HAAS (Hardware As A Service): Can This Work For Seed Stage Companies?
HAAS offers a few advantages for founders. Traction can be accelerated by reducing upfront costs for customers. This additional traction should help address some of the HMMMM (Hardware means much more money) thinking from VC’s.
Ok, HMMMM might still be true, but it’s not all going to need to be their money and it need not show up in the Cap Table! So where might this money come from?
For some context, we highlighted the following funding sources following our first Smart City Startups funding workshop:
+ equity (angels, venture capital funds, corporate venture capital funds and foundations)
+ debt (banks, contract manufacturers, suppliers and distributors)
+ sales (reward crowdfunding and pre-purchases)
+ magic (grants and prizes)
and now we’re adding
+ lessors (make HAAS possible)
Indeed, we’ve now seen Urban.Us founders benefit from all of sources. But we’ve also come across some new types types, most notably variations on financial leases. As Wikipedia summarizes, these are arrangements where:
1. the lessee (customer or borrower) will select an asset (equipment, vehicle, software);
2. the lessor (finance company) will purchase that asset;
3. the lessee will have use of that asset during the lease;
4. the lessee will pay a series of rentals or installments for the use of that asset;
5. the lessor will recover a large part or all of the cost of the asset plus earn interest from the rentals paid by the lessee;
6. the lessee has the option to acquire ownership of the asset (e.g. paying the last rental, or bargain option purchase price);
So yes, HAAS is in fact a trusty old lease.
The challenge to date has been finding the organizations who are comfortable with the first line of startup products. More specifically that these first products constitute sufficiently valuable assets that they might be redeployed in the event that lessors are unable to maintain their end of the bargain.
From recent conversations, it does appear that there is some appetite to explore leasing on a small scale. Redeploying assets is not hard at this scale, but also, startup failure is de-risked by helping them increase their chances of VC backing.
If you have experience or interest in HAAS, please get in touch.
More on this in the coming weeks.
Oh yes, HAAS is a Rabbit in Afrikaans. And it represents our hopes for more fleet-footed financings