In the latest episode of the Heavy Hitters podcast, host Ty Finley sits down with Jack Garza, Senior Market Manager for Tech Banking and Head of the Frontier Tech Practice at Silicon Valley Bank (SVB). The duo dives deep into the current state of hardware-as-a-service (HaaS) and the opportunities and challenges facing innovators in this rapidly evolving space.

Garza, a veteran banker with over two decades of experience at SVB, shares his unique perspective on the frontier tech landscape. SVB’s Frontier Tech Group serves companies tackling some of the most complex problems in industries like aerospace, robotics, semiconductors, and transportation. By providing critical cash management and lending solutions, including venture debt and HaaS loans, the team plays a vital role in supporting the growth of these groundbreaking businesses.

A key focus of the discussion is SVB’s recently released second edition of the State of Hardware-as-a-Service Report. The report highlights the evolving definition of HaaS, which now emphasizes recurring revenue generated directly from the hardware itself and the importance of ownership in the model. As Garza explains,

We decided to undertake the study because over the last two years, we heard from many VCs and founders that the benchmarks were really helpful. The space is still new and there isn’t a lot of research out there.

The report identifies several notable trends shaping the HaaS market. While software may not be as sticky as once believed, hardware offers tangible, real-world value that is difficult to replace once integrated into a customer’s operations. This realization has led to increased VC interest in hardware, particularly at the seed stage, where investors see the potential for outsized future returns.

However, the high upfront costs associated with developing and deploying hardware solutions remain a significant challenge for founders. Garza notes that there is a growing need for less dilutive funding solutions to help bridge this gap, with industrial robotics emerging as a particularly promising area.

When it comes to metrics that matter for HaaS businesses, the report highlights the importance of payback period, which averages around 15 months but can vary depending on machine cost and target industry. Garza advises founders to carefully structure contracts and consistently monitor key metrics to ensure long-term success.

Looking ahead to the public markets, Garza acknowledges the challenging exit environment but points to the massive backlog of potential IPOs as a reason for optimism. “There’s a massive backlog. So the backlog is there. And I think there will be many hardware companies that will exit. It’s just a matter of time,” he explains. The timing of this activity will likely be influenced by the election cycle, with more IPOs expected in 2025 and beyond.

For founders looking to partner with SVB’s Frontier Tech Group, Garza emphasizes the importance of engaging early and fostering long-term, transparent relationships. By working closely with SVB’s team of experts, entrepreneurs can access the resources and guidance needed to navigate the complex landscape of hardware-as-a-service and frontier tech.

As the industry continues to evolve, research like the State of Hardware-as-a-Service Report will play an increasingly vital role in helping founders, investors, and other stakeholders stay ahead of the curve. With the support of partners like SVB, the future looks bright for innovators building the next generation of game-changing hardware solutions.

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