Toys Grow Up: LittleBits Picks Up $3.65M, PCH Deal To Build Out Its Open-Source Hardware Vision

LittleBits, an “open source hardware” startup that makes electronic building blocks to design objects for work and play, has today announced the addition of two significant building blocks of its own: it has picked up $3.65 million in funding; and has signed a manufacturing deal with PCH International to scale up its business. The Series A round of funding was led by True Ventures, with participation from Khosla Ventures, O’Reilly AlphaTech Ventures and Lerer Ventures and will be used to staff up and expand the range of products from the 30 currently on offer.

Along with the rush of gadgets that have hit the big time thanks to Kickstarter, littleBits is part of a wider trend for tech startups based around hardware rather than software and services. But as much as it is an idea, the concept is also an ideal: founded by Ayah Bedir, a TED Fellow and an alum of the MIT Media Lab (and heartily endorsed by Joi Ito, who participated in its seed round), the goal, she says, is to “break the boundary” between ourselves and electronics. “We spend more than seven hours with technological devices every day, yet most of us don’t even know how they work,” she says.

Part toy, part potentially useful prototyping aid, littleBits is a clever little system that lets people create electronic objects without any special skills. It looks a bit like Lego (although it makes a point on its site of emphasizing that it is not connected in any way), except that instead of interlocking pieces, littleBits works with small magnets to let users snap together pieces.

The pieces themselves have different functions — light, sound, sensors, buttons, thresholds, pulse, motors and so on — and when they are put together, they make a complete circuit. They are sold in an initial pack for $89, with the ability to purchase additional modules, and the range of objects that get created goes from fun toys – eg a sound-activated bubble maker – to more functional — eg a “personal doorbell” and “everything in between,” says Bedir.

And this is where the open-source part of the description kicks in — users are then encouraged to upload their creations to the site, and to share techniques for making new objects from the modules.

In a startup world that has been dominated of late by software and services startups — fuelled by the rise of the internet and gadgets to surf it that largely exclude all but the very biggest players in the hardware sphere, while at the same time enabling great innovation and new stuff in the software sphere — it’s interesting to see the rise of littleBits and the reaction it has among VCs.

“Ayah is exactly the type of founder we strive to work with at True, and her passion for building a platform that inspires and propels the creativity of the world’s next generations of creators aligns perfectly with our mission,” noted Jon Callaghan, co-founder True Ventures. ”littleBits is a product that captures the imagination and has the potential to dramatically change the way the world thinks about education and play in the digital era.”

Still, Bedir noted to me that “Getting funding for a hardware company is definitely not a walk in the park.” She points out that because hardware is capital intensive, you have to deal with lots of external forces (moving atoms around, shipping, taxes, laws, factories, inventory, price of raw material) and so on. “A lot of VCs say ‘it’s too much of a real business.’ I definitely had a much smaller pool of investors to pick from when I was raising money, and I would always ask myself first ‘are they hardware-friendly?’”

Educational play it may be – about 60-70 percent or of buyers are parents and kids, 20 percent are schools and educators and the rest are hobbyists and electronic enthusiasts — but Joi Ito likens what littleBits is doing in hardware to what has happened in open-source software:

“Open source software lowered the costs of innovation for software and Internet services and pushed it from big companies to startups. The same thing is now happening in hardware, and littleBits is one of the companies leading the way.” Indeed, while littleBits has a distinctly educational feel to it, you can see how this could be used on a more industrial or wider scale to achieve a similar kind of level of innovation and reduction in cost.

(Other investors in littleBits’ seed round included Nicholas Negroponte, the founder of the MIT Media Lab and of the One Laptop per Child Association, as well as Taha Mikati, Fadi Ghandour, Josh Spear, Jason Port, Joanne Wilson and Salah Chamma.)

The PCH International deal will see the company begin manufacturing littleBits starting in August, an important move because the company is currently “overrun” with orders. Bedir tells me that it’s not releasing sold numbers yet but notes that in the first two weeks that it launched, in December 2011, it sold over 2,000 units.

But PCH will also be doing signficantly more: littleBits has signed over its logistics and supply chain management to PCH, making it the youngest-ever company to partner with PCH in this way. The deal means that littleBits will be able to keep the cost of the product relatively affordable, as well as scale up and sell more. And it’s a very good sign for future hardware entrepreneurs of one route they can take to attack the issue of scale when they are still small.