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Eight things about hardware crowdfunding

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We've helped dozens of startups launch crowdfunding campaigns and learned a few things on the way...

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Eight things about hardware crowdfunding

  1. 1. 8 THINGS ABOUT HARDWARE CROWDFUNDING WE LEARNED FROM 20 CAMPAIGNS LEAN HARDWARE SERIES BY HAXLR8R
  2. 2. HI ! WE’RE HAX • Startup accelerator for hardware – Most Prolific Investor in Hardware Crowdfunding – The “Lean Hardware” and “12 Wares” guys • We researched and practiced crowdfunding – 20 successful campaigns run by HAX startups – Studied many others – Found false positives, false negatives – Discovered warning signs, broken hearts – And some glorious successes
  3. 3. HAX CROWDFUNDING EXPERIENCE
  4. 4. 8 THINGS ABOUT CROWDFUNDING THE BETTER MOUSETRAP MYTH CAMPAIGNS ARE NOT CREATED EQUAL CAMPAIGNS DON’T RUN THEMSELVES IT MIGHT NOT SHIP FUNDED != PROFITS PROJECTS ARE NOT ALL ORIGINAL FUNDED DOES NOT MEAN STARTUP A FAILED FUNDING IS NOT THE END 1 2 3 4 5 6 7 8
  5. 5. THE BETTER MOUSETRAP MYTH • The world won’t beat a path to your door… • Be MUCH better (10x) or DIFFERENT • Might work for highly fragmented markets • Don’t forget your margins! 1 The problem with mousetraps • 4,400 patents since 1879 • 400 new applicants per year • “most frequently invented device in U.S. history”
  6. 6. SLIM WALLETS Niche, but margins make sense, and products are more likely to ship. Slimmest, minimalist, elegant, intuitive, colorful, RFID-compliant, RFDI-resistant, expandable, eco-friendly, machined, Made in USA, Italian leather, laser-cut wood, carbon-fiber, aluminum, with battery pack… Pick your story!
  7. 7. HOW ABOUT TECH PRODUCTS? – Smartwatches, 3D printers, drones… the first generation is probably over. Are those commodities already? – Many creators underestimate costs and delays and miscalculate margins. 47 companies launched 3D printers and raised $100K+ or more in crowdfunding Source: Flybridge Capital Partners, 2014.6
  8. 8. CAMPAIGNS ARE NOT CREATED EQUAL • Most figure it out manufacturability late – This is the riskiest approach! – Might cost lots, be unfeasible or lead to manufacturing issues • Some have funding – Can spend on video, ads, social media – They still need to make their products • Some have experience in manufacturing – A small minority • Some have experienced support – HAX offers support and investment – Agents charge you for support – Corporate partners have their own targets 2
  9. 9. KICKSTARTER STATISTICS • Technology & Design are the “Hardware” categories • They represent 30% of backers dollars ($350M) • Reaching $1m is (very) rare (0.7%) TECHNOLOGY & DESIGN 5,368 funded projects >$100k 731 funded projects (13%) HAX 16 projects over $100k >$1M 37 funded projects (0.7%)
  10. 10. $13.3M $10.3M $8.6M $6.2M $3.4M COOLEST COOLER Failed its first campaign PEBBLE Sold 10,000 units of another watch and raised $375k pre-campaign OUYA Designed by Yves Behar PONO Co-founded by Neil Young MICRO $3.4M $2.9M $2.8M $2.4M $2.4M DASH FORM 1 Raised $500k pre-campaign SCIO Raised $1.9M pre-campaign OCULUS SENSE Raised $10.5M pre-campaign
  11. 11. $2.3M $2.2M $2M $2M $1.7M JIBO Raised $5.6m pre-campaign SOLAR ROADWAYS Feasibility in question SKULLY SCANADU Raised $2m pre-campaign CANARY Raised $1.2m pre-campaign $1.5M $1.4M $1.3M $1.3M $1.3M KREYOS Product issues RITOT Feasibility in question GEEK WAVE AIR TAME TRACKR
  12. 12. CAMPAIGNS DON’T RUN THEMSELVES • Preparation is key – Line up backers – Line up media – Timing • Post-launch, build momentum – It can be a full time job! 3
  13. 13. SOME CAMPAIGN TIPS Leverage campaign inertia and capture orders post-funding Stretch goals are important but pitch a complete product. Core features in stretch goals might turn off backers Plan your pledges carefully and pick the right providers to automate BUNNIE HUANG what you can. MIT PhD, Hardware Hacker (first Xbox hacker) Creator of Novena open source laptop ($700k on CrowdSupply)
