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As I look at the total pledge amount climbing higher and higher, at $5.5m presently, I can't help but think that VCs and bankers got completely cut out of the "

• GolfyMcG 12y ago
  It depends on your perspective of a b2b product. If by b2b you mean business to fortune 500 business, then there is probably not a way around it. If you're talking about business to mom and pop shop, Kickstarter is perfectly suitable - look at the top tier prizes. They're usually geared towards buying them in bulk, probably with the intent of reselling them. The reason I would say that it is an impossibility to talk about selling business to fortune 500 type business is because invariably, they have venture arms which function like the finance industry and are usually staffed by former employees of Goldman, JP Morgan, etc. So, the insiders have found a way to do what they want - they're their own bank, unless we're talking about major mergers and acquisitions, which obviously require such fast sums of capital that it's unreasonable to expect such an accessible market.
• tomasien 12y ago
  I believe someone setting up a way to broker first customers to become stakeholders in new companies for pre-paying for services would be huge. I've been in a situation where that would have been totally warranted and valuable, but instead we had to spend months proving to that customer other ways that working with us was properly de-risked. They would have been happy to just take the risk if there was a plug and play model to reward them for it, and I think many other companies are in similar situations (depending on what part of their business you touch/would effect). Another model that I do not personally believe in but seems promising to others I respect is https://assembly.com https://assembly.com - they work to bring teams together to build things and have gamified equity comp. You can even go in there and squash an important bug on a project and get equity in the project forever (ostensibly) for doing it based on the "bounty" that is set.
• simonswords82 12y ago
  I totally agree, and here int he UK I've encountered crowd funding for businesses selling to businesses. I run a software company and one of my clients raised nearly £500k in 2 weeks by crowdfunding via an intermediary. There's also organisations such as https://www.fundingcircle.com/ https://www.fundingcircle.com/ that provide crowdfunding on a scale...
  • fragmede 12y ago
    There are many crowdfunding platforms but at least here in the US they all need to follow the same SEC regulations which require investors to be accredited which essentially means you have to be a millionaire to play.
    • kevinnk 12y ago
      Those regulations were essentially removed in a lot of cases by the JOBS act in 2012. The rules are still under review but crowdfunding of equity will be possible sometime in early 2016.
      • walterbell 12y ago
        JOBS act owes a lot to Naval Ravikant, http://pando.com/2012/11/15/how-naval-ravikant-went-to-washington-and-changed-the-law/ http://pando.com/2012/11/15/how-naval-ravikant-went-to-washi...
• dreen 12y ago
  Don't get me wrong, I want to believe that as well, but where does it say they weren't or will not be? Surely Kickstarter does not prohibit that?
• jusben1369 12y ago
  To play devil's advocate let's do this from the perspective of the VC/Banker guys: 1) "Can we have $10 million to build the next wave of our watch?" 2) "Woah. There's a good chance AppleWatch will crush you. It's all anyone talks about. We'll lose our money and you'll waste 2 - 3 years of your life. Not sure it's a good idea" In the old days 3) was i) nothing happened as the VC guys feared risk or ii) They did lend/invest but with a lot of risk built in to the terms to reflect the uncertainty. Now 3) = "Let's put it on Kickstarter. That way both of us don't need to guess - we'll just know. If you get $x million of pledges we're happy to give you $y cash at $z valuation" Seems like everyone can win?
  • sliverstorm 12y ago
    I wonder if it isn't more like, now 3) = "Let's put it on Kickstarter and let ordinary blokes who don't know any better fund us instead". It's just all-around suspicious when a product you'd expect to be able to get traditional funding, is listed on Kickstarter instead.
    • TeMPOraL 12y ago
      From seeing attitudes of friends doing hardware startups, no, the GP's 3) was accurate. Kickstarter is now a marketing and product/market fit evaluation tool. A friend of mine is halfway through his Kickstarter now and he directly told me that he doesn't expect much more than breaking even on it - the whole point is a) marketing and b) greater chance to get new investors on board, because that's where the real money is. And, while I'm not sure of that, I suspect it's their current investor who suggested that Kickstarter campaign.
