Success doesn’t come easy for entrepreneurs. This is especially true for hardware startups. The challenges are aplenty, ranging from getting the right team for the diverse roles required, securing your IPs against theft, to the various different manufacturing challenges. However, one specific area of concern almost all hardware entrepreneurs unanimously face is funding at the early stage.
The questions that plague an early-stage entrepreneur at the time of funding are diverse. Who does one get funding from? How much does the business need? Will the budgeted requirements meet the actual expenses to set manufacturing up for prototypes?
But of all these equally relevant questions, one keeps running circles around the minds of the entrepreneur like an omnipresent poltergeist. And that’s the Who? It starts with who would be willing to provide that funding. The circumnavigation continues when some questions get resolved, leading to some more hovering who’s – what kind of investor would be as enthusiastic and supportive as the entrepreneur himself?
And lastly, yet another question gets added to this list when it comes to hardware tech in particular.
What platform should an early-stage startup choose to find an investor? Now this is an interesting question that has not been given ample thought. The entrepreneur now has the option of approaching the usual suspects in the investing pool – VCs, angel investors and corporate investors, or they have the option at looking at the following alternatives.
What Does Crowdfunding Offer That Other Funders Don’t?
Although inherently limited to B2C business models, this platform has burst into the limelight with its multifold benefits. Apart from the ‘cool’ factor of letting enthusiastic consumers find you instead of chasing the consumer, it also generates the following advantages –
Funding without relinquishing stake: The concept allows consumers who believe in an idea to fund the project. Sometimes the money is treated as a donation and sometimes as a quid pro quo-based reward that they would receive if the product is successfully deployed (the reward usually is the product itself for a heavily subsidised cost, or oftentimes for free, as well).
It’s a win-win situation for the innovator, as he does not have to relinquish any equity in return for what usually is one of the most important funding stages.
Validation of the product: Once again, the concept of crowdfunding generates interest from only those donors who have been impressed by your product. This population is also usually the innovator’s first consumer market and can be their beta testers. Generating enough funds through crowdfunding is a confidence-boost with the implication that your product has got a reasonable amount of validation. A successful crowdfunding campaign also paves the path for easier fund generation in the future as later stage investors see the public demand for a product.
Marketing: Crowdfunding platforms benefit innovators with a built in audience who are encouraged to share their funding into a product on various social media as well. This helps cut down initial marketing costs quite drastically for a startup.
Dangers To Be Wary Of
Crowdfunding funds on Kickstarter and Indiegogo for a hardware product is effectively pre-sales funding. Meaning, a funder pays for the product in advance. This might seem like a great tool, but the entrepreneur must be wary of meeting deployment schedules or face public destruction of his reputation.
An entrepreneur must also weigh the benefits of raising money from traditional investors, like networking and business development expertise. Weighing the advantages and disadvantages and raising funding from the right platform can dictate a startup’s journey ahead.
Learn more about choosing the right funding resources for early stage hardware entrepreneurs at InnoFest 2016. The event will be held at The Lalit Ashok, Bengaluru, on December 8, 2016.
Interested innovators/entrepreneurs can buy tickets here.