Posts Tagged: Indiegogo

Investors need to actually use their portfolio products

PayPal President David Marcus recently stirred up the hornet’s nest with a memo scolding employees for not installing and using the PayPal app. In part, the email read: “Everyone at PayPal should use our products where available. That’s the only way we can make them better, and better.” (you can read the complete text of the email here). While Marcus’ memo touches on numerous high-level debates like passion vs. paycheck, there’s one important message for start-ups, managers, employees, and investors alike: Eat your own dog food.

Investors, really? Should an investor really be expected to use the 10, 15, or 20 products in his or her portfolio? I say absolutely. After all, a great product is the basis for a successful company and an investor who doesn’t understand, know, or use the product is most likely a sub-optimal sparring partner and advisor.

A PayPal spokesperson further clarified the message of the memo: “We really want to be driving the best customer experiences that are possible. And part of that is having every employee be the customer and utilize our services wherever you can, and if you see a problem, highlight it and tell people to get it fixed.”

As an investor, using a portfolio company is easier when dealing with consumer apps and companies. For example, I’m a regular, sometimes heavy, user of Frank & Oak, Indiegogo, Indochino, Escapio, Clarity, Smore, tindie, and Twenty20. My wife uses Julep and Chloe & Isabel.

It’s naturally tougher to be a user for business apps, particularly vertically-focused apps. For example, Figure 1 is a photo-sharing app for medical professionals and Clio offers practice management software for lawyers. And I’m neither a doctor nor a lawyer.

In these cases, the investor should at least sign up for the service to get a high level impression of the workflow and user experience. As a start-up founder, you should make it a priority to include product presentations in board meetings or schedule separate sessions to go through the product demos.

At the end of the day, the more hands that touch your product, the greater the opportunity to improve the user experience. And you don’t necessarily want to trust the opinion of advisors who have never used or tried your product.

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Crowdfunding: the good, the bad, and the ugly

Generally speaking, I’m a huge fan of crowdfunding. I’m an investor in one of the major platforms, Indiegogo. Crowdfunding sites like Kickstarter and Indiegogo are helping fill the financing void for startups that struggle to find traditional financing. For example, I recently wrote about crowdfunding being a viable option for hardware startups who notoriously have a tough time attracting funding from VCs. But there is a bit too much hype around crowdfunding right now. And as we know from history, too much hype doesn’t always end well.

The Good: When crowdfunding works…

In particular, I’m bullish on crowdfunding when it’s about passionate consumers rallying around an idea, cause, or product concept they believe in. In this case, the funders have modest expectations…either a small perk (like a t-shirt) or just the simple satisfaction of supporting a company or cause they care about and watching it grow.

Take JamStik as an example. It’s a prototype mini-guitar that interacts with an iPad or iPhone. The project has currently raised $129,000 with an initial goal of $100,000 on Indiegogo. Its funding packages range from an exclusive backers t-shirt, your name on the Founder’s wall, to discounts on a JamStik or one of the earliest prototypes.

Crowdfunding can also be a way for startups to finance parts purchasing and manufacturing by taking customer pre-orders. For example, Tindie fundraisers can give startups working capital to buy parts for the final assembly of their products (full disclosure: I am an investor in Tindie).

The Bad: Disappointing expectations

While Tindie fundraisers usually work very well in terms of meeting customer expectations, turning crowdfunding into a wide-spread platform for taking pre-orders can be risky business. The Pebble smart watch may have had one of the most publicized delivery delays, but they’re hardly alone. Statistical analysis by Professor Mollick of Wharton uncovered that 75% of all funded projects on Kickstarter shipped late.

When consumers start to look at a crowdfunding site as the equivalent of an online store where they can buy new toys, there will be trouble (hence the Kickstarter blog post: “Kickstarter is not a store”).  Delays in production/delivery are usually expected among investors, but even a few weeks delay can frustrate and anger this new class of ‘investor customers’ who are expecting the same smooth process as when they order something from Amazon. Their frustration ripples throughout the web, souring the entire industry.

The Ugly: Crowdfunding for equity

Recently, there has been a lot of talk about crowdfunding for equity. The idea here is to make it very easy for anybody to invest small amounts of money in startups through crowdfunding platforms. I personally think this is a recipe for disaster. Here is the problem: the fact is that few angel investors make good investment returns…and that’s true even for those who are lucky enough to have a huge winner in their portfolio. On average, VCs had pretty dismal returns over the past decade. And those are sophisticated investors who look at hundreds of deals and then work for years to help their portfolio companies build the best teams and execute.

In short, early stage investing is hard and typically only the top tier investor with a proprietary deal flow can make great returns. It’s not the place for the average consumer to put his or her money.

If the driving force behind crowdfunding platforms is to make it easier for anybody to become an angel investor and have fun tracking the progress of their project (without much expectation for a return), then crowdfunding is a welcome addition to the financing landscape. However, if we start to see people putting up large swaths of their retirement savings in the hopes of funding the next Google or Facebook, this will end in a disaster. Time will tell what happens. But unfortunately, if the future is anything like past history, the latter scenario is more likely.


