Editor’s Note:
Matt Witheiler is a General Partner at Flybridge Capital Partners. You can follow him on his blog.
The Magic Number: $211,290
That was the magic number that the data suggested was the ‘success’ threshold in hardware crowdfunding. The analysis also showed that people love 3D printers and that almost half the crowdfunded dollars went to 37 companies. That deep dive into 443 projects provided some insight into where consumers are spending their money (and time) in the hardware ecosystem but it felt like something was missing.
The Limitations of Crowdfunding Data
Crowdfunding dollars are only one source of capital for hardware startups. The other source, the one that gets even more attention, is venture capital. In the years since Kickstarter launched, venture investing in hardware has gone from non-existent to mainstream.
CrunchBase data shows 115 companies tagged as Hardware + Software got funding in 2007 compared to 383 in 2013 – an increase of 233 percent. While there has been some recent writing on how many crowdfunded hardware startups go on to raise venture money, the analysis of what categories of hardware companies raise money has yet to be done.
In other words, it was impossible to answer the question ‘What parts of the hardware ecosystem do investors think are hot?’ Using the same data set as before (hardware projects raising $100,000 or more on crowdfunding sites as of late June 2014) and combining it with data from CrunchBase and Mattermark, I’m here with that answer.
Making It Rain
Of the 443 hardware projects analyzed, 94 have gone on to raise a total of $503.8 million from investors. This is a significant number, considering that each of these projects raised at least $100,000 on crowdfunding platforms.
Investor Interest in Crowdfunding Success
While investors are absolutely using crowdfunding success to vet hardware startups (the rate of investment across these $100k+ campaigns is orders of magnitude higher than the general startup investment rate) not all project categories are created equal. Your camera campaign is unlikely to be a home run with investors even if you hit it out of the park with the crowd.
Conversely, even a mediocre outcome in an automation campaign may earn the attention of investors’ wallets. It just goes to show, investors want to back companies that not only deliver what people want today, but also represent a compelling vision for the future.
Investor Leverage: How Much Venture Money is Being Invested
At a macro level, each crowdfunded dollar resulted in $2.71 of venture dollars invested. This is a significant return on investment, considering the relatively small amount of money being raised through crowdfunding platforms.
The Medical category faired best with $7.11 of venture dollars per crowd dollar – although across a very small sample set of three companies. Next best is the wearable category mentioned above, where the sector had 4.76x leverage and 18 venture-funded projects.
What It Means
While investors are using crowdfunding success to vet hardware startups, not all project categories are created equal. Your camera campaign is unlikely to be a home run with investors even if you hit it out of the park with the crowd.
Conversely, even a mediocre outcome in an automation campaign may earn the attention of investors’ wallets. It just goes to show, investors want to back companies that not only deliver what people want today, but also represent a compelling vision for the future.
Source Data
I’ve shared the source data in Google Docs. Feel free to dig in with your own analysis.
Topics:
- Column
- hardware
- indiegogo
- Kickstarter
- Venture
Matt Witheiler
Matt Witheiler is a General Partner at Flybridge Capital Partners.
