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From $99 to $7 million in 18 days

Date

Jenna Wortham

Zoom in on this story. Explore all there is to know.

Strangers are backing technology start-ups even before investors get a chance.

A Pebble prototype mounted on a bike.

A Pebble prototype mounted on a bike.

When Eric Migicovsky, an engineer, wanted to develop a line of wristwatches that could communicate with the iPhone, he went the traditional route of asking venture capitalists to finance his company.

But he couldn't even get a foot in the door, let alone secure any money for what he called the Pebble watch.

So he turned to Kickstarter, a site where ordinary people back creative projects. Backers could pledge $US99 and were promised a Pebble watch in return.

Funded: Pebble, prototypes of the customisable watch that connects to smartphones via Bluetooth.

Funded: Pebble, prototypes of the customisable watch that connects to smartphones via Bluetooth.

Less than two hours after the project went up on the site, Migicovsky and his partners hit their goal of $US100,000.

''By that night, we were at $US600,000,'' said Migicovsky, who is 25 and a recent engineering graduate of the University of Waterloo. ''We went out for a beer to celebrate, went home and slept, and when we woke up, we were at a million dollars.''

As of Friday afternoon, nearly 50,000 people had pledged close to $US7 million — and there's still two weeks left before the fundraising window closes. (As of Sunday afternoon, the total had passed $US7 million.)

Pebble is the latest — and by far the largest — example of how Kickstarter, a scrappy start-up sprouted in the New York living room of its founders three years ago, is transforming the way people build businesses.

Although the site first began as a way for people to raise money for quirky projects like pop-up wedding chapels, around-the-world boating trips and offbeat documentaries, it quickly expanded to include video game production, feature films and innovative new gadgets, like the Elevation dock, a sleek stand for the iPhone, or Brydge, which turns an iPad into laptop resembling the Mac Air.

The large amount of money that Pebble has raised — equivalent to what a young company would get in a second round of venture capital financing — also signifies a coming of age for Kickstarter.

''This year marks the year that we've seen Kickstarter enter the real world in a number of ways,'' said Perry Chen, one of its founders.

''At Tribeca Film Fest, there are a dozen different Kickstarter-backed films, there's an installation at the Whitney Biennial that was a Kickstarter project and we just had our birthday party at a Kickstarter-funded restaurant.

''Much as the introduction of cheap web services lowered the barrier to entry for people seeking to create a start-up, and as offshore manufacturing gave entrepreneurs a chance to make products without having to build a factory, Kickstarter offers budding entrepreneurs a way to float ideas and see if there's a market for them before they trade ownership of their company for money from venture capitalists.

Migicovsky and his partners did not have to give up any portion of their company to the venture capitalists. They still own 100 percent of it.

''Kickstarter is already proving to be a viable alternative to starting a company the traditional way,'' said David H. Hsu, an associate professor at the Wharton School at the University of Pennsylvania who studies entrepreneurship and innovation.

''You're activating a user base that you know will be interested in your project,'' he said. ''Which, historically, has always been the biggest trouble for crowd funding sites, getting traction and critical mass.''    

As Kickstarter prospers, other sites for financing through a crowd have appeared. There's Crowdtilt, a service that lets friends contribute money for outings like a beach vacation; Zokos, a start-up that gives guests a way to pitch in for a dinner party; and Gambitious, a financing site devoted to indie game developers.

Then there's IndieGoGo which helped crowdfund an IVF baby and Australia's own Pozible, to name a few.

But Kickstarter is the biggest. To date, it has raised more than $US200 million for 20,000 projects, or about 44 per cent of those that sought financing on the site. Only projects that meet their stated financing goals receive money.

Patrons who back Kickstarter campaigns are often rewarded with insider access to the projects they finance, and in most cases, a tangible reward for their money. In Pebble's case, the reward is an actual watch, making it a more appealing project than, say, a movie or a poetry blog, where the payoff is a little harder to show off to friends.

Kickstarter does not charge anything to set up a campaign. But if it is successful, Kickstarter takes 5 per cent of the final amount. Amazon, which processes the payments, takes 3 to 5 per cent.

Migicovsky says he suspected that the Pebble project might be a runaway success. ''The plan,'' he said, ''was always to go big.''

Before introducing the project on Kickstarter, Migicovsky says he sought advice from previous successful project founders on Kickstarter, including the creators behind Twine, colorful blocks outfitted with sensors and internet connectivity, that blew past its original goal of $US35,000 to raise more than $US500,000 — an anomaly considering that the average Kickstarter project size hovers around $US5000.

''They all told us not to focus on the hacker market because they are already going to love you,'' he said. ''But how can you tell people who have no idea what this is why they should back it?''    

A carefully made video helped to earn the trust of their backers. Migicovsky also played up his four years of experience building smart watches — previously for BlackBerry products — and his time polishing his ideas in Y Combinator, a technology incubator located in Palo Alto, California.

