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The Digital Skeptic: It Turns Out Hardware as a Business Is Hard

NEW YORK (TheStreet) -- Peter Semmelhack will tell anybody who's got the guts to listen that making smart hardware is, well ... hard.

"There is a hype cycle right now where young entrepreneurs now believe that hardware is easy," said the founder and CEO of Bug Labs, the 15-person smart hardware development firm based in Manhattan. "But they don't understand all the gatekeepers they have to deal with: designers, distributors, shipping, inventory, warehousing, customs, certification, software licensing. Hardware is hard."

Semmelhack, over the past few weeks, has been breaking down the realities for me of what it takes to make a living in what is considered by many investors to be the hottest sector in the domestic electronics economy: intelligent gadgets made in small batches by small companies.

Atoms Are the New Bits was the trendy headline in a by-now infamous Wired feature by then editor Chris Anderson.

The theory of this emerging smart, small-lot device economy is -- a la the information revolution -- that a new generation of fabrication tools such as 3-D desktop printers from Brooklyn-based MakerBot, recently acquired by 3-D printing firm Stratasys for $403 million, or Netherlands-founded, New York City-based Shapeways will enable the production of cheaply designed devices, created using open source fast-prototyping electronics such as Arduino and Raspberry Pi and free design tools such as AutoCad 360 from San Rafael, Calif.-based Autodesk . All of which will be funded by newly frictionless crowdfunding platforms such as New York City-based Kickstarter and San Francisco-based Indiegogo.

What makes Semmelhack such a must-know for investors is that the man isn't merely writing about -- or trying to sell products and services into -- this small-batch electronics market.

He's actually done it. And lived to tell the tale.

Starting in 2006, Semmelhack raised $10 million from first-tier investors including Union Square Ventures to launch a line of modular consumer electronics -- basically a smart Lego set of snap-together screens, keyboards, sensors.

He quickly found that "There are so many things that obstruct the path to construction and profits," he said, "that I don't know where to begin."