Crowdfunding · Venture capital

Is crowdfunding a must for hardware startup to raise VC money?

Mike Duchen Head of Business Development at Product School

February 5th, 2015

The more I look at hardware startups that are getting VC funding, the more I see they do it on top of crowdfunding campaigns. It seems like VCs use crowdfunding as validation. Is it a must to have a successful crowdfunding campaign to raise a round from Venture Capitalists?

Dave Sloan Product leader, Web developer, Entrepreneur

February 5th, 2015

Hardware start-ups can often benefit from a hardware accelerator that puts in $100K-$250K for 10% equity.  Usually that early seed round would get a startup to a sellable MVP that they can launch on a crowdfunding site.   Hardware is often much more expensive to build than software, so many of the incubators that only provide $20K or so won't get you to an MVP. 

Yes, VCs do look for validation before investing, but it can be validation that came from any previous seed / angel round, not necessarily a crowd-funding campaign.   That validation always comes in the form of traction or revenue.   Of course crowdfunding can be a great, cheap, market channel that helps you acquire early adopters.  

Steve Karmeinsky CoFounder City Meets Tech / Lean Capital Ltd / Placeholder Ltd

February 5th, 2015

It depends what you're doing in hardware, if it's a consumer device, then yes, crowdfunding can validate at least there's market demand.

You may need still need investment to do tooling/etc as the upfront costs can be very high.

Trevor Collins Crowdfunding Entrepreneur & Co-Founder of 100 Danish

February 5th, 2015

If you put yourself in a VC's shoes, then it certainly can't hurt. You've shown traction, marketing ability and a sort of scrappiness to do what it takes to launch a successful crowdfunding campaign.

That being said, I think the upfront cost for producing and executing on a crowdfunded campaign is often underestimated. Especially for hardware startups. If you look at Navdy, which raised on the Tilt Open platform, they spent tens of thousands just on their video. But the result was worth a large multiplier of that initial investment.

John Lonergan Author: Antidote at Amazon

February 5th, 2015

I work in the medical device VC sector, where crowd funding has not been a factor. So I can only guess that market validation is there for a crowd-funded project. I'd give the same caveats that I give for angel-funded early rounds. That is, don't have unrealistic expectations about the equity value of your company when you start the VC route. Negotiate upfront equity splits, but don't forget success-based equity kickers. 

Ben Littauer Angel Investor and Management Consultant

February 5th, 2015

For consumer products I think, as an investor, a successful crowdfunding campaign shows many desirable attributes: market demand, scrappy nature of the entrepreneur, and ability to market. I've heard complaints from some who have failed at crowdfunding, that "the sites don't do any marketing for you." Yes, that's the nature of the beast, and that ability to market is what we're looking for from the company. So while a successful campaign is no guarantee of funding, if you don't have one in this particular realm, we're going to want to know the reasons why.