Migicovsky also worked to broaden the appeal of the watch beyond a tech-focused audience by working with a company called RunKeeper that helps people track their jogs on their smartphones.

Before approaching Kickstarter, he had tapped the know-how of Dragon Innovation, a team of production consultants with experience working on the Roomba at iRobot. But he ran out of money. He called them again after Kickstarter raised the first $US1 million. The consultants at Dragon told him they had already noticed.     

Although the most common projects on Kickstarter tend to revolve around film and music, the service has been particularly useful for new types of hardware products. Traditionally, venture capitalists are skittish about putting money into hardware start-ups because it is so complicated.

''Even at that scale investment and with a company that is very experienced taking a product to market, they hit pitfalls,'' said Robert Fabricant, a vice president of Frog Design, a development firm that helps create products.

Fabricant, like others in his field, cast some doubt on the notion that it was possible to sidestep the traditional routes to building a business, particularly through a service like Kickstarter. They say young, inexperienced business people need advisers, mentors and a network of support to help them deal with the problems that can emerge. There is a big difference between a project and a product strong enough to sustain a full-fledged business, they say, and it is risky to confuse the two.

The founders of Kickstarter say they draw a firm line between a project and a business.

''With the more consumer-oriented projects, we make sure it's very clear backers know they're helping build a project and they will get one as their reward,'' said Yancey Strickler, another Kickstarter founder.

''They are intended to be finite projects, but you do find things that start off with a small idea and grow into something quite large.

''But Gleb Polyakov and Igor Zamlinsky, two young entrepreneurs from Atlanta who are trying to create a full-blown company around a $US400 barista-grade home espresso machine, say that risk is no different than for traditional small businesses.

''The terms on Kickstarter are more attractive than any bank loan or venture capital amount,'' said Polyakov. ''If you can get funding through Kickstarter, there is no reason not to.''

The New York Times

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13 comments

  • Good for him! Not a bad design.

    Commenter
    Gerson
    Location
    Sydney
    Date and time
    April 30, 2012, 2:25PM
    • What goes up comes down.

      Savyy investors know that.

      Commenter
      caledonia
      Location
      sydney
      Date and time
      April 30, 2012, 2:44PM
      • It's not a stock. Each person who pledges the minimum cost gets a Pebble watch. The term 'investor' isn't correct - the people who pledge support are 'backers'. Looking forward to mine.

        Commenter
        my new watch
        Date and time
        April 30, 2012, 5:18PM
      • @ caledonia
        your comment is not applicable. You get a watch for your $99. not stock.
        So the watch could go down???

        Commenter
        Lukesington
        Location
        Canberra and sometimes Brisbane
        Date and time
        May 02, 2012, 1:59PM
    • hmmm...might give it a go miself...

      Commenter
      ob1
      Location
      Melrose Park
      Date and time
      April 30, 2012, 3:14PM
      • Take my money!

        Commenter
        Snake
        Location
        Sydney
        Date and time
        April 30, 2012, 4:00PM
        • I have backed the Pebble on Kickstarter - looking forward to September when they start delivering them.

          Commenter
          my new watch
          Date and time
          April 30, 2012, 5:15PM
          • I think what will be interesting is when legislation is set up Re: "investing" in these type of crowd sourced funding situations. They are currently looking at it in the USA (it would not be mandatory, but an option).

            It makes sense. By essentially "pre-paying" for your goods you are investing in these startups but you don't get any benefit really, apart from the goods/services at the end. But you are not just paying for the goods/services. You are backing these people to invest in infrastructure/development pipelines that can then be used for other things/projects, but you don't see a dime of it.

            Personally I think it is a great idea to treat some of these projects as an investment. The people with these projects often would have trouble attracting interest for such small amounts, the people who are stumping up the money truly believe in the product and the creators (after all, they are committing their own hard earned money) and the people willing to do that are no doubt willing to promote the products/services and envangelise.

            Now, not every creator would want to do that, just like not every company wants to go public, but I think it has to be a consideration that people, average Joe's like you and me are effectively angel investing these projects but not necessarily benefiting from it tax-wise etc. Personally I think the governments should be promoting this kind of thing as their is obviously an interest in it.

            Commenter
            Mr Wowtrousers
            Location
            ACT
            Date and time
            April 30, 2012, 8:02PM
            • That is sensational! Really opens up questions. Could it be that the future of investment capital will be from crowd-sourcing?

              This is great kudos to Pebble & Kickstarter

              Commenter
              Al
              Date and time
              April 30, 2012, 11:00PM
              • I'm suprised of the incompeletness of this article.

                1: Why no mention of Brian Fargo or Tim Shaffer who are basically theatening to turn the Video Game industry upside down by bypassing interfering publishers and going straight to their fans for support.

                2: Why no mention of "Kicking it forward", where participating kickstarter campaigns pledge to put a portion (5%) of any profit into new kickstarter campaigns to keep the system strong?

                Commenter
                chad H
                Location
                Here, there, everywhere
                Date and time
                May 01, 2012, 12:27AM

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