Bay Area hardware startups get gateway to China’s manufacturing universe in Potrero Hill
Rather than living on airplanes or moving part-time to China, Bay Area entrepreneurs developing consumer electronics devices today have the luxury of building manufacturing prototypes with teams of designers and engineers who work directly with factories in Shenzhen but are located conveniently in San Francisco’s Potrero Hill District.
That’s where PCH, a global product development and supply chain juggernaut, runs a growing year-old campus and an accelerator program next door that has graduated dozens of startups that are helping to fuel the region’s “hardware renaissance.”
“Rather than flying across the Pacific, we just drive across the (Bay) Bridge,” said Chris Anderson, the former Wired editor who is CEO of Berkeley-based 3D Robotics, the fast-growing maker of drones. “That’s a huge deal. It means you get all the advantages of China without all the crippling travel and time away from your team.”
Founded in 1996 in Ireland by CEO Liam Casey, a fashion industry veteran, PCH (named for California’s Pacific Coast Highway) is a 2,800-person operation with more than $1 billion of revenue derived from managing Chinese manufacturing operations for big tech companies like Apple, as well as running its own packaging and global distribution system for customers around the world. In 2008, it took $28 million from venture capital firms that included Lightspeed Ventures, Norwest Venture Partners and Focus Ventures.
What PCH built in late 2013 is a gleaming three-story, 30,000 square-foot center in the old San Francisco Bay Guardian newspaper building at 135 Mississippi St. The building serves as a hub through which entrepreneurs can directly access designers and networks to create products that can actually be built in large numbers. The property is PCH’s U.S. headquarters and is outfitted with sophisticated prototyping gear used by large corporations and startups alike.
“It’s one thing to make a prototype and a sample, but then to make it for large scale and you have to be able to move it around the world to wherever your consumers are — that’s a huge challenge,” said Casey, who himself spends much of his life on airplanes serving his clients, and who carries three smartphones: one for China, one for Europe and one for the United States.
“You have the raw materials, the type of materials, the engineering, the testing, the validation, how you package it, the transportation of it,” he said.
Casey said PCH maintains offices that are located within three hours of the factories the company uses, and “three days from 90 percent of the consumers on the planet that buy the products.”
Rapid and flexible distribution capabilities — which can prevent the potentially fatal buildup of unsold products — is what will inspire great Silicon Valley venture capital firms to start pouring more cash into Bay Area hardware startups, Casey believes.
“Getting the product to the consumer. That’s what’s going to have the biggest impact for Silicon Valley,” he said. “Data is the heartbeat of supply chain. You need live data. We manage the flow of information, the flow of product and the flow of cash.”
To help startups stay off the shoals, PCH has a hardware accelerator program called Highway1 that is about to move from the Mission District into bigger quarters in a 10,000-square-foot building next door to PCH’s Potrero Hill building. PCH makes initial investments of $50,000 in participating startups in exchange for 4 to 7 percent equity and the prospect of future customers for its services.
The four-month program, which is to be the subject of an upcoming documentary on the SyFy channel, includes a two-week tour of Shenzhen factories. It has graduated 35 hardware startups in just over a year, including a couple with products or prototypes that generated headlines at the recent Consumer Electronics Show in Las Vegas.
One was Switchmate, a Palo Alto maker of a device still under development that attaches to existing switches to enable users to control lights, fans or other appliances with smartphones.
Co-founder Ashish Dua said Switchmate’s founders, former engineering classmates at Johns Hopkins University, all came from “an R&D background” and did not understand the relationship between the cost of manufacturing and the price a product should command at market, taking into account factors like retail margins and distribution costs.
Ben Harris, CEO of Drop — the San Francisco and Ireland-based maker of an Internet-connected kitchen scale now in Apple stores globally — said it was exactly because he did know something about product manufacturing from his past as an industrial designer that he knew going through PCH’s program could save a lot of time and heartache.
Harris said he did not want to be like others who failed to meet promised delivery dates following crowd-funding campaigns on websites like Indiegogo or Kickstarter.
“There is no China button,” he said. “It’s a huge endeavor to get anything made in another country.”