Rejected By VCs, Pebble Watch Raises $3.8M on Kickstarter

http://go.bloomberg.com/tech-deals/2012-04-17-rejected-by-vcs-pebble-watch-raises-3-8m-on-kickstarter/

by dwynings • 14 years ago

216 82 14 years ago

go.bloomberg.com

smoody• 14 years ago

already outdated... they are already north of $4M. :-)

matdwyer• 14 years ago

Good, I'm glad they were rejected - If they weren't, I wouldn't have known about them, nor would I have purchased one.

This way they get their money in the form of guaranteed, up-front orders, and I get a cool new product "before" anyone else. I feel exclusive and I'll have the hot new gadget to show off.

It's a win-win, and I hope more companies opt for this route - it is true market validation.

(On a related topic, September can't come soon enough. I want mine now)

furyofantares2• 14 years ago

Is Kickstarter a platform for funding cool projects or a store?

unavoidable2• 14 years ago

Why can't it be both? It acts a bridge between an unmet demand and an unmet supply: there are consumers thinking, "I wonder if X has been invented? I would pay money for that." And there are designers thinking, "I wonder if anyone would buy X if I made it?"

It's conceptually a great match. The hard part was making it credible enough to gain trust. That's Kickstarter's biggest strength.

baddox• 14 years ago

Is there a difference in this case? I doubt they could have afforded to produce 4 million dollars worth of the watches without a good, semi-guaranteed estimation of consumer interest.

bambax• 14 years ago

It should develop the "store" part. It's very frustrating to stumble upon a project that's already funded and for which you don't know where to get the product anymore. It would be a natural extension to let late comers buy products after they were launched.

chmike• 14 years ago

The problem wih upfront selling is the risk to not be delivered. Some buyers are not really aware of the risk. The amount of money in play is quite low but the disapointment will be as big as the initial expectation.

If everything goes well then it's a win win, but amounts in play will start to attract crooks. It looks like too easy money. As long as kickstarter was under the radar, only well intended people where using it.

When the offered rewards are goods or services, then kickstarter is an upfront selling shop and these are high risk deals. The risk could be evaluted, but buyers have only videos and some text to evaluate it by themselves for now.

ericd• 14 years ago

That's a good point. From my experience in dealing with marketplaces where scammers can earn 10k/scam, they're quite hard to effectively suss out beforehand and block, and they adapt. I can only imagine what the lure of a 100k or or more will draw in terms of creativity. I really hope there's some effective structural or procedural safeguards that we're not aware of, because the obscurity is gone. If they can get past that, I think Kickstarter has a very bright future.

cpeterso2• 14 years ago

All of these multimillion dollar deals were raised by people or companies with proven track records. But with so much money in play, Kickstarter has little incentive to restrict funding limits. If Kickstarter only got paid after the funded project delivers, then Kickstarter and funders would have the same interests.

backspace3• 14 years ago

I humbly offer a contrary view.

It's the fashionable thing to joke about VC's making wrong investments, investments at bubble prices, not knowing what they are doing, etc. But let's face it, it's their job to make sound investments. Sure, they may not get it 100% right, or even 50% but their job is to continually improve this success metric.

It's great that companies like Kickstarter are giving average consumers the capability to fund these sorts of companies but let's not equate the consumers' endorsement of the startup as the potential for value or ability to succeed. VC's do their due diligence for a reason, they want to back successful companies. Average consumers funding on Kickstarter are not doing their due diligence, they're looking at the marketing pitch and handing over their hard earned dollars. I fear this is bad for both the startup ecosystem as well as for consumers.

There will be companies on Kickstarter that take money and fail. My prediction is that it will be higher than the startup space. So before we get caught up on buying exclusivity with this fundraising, let's do our due diligence.

snowwrestler• 14 years ago

It's not just "make sound investments," VC's need to make investments that will pay off big enough to meet their promised rate of return over the promised time horizon. (They are investing other people's money.) It's certainly possible for VC's to think that an idea has merit, but is not right for VC-type investment.

