How Crowdfunding Has Changed the Startup Game

The development of innovative technology — from virtual reality headsets to space exploration to solar-powered roadways — is no longer the province of companies with big R&D budgets or venture capitalists with deep pockets. Many of today’s tech entrepreneurs don’t stand on the shoulders of giants — they surf a crowd of people to find success.

Crowdfunding has become a multi-billion-dollar industry, funneling millions of dollars into thousands of projects. Technology in particular is one of the leading categories on popular fundraising platforms like Kickstarter and Indiegogo. On the former, it’s the third-ranked most-funded category, behind games and design, with more than $500 million pledged since Kickstarter began in 2009. On Indiegogo a third of funds raised come from technology and design campaigns.

“Many of the tech breakthroughs on Kickstarter have to do with making tech more accessible. Tools that were once only available in factories are now available to regular people in their own homes or nearby marketplace,” says David Gallagher, a spokesperson for the Brooklyn-based company.

For example, one active campaign is for a desktop waterjet cutter that can cut virtually any material on something the size of an office printer. The manufacturer, a company called WAZER, launched the campaign on September 12 and has raised nearly $1.4 million and counting. Its original goal was $100,000.

“Kickstarter is a great place to see if anyone is excited about your idea,” notes Gallagher. “It’s a marketplace of ideas in some sense.”

One of the biggest rags-to-riches stories revolves around the virtual reality headset Oculus Rift, developed by a keen gamer named Palmer Luckey, who certainly lives up to his surname. The 2012 Kickstarter campaign raised about $2.4 million, nearly 1,000 percent of its original target. Facebook bought Luckey’s company, Oculus VR, in 2014 for $2 billion. The device finally fulfilled the promise of in-your-face virtual reality when the headsets hit the market earlier this year.

Wearables is one of the biggest categories within tech, according to Gallagher, and one of the most innovative and successful has been the Pebble Smartwatch, which began selling nearly two years before the much-heralded Apple Watch. The first-generation Pebble Smartwatch, which raised a then-record $10.3 million in 2012, boasted hundreds of apps and was compatible with most smartphones.

Three years later, the company doubled its fundraising efforts by getting more than $20 million in pledges for its second-generation watch Pebble Time. Improvements included a 64-color e-paper display, along with an open hardware platform that allows third-party straps to connect to a port for added features like a heartrate monitor. A third campaign raised nearly $13 million for a smartwatch focused on fitness.

“More and more companies are also using serial crowdfunding,” notes Ronald Kleverlaan, a crowdfunding strategist and co-founder of the European Crowdfunding Network.

Going to market

Kickstarter, Indiegogo and the rest have made crowdfunding ubiquitous, but they didn’t start it by a long shot. According to Rodrigo Davies, a researcher at the Center for Civic Media at the Massachusetts Institute of Technology, the first major crowdfunding project can be traced back to the 19th century and the Statue of Liberty.

In a piece published several years ago on BBC news, Davies recounts how the United States couldn’t scrape together all of the $250,000 for a granite plinth on which to place France’s gift to the nation. Publisher Joseph Pulitzer came to the rescue when he launched a fundraising campaign in his newspaper The New York World, according to Davies, which eventually collected $101,091 from more than 160,000 donors, with more than three-quarters of the donations amounting to less than a dollar.

About 130 years later, it looks like crowdfunding may one day become business as usual.

“Access barriers to technology and funding are crumbling. Crowdfunding puts the team skills and mission at the center of successful startup endeavors,” says Anthony Weil, CEO of One X, which is in the midst of an Indiegogo campaign to raise $50,000 for its real-time health sensor that measures skin antioxidant levels from the palm of a person’s hand. Instant analysis and feedback via a sophisticated app then help direct people to make healthier lifestyle choices.

With about a week to go in the campaign, One X has already reached its financial goal.

“I think crowdfunding is allowing a shift in the funding scarcity paradigm where [venture capitalists] play the ‘gate-keepers’ role,’” says Weil, a 2014 Singularity University Global Solutions Program alumni.

For One X, the campaign was less about raising manufacturing capital than testing the concept in Gallagher’s marketplace of ideas.

“I think that even the best venture capitalists can’t compete with the direct market feedback granted by crowdfunding platforms,” Weil says. “A successful crowdfunding campaign has been set as an important milestone to prove market approval and recognition. Crowdfunding also allows [us] to hack the normal selling process through the generation of an impressive initial monthly revenue and build the momentum for subsequent months of sales.”

