Y Combinator’s Hardware Guy Leaves After 14 Months

(Bloomberg) -- The head of Y Combinator's much-trumpeted push into hardware has quit, and the famous tech incubator isn't replacing him.

Luke Iseman, who joined the Palo Alto-based fund 14 months ago with the goal of helping hardware startups make products "faster and better than ever before," is leaving to work on an affordable housing startup (he's the guy famous for living in a shipping container). 

YC, as it's popularly known, announced plans to better support hardware startups last year. It built a prototyping lab, formed partnerships with manufacturers, hired Iseman to lead the effort and subsequently packed its winter and summer 2016 cohorts full of hardware startups. His departure, and the fact that they're not replacing him with another similarly focused partner, doesn't mean YC is pulling back from its ambitions, the incubator's president said in a phone interview. "Luke set up a giant amount of deals for hardware and other special services for hardware companies so at this point all that stuff's in place," Sam Altman said. "We'll fund more hardware companies this batch than we've funded before."

Still, hardware is, well, hard. Silicon Valley has produced a raft of world-changing software startups, from Airbnb (a YC veteran) to Facebook. But it's a whole lot easier to beta-test an app than to prototype and then manufacture a gadget with a bunch of moving parts. Then you have to market the thing to the masses, who are already enamored of their Apple and Samsung products. Exhibits A and B: Fitbit, the fitness tracking company, and GoPro, maker of rugged little cameras. This week, both cut their sales forecasts for the crucial holiday quarter and watched their shares plunge. (Neither started life at YC.)

Yes, investors are pouring a lot more money into hardware startups these days—$1.7 billion in the first half of 2016 compared with about $500 million in the same period in 2014, according to hardware-focused incubator Bolt. But that's a fraction of the $28 billion of venture capital invested across the industry in the same period according to the National Venture Capital Association

YC's goal with the hardware push was to change all that—or at least make it easier to get an internet-connected bike or high-tech microwave off the ground. Most hardware startups head to Kickstarter or another crowfunding platform where they try to gin up hype with a teaser video, collect small donations from regular people and then hope they can actually build and ship something before the fans get impatient. 

YC wanted to remove some of the uncertainty from the process by providing hardware startups with prototyping tools, design help and access to international distributors, getting traditional barriers out of the way and letting hardware companies grow in a fashion closer to their software cousins, Altman said. They specifically asked for bigger ideas than crowdfunding platforms like Kickstarter might be able to support.

Plus YC hired Iseman, who had attended the incubator in the winter of 2014 with his startup Edyn, which builds a device that monitors soil temperature and moisture levels for home gardeners. He'd also been toiling away at his other project, Boxouse, which seeks to make it cheaper to live in cities by building tiny homes in old shipping containers. 

Iseman says his departure shouldn't be read as a failure of YC's hardware push. "They're very good at supporting hardware startups now," he said in an interview."I'm not worried that YC will decrease the quality of support it has for hardware startups." YC has more hardware startups than ever before and a full quarter of the current batch are making physical products, he said.

Of the 1,095 companies that have gone through or are currently at YC, only around 100 have made physical things, according to the incubator's website. Nearly half of those were in 2016. Most of those companies are still in their early stages, so it's hard to tell how successful YC's been at helping them. Results from the few hardware firms that attended before the official hardware push are mixed. The first hardware startup to attend, sleep monitor-maker Wakemate, went out of business three year after its stint at YC. Thalmic Labs, which builds an armband that can control computers by reading your muscles' electrical signals, just scored a $120 million funding round from Amazon and Intel. 

Iseman says his departure was purely about his desire to get back into the founder's role and build something new. He's already been accepted into the winter 2017 YC cohort with his new housing startup.

"You can only give so much advice before you want to do the thing you're giving advice about again," he said.

—With Olivia Zaleski

To contact the author of this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net.