by Joseph Flaherty shows that startups that raise large sums of venture capital don’t perform any better than companies that raise small amounts. It turns out that the concept of “ ” also applies to crowdfunding. Data from the last five years of tech IPOs Efficient Entrepreneurship _by Eric Paley & Joseph Flaherty_hackernoon.com Overdosing on VC: Lessons from 71 IPOs Among the top , there are two clear venture-scale wins; and Electrolux acquiring sous vide manufacturer for . Surprisingly, neither of these companies cracked the top 50 in terms of money raised on the platform. . 100 projects in Kickstarter’s eight-year history Facebook acquiring Oculus for $2B Anova Culinary $250M Check out the data and links to the project here Over at IndieGoGo, none of the site’s have had major exits yet, though the stylish fitness tracker , the in the site’s history, was acquired by Fossil for . top 100 projects Misfit 183rd most funded project $260M There aren’t many encouraging stories beyond those three: and despite raising over $60M from backers across three record-breaking campaigns and $15M from VCs. Pebble’s time is up sold for $23M Ouya, in Kickstarter’s rankings, is a two-year-old game platform with and , which is respectable except for the fact that as many new titles are added to Apple’s store every . #8 $33.6M in crowdfunding/VC ~1,200 titles week Neil Young’s ( ) hasn’t built an audience beyond the hardest core audiophiles. Pono music player #12 Micro-drone Zano ( ) crashed and burned so spectacularly that . #26 Kickstarter commissioned a journalist to examine the wreckage Social robot is the at IndieGoGo, has raised , and has yet to ship the product two years later. Jibo 13th best-funded project $3.6M from backers and ~$70M from investors To be fair, crowdfunding is still in its early days, and some emerging companies may become new models to follow. is the and subsequently (disclosure: we’re also proud investors) to scale their thriving business. Formlabs 41st most funded project on the Kickstarter leaderboard raised $55.8M from Foundry Group and others At IndieGoGo, home security system has in addition to its $1.2M campaign and Y Combinator-backed smart luggage maker in VC on top of a $2M pledge drive. Canary raised $40M BlueSmart raised $22M But at the risk of overgeneralizing, there are a couple of lessons that can be gleaned from the data. Big Markets are Riskier than Niches With crowdfunding, niches hold riches. Oculus was pitched as a dev kit for hackers. Sous vide fans are second only to Crossfitters in the lengths they’ll go to satiate their craving for boiled chicken. These products are targeted towards enthusiasts who would bear with the bugs found in any first generation product — quite literally in the case of the which . Flow Beehive raised $13M on IndieGoGo More importantly, these products also represent categories where there were few viable substitutes. VR was a mid-nineties curiosity, and water cookers were largely limited to high-end kitchens. Kickstarter made insane sounding projects tangible for enthusiasts. Compare that to the smartwatch category which has been around since the mid-90s. Even before Pebble reenergized the market, there were still enough smartwatches to . Likewise, Ouya was trying to crack a crowded video game console market where existing systems have cult-like followings. Perhaps one of the half dozen crowdfunded wireless headphone concepts that have been funded in the last couple years will become a breakout and challenge Apple’s AirPods. However, the data so far suggests that in crowdfunding passion projects outperform polished consumer products. fill out a buyers guide Setting Records can Sink You Success can be a curse in crowdfunding. . Projects that require significant R&D efforts can burn through crowdfunding capital leaving insufficient funds for manufacturing if product development hits a snag. Even if a product is ready to produce once a campaign ends, any blip in production can bankrupt a fledgling company. Kickstarter is debt A couple of high-profile cases illustrate the dangers facing overly successful crowdfunding campaigns. The ( ) when the founder began . Despite raising $13M via crowdfunding, the entrepreneur needed sales to generate working capital to fulfill the campaigns 60,000+ outstanding orders after production problems ate into his budget. Coolest Cooler #2 raised the ire of backers selling units on Amazon ahead of fulfilling Kickstarter pledges A small sample of the knock-off Fidget Cubes based on the original design by . Antsy Labs Manufacturing 150,000 ( ) took longer than expected and allowed an entrepreneur with more manufacturing expertise to . Raising less money might have made the challenges of fulfilling these campaigns less difficult and not encouraged copycats. Fidget Cubes #9 copy the design and beat the original creators to market Balancing Capital and Customer Commitment Many entrepreneurs want to raise as much money as possible during a campaign, yet fail to fully appreciate the relationship between capital and customer fulfillment. For instance, in its first campaign, while . Pebble raised 3.5X as much money as Formlabs but also had to handle fulfilling orders, customer service, etc. for 64X more customers. As a mass market product, the Pebble team was further divided by preparing for retail launches. That is a lot to take on all at once. Pebble had 65,607 product orders Formlabs had 1,028 Capital won’t make you smarter. It comes with no special insights and can’t solve problems unless the company is properly designed to deploy it. Consider this when calibrating your ambition for a campaign. These stories don’t mean that heavily funded projects are doomed. The Flow Beehive raised $13M on IndieGoGo, had 38,000 backers, shipped successfully and is now a going concern. But it’s a flat pack wooden frame that the buyer assembles. There are only so many points of failure, and the core technology is as old as modern agriculture. Don’t optimize your campaign to set records This data isn’t a criticism of Kickstarter or the creators of these projects. Kickstarter has always told creators that it is “not a store” or a replacement for VC. It’s also important to say that a VC-scale outcome shouldn’t be the goal or even the primary metric of success in crowdfunding. Still, many entrepreneurs view it as such. Fundraising isn’t an end unto itself and won’t determine your ultimate success or failure, so keep focused on the real mission. Remember, Misfit “only” raised , which is only a modest success by comparison to other projects, but it also represents the second best exit for a company that launched via crowdfunding. $847K on IndieGoGo
