that and becoming a software engineer,” he says.

The much vaunted hardware renaissance is happening, Conrad says. But he adds that hardware has always been a viable business model. Major electronics, robotics and medical device companies have been operating under the radar for years. “Everyone knows the big social media giants. But a company like Intuitive Surgical is the size of Twitter, only no one’s heard of it,” he says.

Arriving in San Francisco by way of MIT’s Mechanical Engineering Department and the US Air Force — where he helped to build lasers in Albuquerque to blow up missiles — Conrad says when he considered his next challenge he found that he craved the visceral joys of making hardware. “I’d seen super weapons grade hardware being made in the army for $ 100,000,” he says.

Conrad launched Lemnos Labs in 2011 with two partners, raising $ 250,000 that they invested in four companies. In 2012, they raised a $ 1.85 million fund, but this week they’ve upped the stakes considerably, announcing a new $ 20 million fund on the back of a recent shift into a much-expanded 8,000 square foot facility in the Dogpatch.

Lemnos Labs’ goal is to be the earliest stage hardware venture capital company. Its early moves have worked out well. The first 10 companies it invested in have gone on already to raise $ 35 million. Three of them – including drone makers Airware – have gone on to major Series A funding rounds. It plans to keep its investments small, between $ 100,000 and $ 250,000 in exchange for 10 percent equity. It expects to do up to 12 investments each year. Conrad says that remaining dogmatic and not increasing its deal flow will be a big part of keeping Lemnos on task as it expands. Lemnos Labs will retain its incubation element with businesses it invests in working out of its Dogpatch facility for a year alongside Conrad and his two partners.

The latter part is important to Conrad. A lot can go wrong for early stage hardware companies. “There’s a 1,000 choices and you’re making them all in a vacuum,” he says. “In hardware mistakes are hard to undo. Look at something like the recent Fitbit recall. A mistake like that early on in their history probably would’ve killed them.”

“A lot of this is old school stuff,” Conrad says. “The Valley thinks it reinvented hardware. But people have been doing this for decades.”

Conrad is most bullish about robotics and aerospace companies. “We’re comfortable with high-tech,” he says. “We want to invest in big thinking. We joke that we get a lot of pitches for the Foreman Grill. The problem is, the Foreman Grill is really good, but it already exists.” Lemnos Labs’ first two investments with its new fund are in 6SensorLabs, which is building a device to help people quickly test the gluten levels in their food and Ceres, which is making a camera to help monitor how efficiently crop dusters are watering fields.

How far Lemnos Labs has come in three years is evidence how quick the Valley turns, Conrad says. “I’ve been laughed out of rooms before,” he says. “One prominent VC told us to invest all of our money in one company and pray.”

Not that it’s a perfect setup with Lemnos Labs. Hardware companies require greater investment early on to get airborne and in injecting significant capital into unproven companies that it also wants to mentor onsite for a year, the pressures of profit and education will have to be closely managed. Lemnos Labs wants to keep itself involved in early stage investing and Conrad says that he has no intention of growing into a half billion fund. But in chasing a series of smaller wins over sporadic home runs, his fund will needs to reduce its risk.

Lemnos Labs is well placed, now, because the wind has switched to being at their back. There are several VCs today who will look at least look at hardware companies. The various manias around wearable technology and the Internet of Things mean that Conrad and his team find themselves having to look past the fuss and avoid chasing the next big thing, he says. “Everyone these days wants to connect everything up, no matter if they should or not,” he says.

But the hype is good. It inspires more people to try out hardware. The big deals help him too. At Conrad’s end of the investing spectrum, exits like Nest’s and rumors of Jawbone’s coming IPO convince more entrepreneurs and investors to give hardware a shot. Just as I leave, I see that Facebook has bought Oculus Rift for $ 2 billion. The hardware times are a changin’ and if all goes to plan, Lemnos Labs sees itself as a part of a bigger, more vibrant industry.

 [image via Lemnos Labs]