The New Way to Fund Consumer Product Start-ups?

One of the biggest challenges to developing, sourcing, and launching new consumer products for start-ups has been raising the funds to do it.  There’s no question that raising money to produce a product design, create CAD files, source a manufacturer, build tooling, and place early orders with manufacturers–all before your product has really hit the market and been tested, has been a very tough challenge for consumer product entrepreneurs.  Tech investors flocked to software based start-ups, and most in Silicon Valley shy away from anything that involves a physical product.  The options?  Self-funding.  Family and friends.  And…that’s about it.  Until recently.

Many have heard of Kickstarter by now.  For those that haven’t, it will defy what you think is possible in the way of trust and money on the internet.  Kickstarter allows you to post a description of your project or product, your fundraising goal, what you plan to do with the money, and what different levels of investment receive in return.  It’s crowdsourced funding that started with a desire to allow people to raise funding for their art projects, and quickly broadened with projects related to products and businesses.  Most people, when they hear of the site for the first time, run through a litany of doubts, such as “what if someone steals your idea?”, “how do you know the fundraisers won’t just steal your money?”, etc.  But upon seeing the success of a few notable projects, their doubts immediately become amazement.

Some of the most notable investments and products so far?

  • TikTok and Luna Tik Watch Kits.  They transform your Ipod Nano into a wristwatch.  Fundraising goal: $15,000.  Amount raised: $941, 718 from 13,512 people.  Fundraising goal: $9,500.  Amount raised: $306,944 from 4,818 people.
  • Coffee Joulies.  I mentioned these guys in a previous post.
  • Lockpicks.  Think its limited to mass market products?  This guy raised money to create a better lockpicking set.  Fundraising goal: $6,000.  Amount raised: $87,407 from 1,159 people.

And if you don’t score seed funding on Kickstarter, perhaps you’ll get in front of the right people who can supply this.  Kickstarter project Grafighters, an online video game development group, failed to raise their funding goal on Kickstarter.  However, being on Kickstarter got them in front of angel investors who were apparently hanging out on Kickstarter.  The result?  They raised $200k from this private investment group.

Profounder, started by the former founder of Kiva.org, Jessica Jackley, takes the Kickstarter concept and targets business rather than art.  And AngelList, founded by Naval Ravikant, is working to change the way entrepreneurs meet investors and find funding.  I know start-ups that have successfully used this to fund their consumer product launch.

Thankfully, the investment landscape is changing.  Thanks to web entrepreneurs, it’s becoming democratized and more efficient.  We’re seeing levels of trust and investment on the web that I would have certainly scoffed at before I saw Kickstarter in action.  It’s a major barrier removed in getting started.  Now, a capable person with an idea can go out and, at the least, find a small amount of seed funding to accomplish the first key stages in developing and sourcing their product.  Of course, the process of marketing it is also becoming easier and cheaper due to social networks.

How long until the new way to fund and launch consumer product start-ups becomes THE way to fund new product start-ups?

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