Rejected By VCs, Pebble Watch Raises $3.8M on Kickstarter
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This way they get their money in the form of guaranteed, up-front orders, and I get a cool new product "before" anyone else. I feel exclusive and I'll have the hot new gadget to show off.
It's a win-win, and I hope more companies opt for this route - it is true market validation.
(On a related topic, September can't come soon enough. I want mine now)
It's conceptually a great match. The hard part was making it credible enough to gain trust. That's Kickstarter's biggest strength.
When I give a store money, they owe me a product. When I back a project, they owe me their effort.
So it's a bit weird to me when the language being used is mostly store language rather than funding language. I don't think anybody has purchased a Pebble yet.
The "store" part is actually a tremendously complex software to do well, hardly a feature you add to an existing system.
If everything goes well then it's a win win, but amounts in play will start to attract crooks. It looks like too easy money. As long as kickstarter was under the radar, only well intended people where using it.
When the offered rewards are goods or services, then kickstarter is an upfront selling shop and these are high risk deals. The risk could be evaluted, but buyers have only videos and some text to evaluate it by themselves for now.
I was quite flattered to see them, but I remain curious why they'd go after such small potatoes? It seems like copying something that has a sustainable business model would be the better choice.
It was a fun project, but a failed business.
Out of curiosity, I just had a look at the ones I do consider clones, and the one that took my name and added "Pro" to the end doesn't even appear to be on sale anymore though their website is still active. I can't find the other, so it may not be either.
Not yet, their terms of service have a clause that (paraphrased) says "if you don't follow through we might pursue legal action" but nothing concrete.
They really need contractual obligations to complete the project if you get funded, otherwise where's the accountability? The ability to threaten someone with breach of contract is at least some bargaining power.
It's the fashionable thing to joke about VC's making wrong investments, investments at bubble prices, not knowing what they are doing, etc. But let's face it, it's their job to make sound investments. Sure, they may not get it 100% right, or even 50% but their job is to continually improve this success metric.
It's great that companies like Kickstarter are giving average consumers the capability to fund these sorts of companies but let's not equate the consumers' endorsement of the startup as the potential for value or ability to succeed. VC's do their due diligence for a reason, they want to back successful companies. Average consumers funding on Kickstarter are not doing their due diligence, they're looking at the marketing pitch and handing over their hard earned dollars. I fear this is bad for both the startup ecosystem as well as for consumers.
There will be companies on Kickstarter that take money and fail. My prediction is that it will be higher than the startup space. So before we get caught up on buying exclusivity with this fundraising, let's do our due diligence.
Kickstarter allows time horizons and rates of return of arbitrary size. These guys now already have everything a business needs: capital and customers. Unless they commit outright theft there is no reason they can't succeed with this project. But there is also no requirement that they keep it going after their last investor gets his or her watch. They can just do it to the size needed to hit the natural demand, and then call it quits. You can't do that with VC money.
But my salient point is that average consumers cannot and usually will not do their due diligence on whether the people who are raising the money have a good chance of succeess.
I hope you're not suggesting all a business needs to be successful is capital and customers. Because that's just plain dangerous.
An important part of investor due diligence is to try to figure out if there's a market for a product. A sizable Kickstarter campaign proves that in a way no due diligence ever could. Kickstarter campaigns also have an "with enough eyeballs all bugs are shallow" property. So failure rates could be lower.
Even if Kickstarter failure rates are higher than VC failure rates, Kickstarter still may be a good thing. First, Kickstarter can fund projects that are too small for VCs to bother with; there's a lot of value in the long tail. Second, they can fund projects that will be "merely" a 2-3x return. Third, this is making more capital available; if Kickstarter didn't exist it's not like the money would end up at Sequoia. Fourth and most important, Kickstarter campaigns will put less capital at risk. Most VCs can't afford to invest in less than $1m lumps, but Kickstarter campaigns can be 100x smaller.
VC's have to judge if there's a market and Kickstarter helps with that. But VC's also try to judge whether the founders have the ability to succeed, whether their business plan (costs vs. revenues) are sensible, etc. How does one do that through Kickstarter? I'm sure you'll agree more than 50% of the people who've funded the project on Kickstarter didn't even bother to figure out whether the startup is set up to succeed. (For additional evidence, see "Diaspora")
Btw, when you say Kickstarter campaigns can be 100x smaller, I'm assuming you meant to exclude ones raising upwards of $3.8 million right?