  14. 14. IT MIGHT NOT SHIP • Did creators figure out manufacturing? – Many have zero experience – “We will select our manufacturing partners as soon as we receive the funds” might not work – “Parachute manufacturing” often fails (like a week in Shenzhen) • Late… or never – Some projects can’t be made – Some might disappoint – Some are downright scams 4 Where are the goods?
  15. 15. LATEWARE, LAMEWARE, SCAMWARE… “I really hope to get mine before I am too old to use it” A backer for a project 15 months late
  16. 16. THE RISE AND FALL OF KREYOS 2013.8 Raises $1.5 million on Indiegogo 2013.11 Planned delivery. Multiple delays. 2014.8 Poor product shipped. Complains. 2014.9 Post by founder reveals Kreyos a naïve marketing front for a Chinese ODM
  17. 17. CAVEAT BACKERS Do creators fully comprehend what they signed up for? Backers should research the backgrounds of creators and their teams There is a stark difference between industry veterans and fresh grads. The latter are rarely capable of due diligence EVGENY LAZARENKO Doctor of Engineering, Startup Geek
  18. 18. FUNDED != PROFITS • Not if they sell at cost (LOSSware) – Know your costs (incl. certification, molds, etc.) – Charge 3-4x if pricing bottom-up 5 “You will be receiving Shru at cost price.”
  19. 19. ANATOMY OF A $100K PROJECT $100k - $30k BOM (1/3 of Sales) - $20k tooling = $50k for a team for a year How much ramen can you eat?
  20. 20. PROJECTS ARE NOT ALL ORIGINAL • It used to be • But some found Alibaba.com – We call those “ALIware” 6
  21. 21. FUNDED DOES NOT MEAN STARTUP • Can it cross the chasm? – Backers are “Innovators” and “early adopters” – Product might not have mass market appeal – It might also be NICHEware or FUTUREware • Are there barriers to entry? – Investors prefer those – EASYware can be copied – Software, algorithms, community can be strong IP – Crowdfunding can kickstart your community! 7
  22. 22. FROM CROWDFUNDED TO FREE $695,138 $34,000 2013.10 PRESSY $27 2014.1 SPEED BUTTON $3 2014.4 MIKEY by Xiaomi $1 2014.8 SMART BUTTON by Qihoo FREE Qihoo gave away 1m smart buttons to college students since mid-August 2014 It uses the smart button to acquire users for its services Source: TechInAsia, 2014.9.4
  23. 23. STARTUP OR NOT STARTUP? Even a massive crowdfunding success does not mean a company is a fit for venture funding. MATTHEW WITHEILER General Partner, Flybridge Capital Backers are buying a product. Investors are buying a vision. Some products may generate tons of demand (like Coolest Cooler) but may not be great venture investments.
  24. 24. STARTUP OR NOT STARTUP? Most campaigns are products, not startups. Most companies that launch a crowdfunding campaign don’t have a plan to go from a single product to a huge empire, and that keeps them from being VC investable startups. ZACH SUPALLA If you make a kitchen scale, it can be a viable business but it’s not clear how that becomes a $1B empire. Founder & CEO, Spark (HAX 2)
  25. 25. A FAILED FUNDING IS NOT THE END • COOLEST COOLER failed the first time FAILED $100k Dec. 2013 FUNDED $11M Aug. 2014 • Why it succeeded later? – Maybe more advanced project, timing (Summer vs. Winter), “restart boost”, other? 8 Which would you back?
  26. 26. FROM OUR FILES: SPARK FAILED $125k Dec. 2012 (pre-HAX) FUNDED $567k Jun. 2013 (post-HAX) – Repositioning of both problem & solution with HAX – Went on to raised $4.9M with VCs a year later Spark Core: Wi-Fi for Everything (Arduino BEFORE AFTER Spark: Upgrade your lights with Wi-Fi and apps
  27. 27. LIKE THE LEGEND OF THE PHOENIX • Some failed campaigns are run by strong teams who built significant technology • Campaigns might fail because – You’re building the wrong solution – You’re working on the wrong problem – You are bad at marketing or with bad timing – Your customers are not backers • With “pivot” or “repositioning” they might come back as “phoenix campaigns”
  28. 28. ABOUT HAX Because ATOMS are not like BITS and creators learn with their TOOLS we are in the ‘SILICON VALLEY for HARDWARE’ for Prototyping & sourcing Tools & factories Know-how to help create your LEAN HARDWARE STARTUP Build the right thing Build things right Ship fast
  29. 29. BUILD THE FUTURE WITH US HAXLR8R.COM PRESENTATIONS SLIDESHARE.COM/HAXLR8R COMMENTS MAKEIT@HAXLR8R.COM

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