Dragon Innovation Adds Crowdfunding for Hardware, Raises $2.3M

dragonDragon Innovation has helped some of the most notable names in the early stage hardware world get their products made. Now, the Boston-based manufacturing consultancy wants to help promising entrepreneurs get funded.

Dragon Innovation is testing its own crowdfunding website dedicated to hardware startups, giving its clients a more customized tool for lining up pre-orders of the robots, consumer electronics, and other gadgets they hope to build.

But the crowdfunding site—which Dragon Innovation plans to make more widely available in a month or so—won’t be open to just anyone. It’ll be reserved for Dragon Innovation clients who pay for early stage services like design help and cost estimates.

That’s a big difference from most of the popular crowdfunding sites, which let a wide array of projects use their tools for generating pre-orders and financial pledges from just about anyone.

Kickstarter in particular has been the place where several hardware startups found high-profile success in generating a lot of consumer interest. Perhaps the most well known is the Pebble smartwatch, which Dragon Innovation helped to build after the company behind the idea raised $10 million in about a month.

With homeruns like that, why does the world need a special crowdfunding site for hardware startups? Dragon Innovation CEO Scott Miller says the company’s experience with crowdfunded startups has shown that the current crop of sites have some limitations that might make it harder for the lucky ones to actually succeed.

“The big thing is, we deliver,” Miller says. “There’s a lot of crowdfunding out there, including some great ones like Kickstarter and Indiegogo. The challenge is, they really only focus on the funding phase. And that’s just the first step.”

Pebble was among the startups that have found a flood of cash and interest can be hard to handle. The small company, which was just trying to find a market after getting rejected by potential investors, wound up annoying some customers with longer-than-expected delivery times as it worked out the difficulties of overseas manufacturing for an unexpectedly huge run of devices.

Would-be hardware entrepreneurs also can run short of cash, even with an apparently successful crowdfunding campaign, if they haven’t properly penciled out the costs behind delivering their project. In those cases, Miller says, “they do the worst possible thing: they disappoint the community of backers that believed in them so much, they opened their wallets.”

Miller says Dragon Innovation can help entrepreneurs avoid those pitfalls because of its deep experience in building hardware, particularly products manufactured in China. The firm also is touting its relationships with chip giant Qualcomm and GE, which has healthcare industry expertise along with plenty of patents that it wants to license, Miller says.

Miller was an early employee at iRobot, and worked his way up to vice president as the company built the first 3 million Roomba vacuums. He eventually left, founding Dragon Innovation with other veterans of iRobot’s Chinese supply and manufacturing operation.

Since then, the company has quietly built a profitable business helping clients get their gadgets built overseas. It operates behind the scenes for most people, but has worked on projects hardware heads would recognize: besides Pebble, the firm has worked with Romotive, Sifteo, Orbotix, and MakerBot.

(Miller also is a partner at Bolt, the Boston-based hardware startup accelerator program that just welcomed its inaugural class to new offices downtown).

Dragon Innovation’s early stage design and planning work costs entrepreneurs a flat fee, typically “in the low thousands of dollars,” Miller says. The firm also will take 5 percent of the proceeds of any successfully crowdfunded projects.

But Miller also says startups that hire Dragon Innovation for the early design and crowdfunding phase won’t be locked into using his firm for the rest of the way.

“It’s totally up to them. Our goal is just making sure that they go into it with their eyes open,” he says. “It’s certainly conceivable that we have things that go on our platform that we’re not the experts at building. At the end of the day, we’re just absolutely passionate about seeing entrepreneurs succeed.”

To help fuel this next phase of its growth, Dragon Innovation has landed about $2.3 million in private investment. The seed funding round was led by Flybridge Capital Partners and the Foundry Group, along with The Box Group, Lerer Ventures, and Undercurrent Ventures.

Dragon Innovation had been working on its own profits up to now, with more than a dozen employees spread around the world. Miller said the quality of the investors was just as important as adding the investment cash.

It certainly comes at a heady time for hardware startups, and the Boston area is poised to play a huge role in the wave of investment in electronics startups that seems to be building across the country, with major manufacturers setting up their own startup programs on the West Coast and venture investors suddenly perking up their ears for hardware startup deals.

That’s exciting for hardware veterans like Miller. And it’s also a good business opportunity for Dragon Innovation.

“Hardware is super sexy,” he says, “but you can’t Google how to manufacture stuff. There’s still, going from the prototype to volume, a lot of challenges. And that’s the area we live in.”

[Source: Curt Woodward @ Xconomy]

http://www.xconomy.com/boston/2013/08/08/dragon-innovation-adds-crowdfunding-for-hardware-raises-2-3m/

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