  • DenisM 12y ago
    How exactly do VCs win when the company crowd-raises $6m? Seems to me they make exactly $0 and receive 0% of equity, because they are not involved at all.
    • themartorana 12y ago
      Except there are already VCs in the equation, so any profitability helps them. It also doesn't dilute their shares, and they don't have to decide if they should risk doubling down on the second round. If I were a VC, this would definitely help validate my investment while requiring a total input of about zero from me. What business gets all the cash up front!!?
• fragmede 12y ago
  That's a cute viewpoint, but the mere mortals get screwed, same as always. Let's say a VC invests $2.4 million dollars in a company. Let's assume the company does well and sells out to Facebook for $2.3 billion. The VC, being wise in the ways of finance, profits handsomely from that $2.3 billion. What if, instead of a VC investing $2.4 million dollars, it was a large collection of mortals each investing a small sum, say $300. The collection of mortals would simply give the company $2.4 million, and after selling out to Facebook, the company... screws over the puny mortals and simply pockets it all. Sure, the company gets to keep out the eeeeevil VC and bankers, but the little guy sees no return on their $300. Yay? Wait, no, we all got a shiny Oculus Rift out of the deal to play with.
  • dandelany 12y ago
    This is why I'm excited about the possibility of the crowdfunding provisions in the recently passed JOBS Act. In theory, this should allow companies to sell small pieces of equity (up to Math.max($2000, 5% of investor's yearly earnings) per investor and up to $1 million total) without having to go through the headache involved with an SEC Public Offering registration. While the potential for fraud needs to be dealt with, this opens the doors to something like "Kickstarter with Equity".
  • bigiain 12y ago
    I see that slightly differently. I, as a "mere mortal", have already _given_ $200 to Pebble, and $400 to ZPM Espresso. I got exactly the return I wanted and was entitled to from Pebble, I've had a smart watch on my wrist for ~2 years now and _their_ company has thrived (and they are not under any legal, moral, or even politeness related obligation to offer me anything more except perhaps an opportunity to participate in their next big idea. I certainly don't expect a cut of their eventual acquisition payday). I got an outcome that, while not my most desirable one, was certainly one of the outcomes I was prepared for from ZPM - a bunch of updates indicating they were working furiously trying ti achieve their dream - and finally a message says "sorry people, didn't work out". And I'm perfectly fine with that too. I know not everyone views Kickstarter that way (and the "blame" for that falls firmly on both project creators and Kickstarter themselves), but if you expect it to work like a shop - buy your stuff from a shop - they'll ship it with close to 100% certainty, you'll be covered by consumer protection laws and credit card fraud policies and other similar well know remedies. "Kickstarter" even implies in it's name they're not like that. You're often funding pre-manufacturing ideas - along with all the risk associated with the assumptions of getting things finalised and manufactured, and hopefully benefiting by getting your trinket well before the general public and probably at a discounted price for assuming some of that risk. I've _never_ been "screwed" by Kickstarter - even though I've funded several failed projects. That's part of the Kickstarter game. The same as all those non 1000x exits the VCs fund - they're not getting screwed there, they're playing the risk/reward number game. If they didn't want to get "screwed" by the 99.5% of the companies they invest in failing to return 1000x, they'd be investing in government bonds or blue chip stocks. You only "get screwed" by a successful (or failed) Kickstarter project/company if you choose to view yourself as a victim (or have a tremendously overactive sense of entitlement).
• bboreham 12y ago
  > bankers got completely cut out of the "deal" Seems to me that Kickstarter are the banker, taking 5% of the funds. And their payment processors are taking another 3%.
  • DenisM 12y ago
    There are two important differences: 1. There is no discretion involved. When you're trying to finance a new development you have to convince bankers/VCs to give you money. Payment processors don't exactly need to be convinced, and Kickstarter is open to anyone. 2. The size of the cut taken by the middlemen is in direct proportion to the sales volume. With a bank you would normally take out a fixed-sized loan, then spend all the money on manufacturing, then pray that you can sell enough of your gizmos and pay back the loan. With buyer-financed manufacturing there is no guesswork involved. Less discretion and less guesswork => less overhead.