Kickstarter allows time horizons and rates of return of arbitrary size. These guys now already have everything a business needs: capital and customers. Unless they commit outright theft there is no reason they can't succeed with this project. But there is also no requirement that they keep it going after their last investor gets his or her watch. They can just do it to the size needed to hit the natural demand, and then call it quits. You can't do that with VC money.

wpietri2• 14 years ago

I disagree.

An important part of investor due diligence is to try to figure out if there's a market for a product. A sizable Kickstarter campaign proves that in a way no due diligence ever could. Kickstarter campaigns also have an "with enough eyeballs all bugs are shallow" property. So failure rates could be lower.

Even if Kickstarter failure rates are higher than VC failure rates, Kickstarter still may be a good thing. First, Kickstarter can fund projects that are too small for VCs to bother with; there's a lot of value in the long tail. Second, they can fund projects that will be "merely" a 2-3x return. Third, this is making more capital available; if Kickstarter didn't exist it's not like the money would end up at Sequoia. Fourth and most important, Kickstarter campaigns will put less capital at risk. Most VCs can't afford to invest in less than $1m lumps, but Kickstarter campaigns can be 100x smaller.

ph0rque2• 14 years ago

So, their pre-orders are the size of a modest A-round, and they have 30 days to go... impressive!

heelhook• 14 years ago

And they didn't give up any equity in the process. Oh, and they validated their idea and their product. With this they can now raise an A-round at a very healthy valuation, but, why would they?

kondro• 14 years ago

Well, to be honest, they already had a product ready to send into production. This is probably why the product has been so successful.

reneherse2• 14 years ago

Down the road, I wonder what is the upper boundary of hardware complexity and scale that we'll see on Kickstarter. Exciting times ahead indeed.

helen8420002• 14 years ago

I'm really interested in how they find the manufacturers to make such aesthetically pleasing products.

I've got a product I'd love to kickstart but finding companies capable is tough!

reneherse2• 14 years ago

Maybe what this emerging ecosystem needs is a means by which design-prototype-manufacture-marketing teams can coalesce?

I've been dreaming about such a system for a few years now, perhaps the iron is finally reaching striking temperature...

hammock• 14 years ago

Kickstarter strikes me as Etsy (for unbuilt products) crossed with all those "5K Run/Walk For XYZ" fundraising sites.

I'm skeptical it in a way that I can't put my finger on, still Kickstarter has a secret sauce that makes the people they need to host deals on it actually want to host deals on it (was eBay the same way, I can't remember). Did they ever think four years ago that they'd be running deals of this size?

edit: apparently amazon doesn't hold any of the cash, i stand corrected. and yes of course 100MM is not much compared to the probably 10B in cash equivalents AMZN has ..

Cushman• 14 years ago

> It's awful nice of Amazon Payments to hold onto all that cash as well...$100MM collected in 2011.

Not sure if this is what you're saying, but Az doesn't actually hold any money for Kickstarter-- they hold credit card pre-approvals, which probably costs them some nominal amount.

pbreit• 14 years ago

People need to stop thinking that (m)any companies do anything for float reasons.

First, as the other replier states, in the Kickstarter case, Amazon is not holding the funds so there is no float.

But let's pretend they do charge your card. And let's further pretend that they hold your funds for 365 days (in actuality they hold it for a few weeks or months). And let's further pretend that they get 1% on that money (money market rates are closer to 0.5%). That would be a rounding error of $1 million.

alanfalcon• 14 years ago

Etsy specifically prohibits mass production. They make it next to impossible to ever make Kickstarter type money on their website. I suppose that it helps maintain a certain culture overall, but it really sours me on the site as a whole that it pushes away anyone who has any dream of finding real financial success in that world.

ktizo2• 14 years ago

I don't think etsy is there for that, there are lots of people making random tatt by hand and trying to sell it, not because they can't mass manufacture, but because they like making stuff by hand. Is essentially 21st century folk art and craft, much of it is rubbish, but never mind, 90% of everything is rubbish ;)

sparknlaunch122• 14 years ago

I don't really get Kickstarter. Backers essentially are paying the startup company for a product (or early prototype). Sure the company gets some money upfront, but they eventually have to deliver on the product? And what else does the backer get, apart from the product? Equity? No. How much money will Pebble be left with after this process?

unimpressive2• 14 years ago

>And what else does the backer get, apart from the product?

