Rob Coneybeer, a venture capitalist at Shasta Ventures who has invested in smart thermostat maker Nest Labs Inc., said the cost of making a consumer-electronics prototype has dropped to $500,000 to $1 million today. That's down from $20 million to $25 million a decade ago, according to industry estimates.

Today's hardware start-ups also can cut costs by outsourcing manufacturing to Asia and selling directly to consumers over the Internet.

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