    • bboreham 12y ago
      I think you mis-understand how banks work. There is no bank that will lend money speculatively to fund a new product. If you have collateral, they will lend against that, but that means they aren't taking a risk on the product. A bank is nothing like a VC.
• djloche 12y ago
  So far Pebble has raised $375k from angels, plus a $15M Series A (per Crunchbase). If they hadn't had any outside investors, I would definitely agree with you, but the VCs/Angels that invested in Pebble have to be loving the funding results of this Kickstarter. Tens of thousands of new and return customers pre-launch is always a good thing when launching a new product.
  • puranjay 12y ago
    But you'll have to agree that after Pebble's Kickstarter sucess + the cash they got from it, they were in a much better bargaining position than your typical startup out to raise its first round. It's not perfect, but at least Pebble didn't have to fork over 10% of the company for a few hundred grand in cash to investors who brought nothing to the table (besides money)
    • djloche 12y ago
      Having tremendous success with their first Kickstarter likely helped them get favorable terms when they raised their series A, but that applies to any company, not just Pebble. I don't know what the terms their Angel investors got before the Kickstarter, and I'm not familiar with what is 'normal' for SV angels to get. I do know that YC startups fork over ~10% of their company for a few hundred grand in cash, but YC brings a wide network of connections and social signaling for future capital raises to the table. Even it was just cash and no YC connections, if I were thinking about starting a young hardware startup, (if it were offered), I'd still probably trade whatever % of my early stage startup for the few hundred grand necessary to be able to hire the handful of right people and get to the point where I had a 'good enough' prototype + software to take to Kickstarter and (hopefully) get enough cash pledged to manufacture and ship a v1 product. Of course, you could work a day job and save back that necessary cash and then fund the startup yourself and keep 100% of the company. Or be already independently wealthy. Or be a savant and do all the work yourself. Or get a traditional bank loan. Or some combination of the above. But the SV way of trading a relatively small percentage of your company for an initial cash infusion of a few hundred thousand dollars is a valid option that many people would love to have.
• swalsh 12y ago
  VC's provide more then money too. They provide connections/strategy/experience just as much as they provide cash.
• karmacondon 12y ago
  Despite what the text on the page implies, these are essentially pre-orders for the Pebble and not "funding" in the VC sense. They didn't raise $5.5MM, they sold that roughly that many of their products. It's an impressive achievement, especially relative to most other Kickstarter campaigns. But if apple only sold $5.5MM in pre-orders for their new watch, they wouldn't be very happy and someone would probably get fired. As far as B2B bootstrapping goes, companies invest in other companies all the time. Mostly for the reasons that you've outlined, because they want to help potential partners to grow and often as a precursor to an acquisition. They generally don't do it at the very early seed stage because it's too speculative. That's what angel investors are for. Kickstarter has become a sales platform, whether that's what they wanted to be or not, and they should just embrace that. It started off as "fund great ideas and help them get off the ground" but as soon as they allowed products to be given away as rewards it became "buy stuff that doesn't exist yet, and you may or may not receive it". There's clearly a demand for it, and it doesn't seem like the failed products are enough to stop people with disposable income from parting with a few hundred dollars to be early adopters and feel like they're helping someone else. It's worth noting that under this system the amount raised almost always reflects revenue as opposed to funding/profit. A campaign that raises $100k on Kickstarter will usually only get to "keep" $40k-$60k of that as actual funding, because they have to pay for the cost of the products and swag that they give out as rewards. Sure beats starting from scratch though.
• andrewhillman 12y ago
  Are there ways to get the future beneficiaries of a new b2b product to fund its development, and that don't involve spending 6 month to raise funding? Sort of... I've been spending my free time learning the ins and outs of retail/distribution. It's not the most transparent industry but 'factoring' plays a pretty big role. If you are pitching/selling a physical product (iphone case) to category buyer from a Big Retail chain and they like your product, then send you a Purchase Order to buy your product, but you don't have the funds to manufacture/package/distribute the product you can find a Factoring Company who will fund the money in exchange for the Purchase Order from the Big Retailer. Some say the rates are too high and terms aren't great, but they can be a good source of backing. A lot of companies use Factoring. Perhaps maybe some Angels will start thinking about doing Factor deals in the near future.