The whole point is to see the product come to market. A good project is expected to try and sweeten the deal somehow for backers who pledge more money. (Signed pieces, interviews with founder, etc etc.)

jseliger• 14 years ago

You get the thing you want, which you wouldn't get otherwise. It's also a way for people to put their money where their mouths are: instead of bullshitting and saying, "Yeah, I'd love X, I'd pay for X" on some forum, if you want X and someone has it on kickstarter, you can prove that you want it.

Plus, sometimes Kickstarted projects end up in all kinds of places; for example, I got a CustomSLR strap: http://www.customslr.com , which is exactly as good as I'd hoped, and the product / company was originally funded through Kickstarter.

unavoidable2• 14 years ago

Cash-wise, they get the profit margin off each sale (of course we don't know what that number is, but on pure volume alone based on this launch, it might be fairly substantial). But they also gain reputation, brand recognition, and may attract other VCs now that they are famous, and they also have the upper hand because they have a better bargaining position.

grey-area• 14 years ago

For a hardware product like this, They also get a tested production system which has gone through all the initial snagging and is capable of churning out 100k products in x days, which is invaluable for a hardware startup and very hard to get in place without serious funding. Best of all, they didn't have to give away part of their company to do it by going straight to the customer.

It would be fascinating to see a breakdown from pebble afterwards though to see what they felt the advantages and disadvantages are, and what they would have done differently.

goodcanadian• 14 years ago

It is important to remember that Kickstarter primarily for creative (read artistic) projects. Think of it as a modern and distributed system of art patronage (http://en.wikipedia.org/wiki/Patronage). In return for your patronage, the artists promise something (like a copy of the finished project). It is not unreasonable to liken it to a pre-order, but I would maintain that there is a subtle difference.

Edit: The point is that you are funding a project for its own sake, because you want to see it brought to fruition, not necessarily because you stand to gain anything by it.

GFischer4• 14 years ago

That's what they want it to be.

The market seems to think otherwise :) and there's clearly a place for a market for up-front selling of (perceived) cool new products :) . I hope it's them.

I love the Kickstarter idea. It's the ultimate customer validation, too :) . I only hope they take extra care not to get burned by the inevitable first high-profile failure.

InclinedPlane2• 14 years ago

What's not to get? There doesn't have to be anything more complex at play beyond a simple profit margin.

Backers trade money for something they want that they can't create themselves or get anywhere else, which means they are justified in paying a premium. Project owners get to realize their vision, bootstrap a production process, and potentially hold onto profit if they so desire.

There's a reason that this: http://26.media.tumblr.com/tumblr_m1wvyad1np1rrallbo2_500.jp... is a meme, and kickstarter is precisely the sort of platform designed to translate those "shut up and take my money" dollars into profit on the one hand and realized products on the other.

sparknlaunch122• 14 years ago

? The backers get the product or prototype. The company gets some money. KickStarter gets paid a commission.

So this its not an equity swap, it is a shop front. The benefit for startups is up front cash and a pool of early adopters?

What alternatives are available?

masklinn• 14 years ago

You're really over-complicating and over-thinking this.

Somebody has a cool idea, others are interested, others pitch in to help get the product made.

And no, the backer doesn't necessarily get the product, that depends on the "backing level" rewards. Generally, yes the backer gets the product at a reduced price (compared to retail estimations) and a bit more chance that the product will actually see the light of day. For "non-physical" stuff (e.g. video games), there also tends to be swag or other artifacts at higher backing levels, for physicals there can be exclusive series or customizations.

> How much money will Pebble be left with after this process?

Who cares? They can be left with essentially 0, they'll have a product ready to sell and a fab chain, they can go to more traditional retail.

jordanb• 14 years ago

Typically more traditional, capital intensive companies use customer financing for a portion of their startup capital.