Your 50% number seems meaningless to me. Not everybody has to do the full research. Even with VC investments not everybody does full due diligence; as long as there's a lead investor willing to do the work many are much more casual. The larger a Kickstarter grows, the more likely it is to be scrutinized, both by funders and by outside participants. In this case, there was plenty of info available to evaluate the team.
Also, pointing out one failure like Diaspora is worse than meaningless. For every Kickstarter failure you find, I'm sure we can come up with 20 VC ones. Failure isn't the problem; failure is the point. Reward requires risk. Risk means some failures. As long as they continue to be, like Diaspora, interesting failures, then we're doing fine.
It is.
That's called a bubble.
...and it'll burst as soon as there's a high profile kick starter ($million+) that fails and delivers nothing to the people who think they've pre-ordered something.
I like kick starter, and I appreciate what they're doing, but this isn't going to end well.
It's all very well to let people to setup their funding projects go, yeah, I can ship as many t-shirts as people signup for $20! Easy! ...but the reality is, shipping 50k t-shirts for $20 each isn't as easy as people expect.
This is really the problem: People are notoriously bad at making estimates for cost, time, size of projects.
Good luck to Pebble I say, I hope this works out for them. I hope we see this stuff all settle down and turn into a new awesome funding model and not into scammer hell~
Relevant:
http://www.kickstarter.com/projects/starcommand/star-command...
(Also, I like your example of the 50K 20$ T-shirts. Demonstrates the problem perfectly if you just think about it for a second.)
The poster also looks really nice, but I didn't know such art would cost U$ 2.000 (I know some talented guys here in Uruguay that don't make as much in a month. They should try competing for those commisions).
PD: the game looks really awesome :) I didn't know about it, but now I'm looking forward to it.
PD2: That much money would hire me for a year, but I wouldn't be able to make Star Command on my own in a year obviously.
PD3: I'm looking forward to an X-Com remake someday...
> Few investors were interested in betting on a hardware startup, or dealing with the headaches that often come with manufacturing goods.
Let's assume "investors" are people with some knowledge of funding hardware based products. This group of individuals is going to look at the product (the upsides) as well as the challenges (the risks). A project might have tremendous upside on the product side, but an experienced hardware investor is able to identify the risks. I'm not a hardware investor, but anything involving wireless (even Bluetooth) automatically sets off warning buzzers in my head. I'm sure hardware-oriented VCs looked at this product and saw their own set of "uh oh" problems, thus they decided not to fund it.
> Migicovsky said he’s more adept at pitching to consumers than to venture capitalists.
I'm not sure Migicovsky is entirely aware of what he's saying here. This could be restated as "I'm more adept at pitching to laymen than people who are familiar with the challenges." That's scary.
At first glance, this appears to support your hypothesis: that one day, this whole thing is going to come crashing down. However, I believe you underestimate the pool of fools ready to part with their money. I don't really mean that funders of this project are fools, just that by some people's perception, they're fools for taking the risk.
Stated more succinctly, I believe that on the broad scale, there are a sufficient number of non-risk-averse individuals to sustain Kickstarter for quite some time. I believe this will remain true, even after some catastrophic funding failure.
It may have an interesting side-effect though. The salient hypothesis would be that the level of scrutiny applied to a $20-$30 risk is far lower than what would be applied when investing hundreds of thousands of dollars. By consequence, I would expect that Kickstarter would naturally fund more flops than a traditional VC model.
You probably will review the next 'investment' better, make sure they have a track record. The result is, only folks with some kind of reputation will find support at Kickstarter.
That's not exactly a bubble bursting. More like a market narrowing?
In his pitch to potential new hires, he tells them to check Pebble’s Kickstarter page at the beginning of the phone interview to see a live tally of investments.
“After we stopped talking,” he said, “I told them to refresh.”
