The hardware startup movement is becoming intertwined with the crowdfunding craze – and Boston is helping lead the charge.
Cash-strapped innovators often take to crowdfunding platforms to fund their ideas before pitching to investors. When there’s a physical product involved, a crowdfunding campaign is a strong model for entrepreneurs to gauge consumer interest and bank some initial capital – and a source of deal flow for venture capital investors, according to CB Insights.
"It’s classic Boston. A company performing so well, but no one knew about it."
Based off of research conducted by Matthew Witheiler of Boston venture firm Flybridge Capital Partners, CB Insights’ Monday report showed that a total of $321 million of VC dollars have gone towards crowdfunded hardware projects. It’s a tough scene, however; only around 10 percent of crowdfunded hardware campaigns actually go on to raise venture capital.
Take Somerville-based Formlabs for example. The startup was the second most well-funded crowdfunded campaign among hardware projects in the past few years. The desktop 3D printer company’s Kickstarter raised $2.95 million, well over its $100,000 funding goal, from more than 2,000 backers in over 35 different countries.
The company’s ultra-successful Kickstarter took place in fall 2012; Formlabs then raised a large Series A round of $19 million last October. The startup unveiled a 2.0 version of its stereolithography printer early this summer as it continues a push to bring its product to people around the world.
Important to note is that Formlabs saw that success before the trend of crowdfunding hardware gained serious traction. For perspective, the biggest boom came in the later half of 2013, according to CB Insights.
Interestingly, that’s also when Boston hardware consultancy Dragon Innovation collected $2.3 million to spin out its own crowdfunding platform. The idea was that hardware startups could raise funding on the site while getting advice on how to proceed from Dragon’s all-star team, including CEO and former iRobot vice president, Scott Miller.
“Many entrepreneurs would jump onto crowdfunding platform and create a campaign,” Miller told BostInno. “But they wouldn’t raise enough money, or would sell something they couldn’t actually make.”
While traditional crowdfunding sites like Kickstarter only focused on giving blossoming companies a hands-off way to bank quick cash, Dragon’s offering helps teams figure out just how much they needed to crowdfund in order to build their prototypes for backers – not to mention the association with a trusted brand and team.
“our competitors on the West Coast lead the pack when it comes to crowdfunding hardware projects."
“We saw that crowdfunding was facing an existential threat. It would be like if you ordered four things from Amazon, but only received one of them,” said Miller.
In June 2014, however, Miller and team launched a program, called Dragon Certified, that focuses on making the Dragon reputation more accessible to companies that prefer to use use Fundable, Kickstarter or IndieGoGo to crowdfund.
The hardware revolution is “taking off globally,” according to Miller, but some parts of the world, like Boston, California and New York, are a little further ahead. Just under 79 percent of all crowdfunded hardware projects take place in the United States.
Indeed, our competitors on the West Coast lead the pack when it comes to crowdfunding hardware projects, according to CB Insights. A total of 52 percent funded are from California; meanwhile Boston and New York tie with three crowdfunded hardware companies.
But that by no means implies the Hub has a weak hardware scene. It’s been over a year since the genre-specific incubator Bolt, which Miller is also involved in, began accepting budding hardware businesses.
When it comes to recognizing local up-and-coming companies in the space, Bolt Co-founder and CEO Ben Einstein pointed to SimpliSafe. The Cambridge-based connected home security system firm raised $57 million from Sequoia Capital in May.
“It’s classic Boston. A company performing so well, but no one knew about it,” Einstein told BostInno.
Einstein also noted Kiva Systems, which sold to Amazon for $775 million in 2012, touting the leadership of CEO and co-founder Mick Mountz. “[Mountz] is the perfect, prototypical MIT hardware guy,” he shared.
“MIT drives the entrepreneurial spirit in Boston,” Einstein posited, citing HelmetHub, the alumni-founded startup aiming to bring safety to bike sharing that's now a part of Bolt’s program, as an example, among others.
Though none of those companies got their start with crowdfunding, Boston’s next big hardware hero might have. Jibo, the “first family robot” founded by former MIT Media Lab professor Cynthia Breazel, is certainly one to watch. The startup, which has offices in Weston, Mass. and San Francisco, blew through its IndieGoGo campaign goal of $100,000 to raise over $1 million in a week. Jibo has now raised more than $1,600,000 from backers – and that’s in addition to a sizeable seed round from CRV this past winter.
Despite CRV recently rebranding with an increased focus on West Coast deals, the Boston-area is strong in another aspect of the hardware startup puzzle: Investors who care about the space.
Consider the investors of Facebook-owned Oculus VR, one of the biggest success stories of the past year. The virtual reality startup banked an impressive $2.4 million in a crowdfunding campaign in 2012. When Oculus was raising an official venture round, Boston-based investors from Spark Capital and Matrix Partners co-led Oculus's $16 million Series A round in June 2013. The two firms also participated in the company's $75 million Series B round in December 2013. The hardware startup sold to Facebook for $2 billion last May, giving the local venture firms a return less than a year after their initial investment.
“There are some amazing hardware investors out of Boston,” shared Miller, touting the interest and enthusiasm of Flybridge Capital Partners’ – and Dragon Innovation investor – Witheiler.
Bolt also doles out a bit of seed funding for the companies accepted into its incubator. Of the not-for-profit variety, local accelerator MassChallenge gives its 128-startup class the chance to win checks at its annual awards show. It also has plans to add a fully furnished workshop in its new South Boston location to entice and support hardware startups.
Boston hardware companies are leveraging the crowdfunding trend to hit goals and get where they want to go – and they have the support, in the form of investors and organizations, to help them along the way.