For instance, suppose I invent a new type of transformer with some benefit or the other. I approach the power companies with my prototype and explain that I need capital to produce it, so if they pre-order, I'll offer them discounts and other benefits.

This helps me approaching the banks and investors too, if I can get firm orders out of the power companies, because it demonstrates a market interest in my product.

What kickstarter has done is made it possible for this sort of arrangement to work with the public, pre-buying new consumer goods.

But to answer your question, what the customer gets is 1) a product that they want, which otherwise wouldn't be available, 2) in exchange for their risk that the product won't be delivered, they get various incentives, typically discounts.

jyothi• 14 years ago

The last line in that article is a killer

In his pitch to potential new hires, he tells them to check Pebble’s Kickstarter page at the beginning of the phone interview to see a live tally of investments.

“After we stopped talking,” he said, “I told them to refresh.”

When I viewed kickstarter page it went from 28,369 to 28,493 backers in less than 30 minutes with atleast $20K added in those 30 minutes. This is incredible.

edit: I think it was probably more money - $50K in 30 min. Did not note the old $ number - just an estimate

ww520• 14 years ago

Does software project got funded by Kickstarter? It seems most projects are hardware related (physical).

hboon• 14 years ago

Yes, eg. games. But Kickstarter isn't doing the funding, in case that wasn't clear.

minalecs• 14 years ago

yes. I think the fastest to a million was this video game

http://www.kickstarter.com/projects/66710809/double-fine-adv...

randomdata4• 14 years ago

Definitely. Rails.app (http://www.kickstarter.com/projects/1397300529/railsapp) was a hot topic here in the past weeks.

harscoat• 14 years ago

This wasn’t just a one-day, one-hit thing; we’ve been working on it for about four years now. Sam Altman, who is one of the partners at Y Combinator, has a great bit of advice: Don’t die; don’t let your company die. That’s the key. http://www.communitech.ca/vcs-took-a-pass-on-crowdfunded-peb...

mayneack• 14 years ago

Potential strategy:

1. Acquire VC/other funds

2. Put product on kickstarter

3. Use initial funds to hype up and create explosive kickstarter trends

4. Let the hype do the rest.

It's like the Palin PAC strategy.

shadowmint• 14 years ago

You know when you see something, and everyone who touches it makes a mountain of money, and everytime it happens, the $ values just go upwards, and it seems too good to be true?

It is.

That's called a bubble.

...and it'll burst as soon as there's a high profile kick starter ($million+) that fails and delivers nothing to the people who think they've pre-ordered something.

I like kick starter, and I appreciate what they're doing, but this isn't going to end well.

It's all very well to let people to setup their funding projects go, yeah, I can ship as many t-shirts as people signup for $20! Easy! ...but the reality is, shipping 50k t-shirts for $20 each isn't as easy as people expect.

This is really the problem: People are notoriously bad at making estimates for cost, time, size of projects.

Good luck to Pebble I say, I hope this works out for them. I hope we see this stuff all settle down and turn into a new awesome funding model and not into scammer hell~

unimpressive2• 14 years ago

>This is really the problem: People are notoriously bad at making estimates for cost, time, size of projects.

Relevant:

http://www.kickstarter.com/projects/starcommand/star-command...

(Also, I like your example of the 50K 20$ T-shirts. Demonstrates the problem perfectly if you just think about it for a second.)

GFischer4• 14 years ago

4000 dollars in attorneys and CPAs? Ouch. The U.S. sure is expensive that way. It's nice of them to breakdown the costs.

The poster also looks really nice, but I didn't know such art would cost U$ 2.000 (I know some talented guys here in Uruguay that don't make as much in a month. They should try competing for those commisions).

PD: the game looks really awesome :) I didn't know about it, but now I'm looking forward to it.

PD2: That much money would hire me for a year, but I wouldn't be able to make Star Command on my own in a year obviously.

