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What do you do when you're sure you have a brilliant technology-based idea and want to turn it into a successful commercial product?
Well you sit down and invest whatever time, effort and money is required to take that idea from a concept to an item sitting on store shelves -- right?
Of course that's right. The big problem is, where does the money come from?
If you live in New Zealand, the traditional source of funding for blue-sky ventures like this is your own wallet... or the wallets of family or friends.
Forget about giving a 15-second elevator pitch to some rich angel investor and walking away with millions of dollars to develop your idea -- that very, very rarely happens in this country. All those "millions" that you'd be seeking are probably already tied up in investment properties around Queenstown or in Auckland somewhere.
But there is always another option.
Yes, you could crowdfund the product by creating all sorts of photorealistic 3D renderings, slick videos and endless pages of hyperbole which describe what the device "will" do; once it's finished.
Kickstarter, Indiegogo and a raft of other websites have popped up in recent times, all offering poor "ideas guys" the possibility to access the funding they need, and offering early-adopters the chance to be first on the block with something that often sounds just too good to be true.
So there we have it... the traditional venture capital funding, or crowdfunding -- which is most likely to produce the desired outcome of products on shelves?
Well I tend to think that the former is more of a sure-thing. Venture capitalists, if you can find any here in New Zealand, tend to take a pretty cynical view of the pitches thrown at them by those with "good ideas" and the also tend to have a keen awareness of the many and varied hurdles that exist on the path from concept to commercialisation. In fact more often than not, the *real* value that a good VC company brings to the party is their ability to negotiate those hurdles and plan for the things that "ideas guys" simply have no clue about.
I've seen a perfect example of this over the past few months.
Let's look at two projects... one funded by VC and another funded by crowdfunding.
The first project is the crowdfunded ZX Vega Plus games console funded via Indiegogo.
From a fund-raising perspective, this was a runaway success, reaching an oversubscription rate of more than 350% and raising an astonishing half a million quid from those early-adopters who wanted to get their hands on one.
In essence, this is simply a small emulator with LCD and a ROM filled with a 1,000 old 8-bit Spectrum games. Not a big job to design, build or ship -- so you might think.
They had the money, they had the orders, they had set their own timeline for completion and fulfillment -- what could possibly go wrong?
Well it seems that *lots* went wrong and now Indiegogo has pulled the plug and is sending in debt collectors to retrieve as much of the half million quid as they can.
Oh dear... this is yet another case of a crowdfunded promise failing to be met. If you check, you'll find a huge chunk of the projects which successfully raise their funding never actually get shipped -- or if they do, it's in a form which bears little resemblance to the original promises made.
Crowdfunding is high-risk, at least for those providing the money.
So the ZX Vega Plus, a product that I expect half of those reading this column could prototype in just a few short weeks, is a bust.
But what about the other project. This one was funded by traditional means -- with a few million dollars provided by an established US VC company -- who almost certainly also threw in some guidance and expertise in the area of startup-management as well.
I'm talking about the Skidio R1, a very, very clever, autonomous drone that actually *does* things you probably wouldn't believe if it was claimed of a crowdfunded project.
It has multiple cameras and an AI engine with deep-learning capabilities which allow it to fly in all manner of places (including forests) without bumping into things.
The technology onboard this thing is truly stunning and a great window into the future of drone technology. These guys are able to do, on this little flying drone, what Uber couldn't manage with its massively CPU-laden self-drive Volvo -- ie: avoid people and objects whilst on the move.
The best thing about Skidio is that during its many-year gestation, very few people knew it was even a thing. These guys didn't have to go and shout from a rooftop to try and convince people to throw money at them. They didn't have to sell (on a promise) stuff they didn't actually have (yet).
They simply got some funding, knuckled down and came up with some game-changing technology that you can now buy for a couple of grand.
Wow... what a novel concept in the 21st century where so many companies seem to allocate more resource to marketing and hype than they do to actually getting the job done.
I am impressed, seriously impressed.
And of course, let's not forget that it actually does a lot of what the ill-fated Lily Drone was promising when it launched yet another ill-fated crowd-funded project several years ago. How ironic is it that the Skidio guys were quietly beavering away actually making stuff work... at exactly the same time the Lily Drone guys were selling a dream and drinking Champagne on account of the fact that they raised $34 million in pre-orders -- before they even had a working prototype.
Don't get me wrong, I think there is a very real place for crowdfunding and many truly excellent projects have come out of Kickstarter and Indiegogo -- but the risks are incredibly high for those who are willing to part with their cash, on a promise of things to come.
Anyone with cash to spare and looking for a lower risk way of investing in new technologies would be far better advised to work with a proven VC company that already has a good track record.
Or you could just be a savvy Kiwi and buy another investment property -- given that this country's tax and investment laws make it a no-brainer to do so.
How many Aardvark readers have actually participated in a crowdfunding venture, either as a funder or a recipient of funds -- and what was your experience?
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