By Renee DiResta (Associate, O'Reilly AlphaTech Ventures) A few weeks ago I attended the Open Hardware Summit in NYC. One of the things I repeatedly heard about was how many people in the space had raised money on Kickstarter. It’s historically been difficult to get a hardware startup off the ground because of the complexities of producing a device.
The success of a software startup rests primarily on the quality of the idea and the execution of the team. Creating a business around hardware requires both of those, but success is also impacted by the economics and logistics of the production chain, inventory management, and device safety.
While the Open Hardware movement has helped to reduce the cost of prototyping, iterative development on hardware is still costly in terms of both time and money. The Catch-22 is that it’s also more difficult to convey the full potential of a hardware idea to an investor with only schematics; having a device in-hand is worth a thousand Powerpoint slides.
Kickstarter’s crowd-funding model has created a new path to success for hardware startups. It allows an entrepreneur to raise enough money to build a product and reach proof of concept without giving up equity or taking on debt. The process provides preliminary market validation prior to launch. People can casually indicate interest in an idea when filling out an early-stage marketing survey, but on Kickstarter they are expressing demand for a product with actual dollars. That’s a powerful signal.
Besides the capital influx and market validation, Kickstarter provides the entrepreneur with a community of passionate early adopters. People who pre-purchase a product before they can actually touch it are really excited about the idea. They will evangelize even before they’ve received anything, just to help ensure that the project gets funded, and feel a sense of ownership in its success. Once they receive their item, that same feeling leads to word-of-mouth marketing as they show off their purchase, and can be leveraged by the entrepreneur to gather honest feedback about the product. These are the kind of users that an early-stage company needs to find product-market fit.
So congratulations to Kickstarter on yesterday’s milestone: 1 million backers, and more than $100,000,000 in pledges in 2.5 years. That’s pretty amazing, and the team should be very proud. Their innovative, disruptive approach to raising capital has facilitated disruptive innovation among an entire class of startups.
This post was originally posted at blog.noupsi.de. Photo credit: Kickstarter/Romotive
About the guest blogger: Renee DiResta is currently an Associate at O'Reilly AlphaTech Ventures, where she researches emerging technology trends and supports portfolio companies. Prior to OATV, she spent six and a half years as a trader at Jane Street Capital, a quantitative proprietary trading firm in New York. Renee holds a B.S. in Computer Science and Political Science from the State University of New York at Stony Brook. Follow her on Twitter at @noupside and her VC firm at @oatv.