PD3: I'm looking forward to an X-Com remake someday...

bradleyland2• 14 years ago

I wouldn't call this a bubble. Rather, Kickstarter is exploiting the law of averages. Take a couple of passages from the story as evidence:

> Few investors were interested in betting on a hardware startup, or dealing with the headaches that often come with manufacturing goods.

Let's assume "investors" are people with some knowledge of funding hardware based products. This group of individuals is going to look at the product (the upsides) as well as the challenges (the risks). A project might have tremendous upside on the product side, but an experienced hardware investor is able to identify the risks. I'm not a hardware investor, but anything involving wireless (even Bluetooth) automatically sets off warning buzzers in my head. I'm sure hardware-oriented VCs looked at this product and saw their own set of "uh oh" problems, thus they decided not to fund it.

> Migicovsky said he’s more adept at pitching to consumers than to venture capitalists.

I'm not sure Migicovsky is entirely aware of what he's saying here. This could be restated as "I'm more adept at pitching to laymen than people who are familiar with the challenges." That's scary.

At first glance, this appears to support your hypothesis: that one day, this whole thing is going to come crashing down. However, I believe you underestimate the pool of fools ready to part with their money. I don't really mean that funders of this project are fools, just that by some people's perception, they're fools for taking the risk.

Stated more succinctly, I believe that on the broad scale, there are a sufficient number of non-risk-averse individuals to sustain Kickstarter for quite some time. I believe this will remain true, even after some catastrophic funding failure.

v21• 14 years ago

I agree with all of this, but also want to note that as a backer, your risk is significantly smaller than that of a VC.

JoeAltmaier• 14 years ago

But each person loses maybe $20 (a few other donate more, but the average I see on Kickstarter is $25). If a scammer takes off with your $25, you are sad but not burned badly.

You probably will review the next 'investment' better, make sure they have a track record. The result is, only folks with some kind of reputation will find support at Kickstarter.

That's not exactly a bubble bursting. More like a market narrowing?

chris123• 14 years ago

Question regarding Kickstarter: Can it really be used for commercial projects (or is Pebble not a commercial project?)? Because here http://www.kickstarter.com/help/guidelines it says it is only for "creative projects". I guess it is ok since the term "creative project" is not defined other than that page saying "like making an album, a book, or a work of art." Although later it says "Starting a business, for example, does not qualify as a project." Just trying to understand what can be used on the platform and what can't. Can anyone clarify?

rmc• 14 years ago

AFAIK you can't sell stocks or shares. So you can't use Kickstarter to raise investment money (in the traditional sense)

psycho• 14 years ago

Well, hardware is really headache for VCs, so Kickstarter now seems the best way to raise money AND promote your idea.

jpdoctor• 14 years ago

> Few investors were interested in betting on a hardware startup, or dealing with the headaches that often come with manufacturing goods.

The statement above doesn't capture how much of a (relatively) recent development it is that hardware is not considered worthy of funding.

For perspective: 12 years ago A rounds were running $15-20M for hardware startups. B's were $30-40M.

runako• 14 years ago

> Few investors were interested in betting on a hardware startup, or dealing with the headaches that often come with manufacturing goods.

I wonder how many potential smartphone/tablet companies are not being launched due to the timidity of the VC community.

web_chops• 14 years ago

The more I think of pebble and all the interest, the more feel that one of the bigger companies making smartphones might acquire them :)

ImprovedSilence• 14 years ago

I really really really hope this means they're are going to be hiring and need another RF/wireless comms guy that can do software on the side. I so want to build those!

spahl• 14 years ago

Does Kickstarter get a cut?

mhartl• 14 years ago

Thanks for posting this. I wondered why a YC company would go the Kickstarter route instead of raising money. Now I know.

If VCs aren't worried, they aren't paying attention.

vinayan3• 14 years ago

I really want to pre-order one. Reading the comments it seems like a gamble. It is possible, I really hope not, they won't end up making the watch. Any guesses how much it will cost 'retail'? In essence, I want the discount rate I'm getting for taking a gamble on them.

Rejected By VCs, Pebble Watch Raises $3.8M on Kickstarter

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