When I viewed kickstarter page it went from 28,369 to 28,493 backers in less than 30 minutes with atleast $20K added in those 30 minutes. This is incredible.
edit: I think it was probably more money - $50K in 30 min. Did not note the old $ number - just an estimate
I'm skeptical it in a way that I can't put my finger on, still Kickstarter has a secret sauce that makes the people they need to host deals on it actually want to host deals on it (was eBay the same way, I can't remember). Did they ever think four years ago that they'd be running deals of this size?
edit: apparently amazon doesn't hold any of the cash, i stand corrected. and yes of course 100MM is not much compared to the probably 10B in cash equivalents AMZN has ..
Not sure if this is what you're saying, but Az doesn't actually hold any money for Kickstarter-- they hold credit card pre-approvals, which probably costs them some nominal amount.
First, as the other replier states, in the Kickstarter case, Amazon is not holding the funds so there is no float.
But let's pretend they do charge your card. And let's further pretend that they hold your funds for 365 days (in actuality they hold it for a few weeks or months). And let's further pretend that they get 1% on that money (money market rates are closer to 0.5%). That would be a rounding error of $1 million.
The statement above doesn't capture how much of a (relatively) recent development it is that hardware is not considered worthy of funding.
For perspective: 12 years ago A rounds were running $15-20M for hardware startups. B's were $30-40M.
The whole point is to see the product come to market. A good project is expected to try and sweeten the deal somehow for backers who pledge more money. (Signed pieces, interviews with founder, etc etc.)
Plus, sometimes Kickstarted projects end up in all kinds of places; for example, I got a CustomSLR strap: http://www.customslr.com , which is exactly as good as I'd hoped, and the product / company was originally funded through Kickstarter.
It would be fascinating to see a breakdown from pebble afterwards though to see what they felt the advantages and disadvantages are, and what they would have done differently.
Edit: The point is that you are funding a project for its own sake, because you want to see it brought to fruition, not necessarily because you stand to gain anything by it.
The market seems to think otherwise :) and there's clearly a place for a market for up-front selling of (perceived) cool new products :) . I hope it's them.
I love the Kickstarter idea. It's the ultimate customer validation, too :) . I only hope they take extra care not to get burned by the inevitable first high-profile failure.
Backers trade money for something they want that they can't create themselves or get anywhere else, which means they are justified in paying a premium. Project owners get to realize their vision, bootstrap a production process, and potentially hold onto profit if they so desire.
There's a reason that this: http://26.media.tumblr.com/tumblr_m1wvyad1np1rrallbo2_500.jp... is a meme, and kickstarter is precisely the sort of platform designed to translate those "shut up and take my money" dollars into profit on the one hand and realized products on the other.
So this its not an equity swap, it is a shop front. The benefit for startups is up front cash and a pool of early adopters?
What alternatives are available?
Here, check this out: http://www.kickstarter.com/projects/1804944614/the-sutro-mis...
Look at the number of backers at the $6 reward level, at that level all you get is a postcard, the equivalent of a pat on the back or a firm handshake. Yet 29 people pledged that amount or chose that reward level. Also, look at the total backers vs. the sum of all the backers at each reward level, you get a difference of 30 people (170 vs. 140). 30 people who either kicked in a mere dollar or two or who chose not to receive a reward. That's at least $200 in funding with almost no return to the backers, a full 2% of the overall funding goal. And the 2 higher levels of rewards are similar, a $20 poster, a $30 t-shirt. There's another thousand dollars, 10% of their goal level, just with that.
Why?
The answer is that economics turns out to be a lot more complex than we've been led to believe. The ideal of the efficient and ruthless economic model human being, Utilitus Maximus, is a myth. Economics meshes with culture and society and they play off of and interact with each other. Here we have about a hundred folks who are willing to collectively chip in $1200 for a project that they believe in. Is this charity? Not in any conventional sense, there are no sick or hungry children here, just bicycles. But people are willing to support projects which bring about slight changes to the world, even if it's just introducing a new product, which advance their ideals or enthusiasms. And that's a very substantial indirect benefit even if there is no direct benefit. Ultimately transforming the world around you into the world you want to live in can be the best and most effective use of your money.
More than anything I think that's the flame which fuels the growing popularity of kickstarter.