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How to find funding for your hardware startup while we’re waiting for the hardware revolution


hardware (Photo credit: alorenzi)

Despite the recent media buzz surrounding the hardware revolution and emerging maker space, the overwhelming majority of hardware startups have a hard time attracting financing today. Hardware requires time, money, and inventory. As a result, most venture capitalists are reluctant to touch hardware projects, opting for the lower costs and smaller risks of software.

While my portfolio is primarily centered around consumer internet as well as enterprise SaaS startups, I typically talk to two to three hardware startups each week. Here’s the advice I give these teams who are navigating the tough world of hardware financing.

1. De-risk your startup as much as possible

Manufacturing innovations like 3D printing support quicker and cheaper prototyping and design. This means the overall costs of launching a hardware product are coming down considerably, yet hardware is still costlier (and thus riskier) than software. To increase your chances of venture capital financing, you’ll need to lower the risks as much as possible, such as:

  • Bootstrapping as long as you can to get a working prototype into the market.
  • Following an iterative manufacturing process. Instead of taking a year to develop and launch one product, it might be advantageous to run through four development cycles in smaller batches.
  • Having at least one team member with a deep background in hardware manufacturing.

2. Focus on VCs who have done hardware before

The reality is that few venture capitalists are ready to write a check to a hardware startup today, and it’s not all due to the risk. Many VCs have a background in software and are less familiar and comfortable with bringing hardware projects to market. In order to minimize the time wasted during fundraising, you should focus your efforts on venture capitalists that have done at least one hardware deal. For example, Softtech and True Ventures funded FitBit.

3. Patents versus traction

In the software space, it is commonly accepted that barriers to entry are no longer created by patents or by tech differentiation alone, but by superior traction in the marketplace. One could argue that the same development will hold true in the hardware space. Therefore, when you pitch investors, it’s wiser to focus on the traction you have built up in the market rather than pitching your patents.

4. Look at crowdfunding options

Crowdfunding sites like Kickstarter and my portfolio company Indiegogo are helping fill the financing void for hardware projects. For example, Pebble (a watch that wirelessly connects to a smartphone and displays its messages) raised $10M on Kickstarter in 2012. Muse (a brain sensing headband that lets you control things with your mind) raised $287K on Indiegogo.

Along with providing much-needed cash in the early days, success in a crowdfunding community shows product validation and market demand, since people are committing to a particular product. However, there’s a challenge when your investors are also your customers. Production delays are quite common with hardware projects and, as Pebble found out, it’s easy to disappoint customers when dates are missed.

In addition to gathering seed money, hardware startups are also finding success in raising working capital to buy parts via online fundraisers on Tindie (another portfolio company).

The making of a hardware revolution

It feels like we are still in the early stage of the hardware revolution. With further refinement of design, prototyping, and manufacturing tools, the costs and risks associated with hardware should come down enough so that hardware becomes palatable to traditional funding sources. With Lemnos Labs, we already have a hardware-focused incubator, so it will only be a matter of time before we see VC funds emerge that focus exclusively on hardware. In the meantime, hardware startups should look for innovative ways to get their product to market.

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New investment: tindie, a marketplace for the maker generation

I’m very excited to announce Version One’s investment in Tindie, a marketplace for gadget tinkerers and the maker generation.

Many think that 2012 was the year of hardware. Today, getting a product ready for market is less risky and cheaper than ever, thanks to rapid prototyping with 3D printers, cheaper high-powered computers that can run simulations, the emerging democratization of manufacturing, and access to crowdfunding options through sites like Kickstarter and Indiegogo. But where can these designers sell the things they build?

That’s where Tindie comes in. The company wants to be a marketplace to connect the world’s small hardware businesses with customers all over the world. The site has been called the Etsy for electronics, hardware hackers, and DIY projects.

Tindie already has makers on every continent except Antarctica, with hundreds of listed products, from 3D printing kits to robots and cameras. My favourite product? Definitely the robot that plays Angry Birds.

Tindie was developed by Emile Petrone, who has worked at Urban Airship, Yelp, and Redbeacon. In April 2012, Emile posted the initial idea for Tindie on Reddit and received resounding support from the community.

This hardware revolution is still in the very early stages, and we are thrilled to be helping Emile and Julia build a marketplace that gives small hardware businesses the same distribution opportunities as the big players.

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New investment: crowdfunding platform IndieGoGo

Image representing IndieGoGo as depicted in Cr...

Image via CrunchBase

In the past few years crowdfunding platforms have transformed the way many projects are being financed – instead of just relying on family & friends to support them and their idea, musicians, film makers, entrepreneurs or simply anybody with a passion or a business idea can seek funding from Internet users on platforms like Indiegogo or Kickstarter. It opens up exciting new opportunities for creativity and entrepreneurship by connecting those with ideas and a passion to others with money and the same passion.

I am therefore very happy to have participated in the seed round of funding for Indiegogo, one of the leading players in this space (alongside my friends over at Metamorphic). Indiegogo’s founders Danae Ringelmann, Slava Rubin, and Eric Schell were the first to really see the crowdfunding opportunity and have built a truly global platform that has helped over 40,000 campaigns raise millions of dollars in more than 200 countries.

It still feels like very early times for the crowdfunding vertical so it will be exciting to watch this industry evolve.

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