VC Funding or CrowdFunding?

By Rachel Vanier, Fred Potter, CEO of Netatmo, highlights the limits included in crowdfunding by pointing out first that there is a lot of buzz around Kickstarter, yet we don’t know how long it will last. According to him, if you sell a “B2G” device (Business to geeks) then Kickstarter is perfect. If you sell a product for the general product, Kickstarter is not fit. Pierre-Eric Leibovici also points out that crowdfunding might not be suited for B2B or industrial hardware products.

Art by Mike Lucas

Art by Mike Lucas

Besides, according to M. Potter, since R&D costs are going to grow, Kickstarter will certainly not be enough to fund them – especially since the campaign itself costs a huge amount of time and money in marketing. Finally, he points out one limit of crowdfunding: you can’t change the device once you raise money from a platform, because you made a promise to your customers. Speaking from his experience with Lima, Severin Marcombes tells us: “We changed our product because we raised a lot more than we aimed at. It’s not wrong to change as long as you keep the same promise.”

Barbara Belvisi insists: “Crowdfunding is not about funding, it’s about industrializing the pre-ordering process” and reminds the crowd that VC funding is needed to scale.

Raising money from VCs is easier after a crowdfunding campaign is easier since you can already prove you have customer attention and you are market fit. Yet some startups raised before pre-orders (Space Monkey, Occipital or Play-I for instance): they usually get team members that already have an exist in their career or built technologies protected by patents.

Fred Potter also reminds that a 3rd option would be to borrow money from the bank. At Netatmo, the strategy is to be profitable year on year, which implies they cannot develop as fast as they want but they can prove to banks that they are capable to reimburse their debts.

Read more on

http://www.rudebaguette.com/2014/06/18/fund-hardware-startup-crowdfunding-vs-vc-explained/

 

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