The benefit for project owners, who are not always startups, is validation of the marketability of their concept, a pool of early adopters, up front cash of course, but also a more intimate connection between makers and enthusiasts. A while ago the singer Jonathan Coulton did an experiment where he forced himself to come up with a new song every week, which he debuted on his blog. Afterward he collected the best songs together and released an album. Similarly, a few years ago Markus Persson, aka "Notch", created an early prototype of an innovative PC game and he decided to put it out there into the hands of folks all over the internet and charge a relatively small fee for preorders of the full game when it would become available. As he iteratively developed the game, Minecraft, in full public view eventually it hit a point of critical mass and gained a huge amount of interest, and with it a large volume of pre-orders. He made so much revenue via pre-orders that he was able to found a game studio, hire several other developers, and even begin development of other games, before Minecraft even officially launched. To me that sort of heavily customer focused bootstrapping process seems very much of a kind with kickstarter. It's very much an extension of the new modes of business that are possible today due to the internet, due to social media, due to the ease of doing business without any middlemen other than the bank and UPS.
Granted, even on a simplistic level kickstarter still makes economic sense (makers take a profit, backers receive products of significant utility), but the higher order effects are interesting too.
There are alternatives out there, most of them are fairly similar. Soon there will be alternatives that support equity based investments. To my mind the biggest alternative is just to do it yourself. For some projects it doesn't make sense, but for a lot of projects it can be easy to incrementally bootstrap your way up the revenue/product development chain.
We all know what you mean, but the conventional phrase is "Homo economicus".
There are many things I see, either real things that already exist or design ideas, and think "that's great" or "that really should exist" but which I myself might not need/want to own or use. Some of the funding going into kickstarter projects, especially at the higher funding levels, comes from that sort of thinking.
90% of the Kickstarter projects I back because I like increasing the amount of awesome in the universe (which also explains my involvement with the Awesome Foundation - awesomefoundation.org). Only 10% of them are because I want to "buy" the product. I generally expect that I'll actually get nothing when I contribute to a Kickstarter.
I simply want to reward others for having initiative, drive and interesting ideas and abilities.
Somebody has a cool idea, others are interested, others pitch in to help get the product made.
And no, the backer doesn't necessarily get the product, that depends on the "backing level" rewards. Generally, yes the backer gets the product at a reduced price (compared to retail estimations) and a bit more chance that the product will actually see the light of day. For "non-physical" stuff (e.g. video games), there also tends to be swag or other artifacts at higher backing levels, for physicals there can be exclusive series or customizations.
> How much money will Pebble be left with after this process?
Who cares? They can be left with essentially 0, they'll have a product ready to sell and a fab chain, they can go to more traditional retail.
For instance, suppose I invent a new type of transformer with some benefit or the other. I approach the power companies with my prototype and explain that I need capital to produce it, so if they pre-order, I'll offer them discounts and other benefits.
This helps me approaching the banks and investors too, if I can get firm orders out of the power companies, because it demonstrates a market interest in my product.
What kickstarter has done is made it possible for this sort of arrangement to work with the public, pre-buying new consumer goods.
But to answer your question, what the customer gets is 1) a product that they want, which otherwise wouldn't be available, 2) in exchange for their risk that the product won't be delivered, they get various incentives, typically discounts.
He seems to have the development chops to come up with something viable, and adding things like real data logging and bluetooth connectivity would actually make it better than anything on the market right now.
He's mentioned that he's doing it essentially as a hobbyist project, and that things like regulatory compliance testing and funding an initial production run would be something out of reach normally.
Kickstarter seems great for this kind of project. It lets you target an interested audience to get the initial capital funding to produce a product that you might not ever get off the ground beyond the personal prototype stage.
I've got a product I'd love to kickstart but finding companies capable is tough!
I've been dreaming about such a system for a few years now, perhaps the iron is finally reaching striking temperature...
Throwing in manufacturing and marketing expertise also would see an explosion of prospective products looking for a piece of the crowdfunding pie.
1. Acquire VC/other funds
2. Put product on kickstarter
3. Use initial funds to hype up and create explosive kickstarter trends
4. Let the hype do the rest.
It's like the Palin PAC strategy.
http://www.kickstarter.com/projects/66710809/double-fine-adv...
I wonder how many potential smartphone/tablet companies are not being launched due to the timidity of the VC community.
If VCs aren't worried, they aren't paying attention.