In the middle of July, two local entrepreneurs launched “crowdfunding” campaigns two days apart. They were seeking enough preorders from customers to help them start making new products. One was a sleek aluminum iPad stand called the SlingAmp, priced at about $35. The other was Jibo, a $600 robot that will be able to do things like coordinate family schedules and read bedtime stories.
One wildly exceeded its fund-raising goal, the other fell short. The reasons why shed light on how the dynamics of crowdfunding are changing.
In the old days, entrepreneurs got capital by maxing out credit cards, tapping rich friends or relatives, or, if they were lucky, persuading venture capital firms to buy a stake in their business. The promise of crowdfunding is you can stop pitching people who may not understand your product and instead collect preorders from people who want to own the iPad stand, album, or purse you’re making.
When I met the founders of Indiegogo in early 2007, before they launched their crowdfunding site, they talked about the potential to crack the insular world of funding independent films — their sole focus at the time — by attracting investors who would pony up just $25 or $50 each.
Since then, crowdfunding has gotten very big. The research firm Massolution estimates that online fund-raising campaigns raised about $5 billion last year, almost double their total in 2012. A single site, Kickstarter, says it has helped 70,000 projects collectively raise $1.3 billion — and Kickstarter is just five years old. (Crowdfunding sites generate revenue by pocketing a percentage of money raised.)
The process of fund-raising used to be private. No one knew whether you were doing great, or getting turned down. Crowdfunding is extremely public; even when campaigns miss their goals (typically, credit cards aren’t charged in that situation), their Web pages stay online for all eternity.
Some say that’s not a bad thing. “If you’re going to fail in the market anyway, is it better to do it on a crowdfunding site, or after you’ve raised a few million dollars from venture capital firms?” asks Antonio Rodriguez of Cambridge VC firm Matrix Partners.
Finding out if people will punch in their credit card number to preorder something is a much better reality check than asking them, in a survey, whether they would buy something, Rodriguez says. And many established venture capital firms are using success in crowdfunding as a weathervane to point them to promising investments.
Rodriguez, for example, invested in a California startup, Oculus VR, that ran a successful crowdfunding program for a virtual reality headset. Facebook bought Oculus in March for $2 billion.
Vinod Goswami is a long-time health care and technology executive who lives in Chestnut Hill. He wanted to design an iPad stand that could amplify the audio coming from the tablet. After making several plastic prototypes of a C-shaped stand, he started bringing them to a nearby Apple Store to get feedback from the staff.
Goswami, who is 70, says he felt it might be useful “for older folks, so they don’t have to lean forward to hear something.” He found a metal fabricator in Worcester to make the SlingAmp from steel, and started promoting the stand at local events like Mass Innovation Nights.
Cynthia Breazeal is a professor at MIT who focuses on designing robots that interact with humans in ways that seem natural. She has taken a leave from the university to run Jibo, raising several million dollars from venture capital firms like Cambridge-based CRV, and hiring veterans of iRobot, Netflix, and Disney to help design the robot and its software.
When Jibo launched its campaign the week of July 14, it had a public relations firm on retainer, which resulted in coverage from Forbes, New Scientist, Time, and TechCrunch. The Weston-based startup also hired a Los Angeles firm to create a video of what its tabletop robot could do — like taking family photos or facilitating videoconferences with distant relatives.
Breazeal admits to being anxious before the campaign launched. Jibo didn’t plan to start delivering its product until late in 2015, and the price tag was high. “I had never done this before,” she says, “and you’re on an extremely steep learning curve.” Her goal was to raise at least $100,000.
Since the campaign launched, Jibo has raised $2.2 million on Indiegogo. SlingAmp raised $895 on another site, CrowdSupply, missing its $2,500 target.
Goswani didn’t get any of the money, but he’s not discouraged. He’s making design tweaks. He’s looking for opportunities to sell logo-emblazoned versions of the stand to companies that might use them as promotional items.
Breazeal says she approached the campaign as “an analytical, adaptive, very active process. You’re constantly trying to understand how you can get the word out better.” Jibo spent money on online advertising to reach people interested in new gadgets and photography. Getting people to commit money early in a campaign gets a project labeled as “trending” on the sites, attracting more attention — and more backers.
But at the core, says Breazeal. you need a product that stands out: “It does have to capture people’s imagination.”
Goswani says he may try crowdfunding again, but realizes he needs to do more work upfront, particularly social media promotion.
“If I were to do it again, I would do it as if I were going to run a marathon, and start preparing months in advance,” he says. “It has been a learning experience and I’ve been enjoying every moment of it.”