Kleverlaan says successful crowdfunding tech projects need more than just good engineers. A strong team should employ people with marketing and sales know-how.

“That is important, because people are not just interested in the technology, but want to know what they can do with it,” he says. “A good tech team can normally raise up to $100,000 with a good idea. Combined with a good marketing approach, this can grow beyond $1 million.” Pebble watch, anyone?

Exploring a new frontier

Some tech and science fundraising campaigns are less about making profit and more about participating in a grand adventure. For example, space may be the final frontier, but it is no longer cost prohibitive for the armchair Captain Kirk.

LightSail, a citizen-funded project by The Planetary Society (fronted by Bill Nye the Science Guy), raised $1.24 million last year. Its mission: to send a CubeSat the size of a breadbox into Earth orbit, propelled by large reflective sails that use the sun’s energy for momentum. No need for interstellar gas stations.

Another sort of DIY science project raised more than $100,000 on Kickstarter to buy telescope time to investigate a star known as KIC 8462852. More colorfully called the WTF star for Where’s the Flux, KIC 8462852 has shown peculiar dips in its flux, or brightness, over time that defy explanation. Speculation by some that the transient fluxes were being caused by alien megastructures helped fuel interest in what would likely have remained an obscure problem of astrophysics.

“It’s getting to the stage where normal people can get involved in space [exploration],” Gallagher says. “It’s an area where we think there is a lot of promise.”

Closer to home, a company called OpenROV has successfully conducted two Kickstarter campaigns to fund underwater robots that anybody can use. The project started in co-founder Eric Stackpole’s Cupertino garage with David Lang. The duo wanted a low-cost drone to explore a submerged cave in northern California. The off-the-shelf drones were too pricey, so the men got to work building their own remotely-operated vehicle, growing a community of professional and amateur oceanographers along the way.

Their most recent project, OpenROV Trident, raised more than $800,000. The sleek robot, looking like a rectangular version of the Roomba vacuum, is capable of “flying” in straight survey lines, as well as performing maneuvers in tight spaces.

“The community of users have used the devices for everything from finding shipwrecks in Southern California to discovering a previously unknown fluorescent quality of a clam in the Cook Islands,” Lang wrote in a piece for the website Backchannel.

Notes Gallagher, “For some people involved in science, [crowdfunding is] an alternative channel in a world where traditional sources of funding aren’t what they used to be.”

Funding a healthier planet

Energy and environmental projects are also riding the crowdfunding wave.

One of the more successful projects on Indiegogo was Solar Roadways, developed by the husband-and-wife team Scott and Julie Brusaw and raising more than $2 million.

The modular paving system of solar panels, which can withstand 250,000 pounds of weight, can be installed on roads, parking lots, driveways, sidewalks, etc. They generate electricity that can power homes and businesses connected to the network by driveways or parking lots, according to the Brusaws. Other features include heating elements to keep them clear of snow and ice, LEDs for road lines and signage, and a cable corridor to treat stormwater and carry utilities.

The first public installation of the solar road was being done this summer in the couple’s hometown of Sandpoint, Idaho.

A nonprofit that formed following the 2010 BP oil disaster, Public Lab has funded several citizen-science projects through Kickstarter. In 2010, it raised more than $8,000 to pay for efforts associated with sending inexpensive cameras up on helium balloons and kites to take aerial photos of the oil spill in order to map the extent of the disaster.

Since then, one project offered a DIY spectrometry kit for citizen-scientists to collect spectral data on different materials. That information would feed into a Wikipedia-style library to help investigate chemical spills, identify contaminants, and even observe disease in plants. Yet another Kickstarter project raised more than $70,000 for an infrared camera that can map ecosystem health by identifying photosynthesis.

“Backers generally get something fun to play with that they can also use to submit data for broader research projects,” Gallagher says.

That sounds priceless to us.


Image credit:

Peter Rejcek
Peter Rejcekhttps://www.peterrejcek.com/
Formerly the world’s only full-time journalist covering research in Antarctica, Peter became a freelance writer and digital nomad in 2015. Peter’s focus for the last decade has been on science journalism, but his interests and expertise include travel, outdoors, cycling, and Epicureanism (food and beer). Follow him at @poliepete.
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