Robert Mullins, CFB Sr. Staff Writer
In the wearable computer space, Google Glass has generated the buzz, but the Pebble watch has generated results.
Pebble Technology had raised $375,000 from a venture capitalist for a wristwatch computer that would share information with a user’s Apple or Android OS smartphone, but was unable to raise more. In April 2012, Pebble signed up with the crowdfunding company Kickstarter and took off. By May of that year, Pebble had raised a total of more than $10 million and by July 4 of this year, it had sold 85,000 units of the $150 watch.
Pebble Technology is seen as a success story not just for the wearable computer space but for the phenomenon of crowdfunding, in which investors chip in as little as a few hundred dollars to fund a startup and collectively raise funds sufficient to get a startup some serious market traction. But as with any hot trend in technology that everybody wants to get in on, some – but not all — are concerned that crowdfunding will create more wearable computer startups than the market can support and that there will be an inevitable consolidation of the space with some companies being Betamaxed out of existence. Nonetheless, Pebble’s success at crowdfunding has drawn a lot of other wearable computer entrepreneurs into the business.
“I think it’s becoming a phenomenon,” said Julien Blin, a onetime industry analyst who now blogs about the wearable computers space at Gizworld.com. “If you take the Pebble story … I think it’s inspiring a lot of entrepreneurs who have ideas but sometimes it’s difficult to raise money from a VC. So [crowdfunding] is kind of a disruptor in the market.”
To be sure, crowdfunding in and of itself is no guarantee of success, Blin added, and starting a successful wearable computer company requires mastery of engineering, supply chain management, production, distribution and all manner of other issues.
Such challenges create a high barrier to entry in the space, particularly because it’s a piece of hardware, not software, added Redg Snodgrass, founder and chief executive officer of Stained Glass, a company that is trying to raise $25 million to fund wearable computing startups.
Stained Glass itself doesn’t use crowdfunding, but some of the companies it is nurturing may combine funds from Stained Glass with crowdfunding efforts of their own.
But the prevalence of crowdfunding from companies like Kickstarter, Indiegogo and others is “absolutely not” creating a glut of wearable computing contenders, Snodgrass said.
“The big issue with wearable technology is that it’s so expensive to prototype something,” he said. “It’s very different than building software because you need components, and if a component doesn’t work, you’ve actually got to go and create another component.”
When a hardware startup is developing its product, it typically needs to do a production run to see how the product gets built and distributed in order to gauge demand, he said. But a production run could cost anywhere from $50,000 to $100,000. Even if a company’s been able to raise $150,000 or so from the crowd, there’s not much left over afterwards.
So while crowdfunding doesn’t overcome every challenge to a hardware startup, it’s an important first step that hadn’t been available previously, Snodgrass said.
“What the crowdfunding evolution has really allowed to happen is that it has allowed for all these startups to get that initial seed funding,” he said.
Crowdfunding helps entrepreneurs chase after what’s forecast to become a nearly $6 billion market for wearable computers.
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