Crowdfunding campaigns have made it much easier for small companies to corral a bunch of pre-orders from an online fanbase. But it’s not always smooth sailing once the money starts piling up—especially for companies that make electronic gadgets.
Startups like Pebble and Lockitron, each of which raised millions of dollars in early orders, have struggled to get their products delivered on time. Vegas Tech Fund-backed Romotive, which turns smartphones into miniature programmable robots, assembled its first 1,000 units by hand in a Las Vegas apartment before moving to the San Francisco region in search of a richer talent pool.
Scott Miller knows all about those kind of hiccups. His Boston-based company, Dragon Innovation, helps hardware entrepreneurs navigate the details of getting a product built in China, the go-to source for contract manufacturing when it’s time for a large-scale run of products. Pebble and Romotive are clients, as is notable 3D printing startup MakerBot.
Dragon recently added its own crowdfunding site to compete with the likes of Kickstarter and help get clients started on the road to making their projects a reality. And, starting today, the company is adding another enticement to its service: any startup that manages to raise $1 million in pre-orders through Dragon Innovation’s crowdfunding site will get a $100,000 convertible note from the company to help it tackle the challenge of building a ton of products.
Miller, who was among the earliest employees at iRobot, says the financing mechanism is modeled after the entrepreneur-friendly convertible notes popularized by accelerator program Y Combinator (the version introduced in early 2011, rather than the rejiggering recently unveiled as a “SAFE note”).
But if a company can raise $1 million or more in early consumer backing, why would it want to take another $100,000 that comes with strings from an investor? Miller says the two slugs of money can serve different purposes.
“Often for crowdfunding campaigns, the funds really go towards prototyping, inventory, buying tooling, supporting the manufacturing. But there’s not a lot left over at the end,” Miller says. “So, for example, if they wanted to go and hire another team member or get an office or go buy another piece of equipment … typically, that’s not factored into the cost of a crowdfunding campaign.”
Miller says Dragon believes the financial backing from his company, and its overall involvement, can signal other investors that the company will be able to handle the big task of successfully dealing with a big crowdfunding campaign.
It should be noted that no company has gotten close to raising $1 million on Dragon’s site just yet. The two biggest successes so were the Tessel, a JavaScript-programmable microcontroller, and the Hammerhead, a smartphone-connected bike navigating gadget, each of which raised just under $200,000. But the crowdfunding site only began operations last August, so it’s still quite new.
Unlike more general sites like Kickstarter or Indigogo, Dragon’s crowdfunding site requires a company to be one of its clients, paying for early stage design and planning work that costs a flat fee of $5,000. It also takes a 5 percent cut of the proceeds from successfully funded crowdfunding campaigns.
Besides working as a bit of marketing for the firm, Miller’s decision to ratchet up the perks associated with Dragon’s crowdfunding program also reflects the intensifying competition around hardware startups in general.
Although they’re still relatively difficult to build and scale—especially when compared to software—robotics, connected devices, and other electronics gadgets have become much cheaper and easier to make than in the past.
There are buyers out there for interesting technologies and teams, too. Google has been quite notable, snapping up both an advanced robotics company in Boston Dynamics and the home-automation startup Nest, which was packed with Apple veterans.
That combination of factors has led to fresh interest from investors, and a crop of hardware-startup incubator-type programs. Dragon’s Miller is the co-founder of one of them, Boston-based Bolt.
Hardware startups are definitely having a moment right now, and the Boston area is making a play for a prominent seat at the table. If this sector is going to really expand, the New England region—with its legacy of robotics, engineering, and materials expertise—has all the ingredients you’d want.
