Crowdfunding- a boon or a burden to Tech Startups

These days we see quite a few technology companies going the crowdfunding route(Indiegogo/Kickstarter) to get to market sooner rather than wait for the traditional way of raising money to build the product. It appears as a beautiful idea if co-founders do not want to give out equity but raise money to get to market.  But I personally feel that this is a double edge sword and entrepreneurs have to be very careful with the choices as it may end up hurting more than helping in the long run.

What I have noticed is companies look forward to crowd sourcing mostly for either one of the following reasons

  1. Raise money to help them accelerate the engineering cycle time and help them reach market faster with confirmed orders  – The challenge with this usually is if you are not far enough into your engineering /product cycle with most problems solved the money raised through these campaigns are in most cases is not enough to get to production and delivery.
  2. Create a sales and marketing buzz which then later helps them to get leverage with retailers and opens up many channels – This is a fantastic model because getting into some of the traditional channels to sell a product is not easy. But these days Bestbuy/Amazon etc. have a separate focus on successful products from these campaigns. So this will enable the startups to get into shelf faster if they are successful. This also gives a better chance of getting picked up by some distributors.
  3. Show the demand the product has in the market to convince tradition VC’s to put in money into the company – This is a good idea only if you are convinced that your product is going to be a runaway success else the chances are that it can do more harm.  Any thing less than a runaway success is going to raise more questions and challenges when startups try to raise money than help.

I have read few statistics and based our experience, the projects mostly do not make it out in time. This ends up damaging credibility with the same customer base which supported the product. And now if the product turns out to be below par after a long wait, we have a very unhappy customer to deal with also.

What I noticed is that many of these companies fail to deliver on time because

  1. These companies are either trying to solve some really challenging engineering problems which need a tremendous amount of money than what they can get from a Kickstarter/Indiegogo campaign. So they start falling behind on development goals and delivery deadlines
  2. They have the right idea and concept but limited experience in delivering products end to end and when they start dealing with it they realize the unknowns are lot more than the knowns and they start slipping
  3. These companies are fighting battles on many fronts and crowd sourcing is just one of the avenues. So they do tend to get carried away in their engineering cycle when they see greener pastures which ends up adding delays.

My personal thought always has been crowd funding is a good platform if you are done with 80% of your engineering . As I mentioned earlier this is because the money you raise from pre-selling this product is usually good to pay for your production needs only. However, if you are planning on doing your core engineering and delivering product based on this money then the likelihood of failure and delays are very high. The only exception I can think of is if the company has a reliable partner/team in a country like India, China where a bulk of the engineering is being done then this money does tend to help even if they are behind in their product lifecycle.

I think backers need to check with the company before putting money in as to how much of engineering is already done and ask to show working prototypes, actual Industrial design mockups, software demos etc. before trying to put money in.  Also, it may help to ask how the money collected is going to be spent because it gives you an idea of the readiness of the product you are backing.

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Business Trends in IoT Ecosystem

Key Trends

There is a trend in the IoT landscape of vendor consolidation around a few major platform vendors. The vendors from different links of the chain collaborate by providing a seamless experience to build, deploy and operate IoT solutions. Many of the major IoT platform leaders have defined end to end system specifications with their ecosystem partners for a secure, scalable and interoperable deployments. This has led to transforming the vertically fragmented and inadequate proprietary markets into well-organized and horizontally scalable open markets. It will enable key players to gain a major share in the IoT market, which is predicted by IDC to reach an annual revenue of USD 1.7 trillion by 2020.

Collaboration, Acquisitions and Partnerships

The acquisition of Wind River and McAfee by Intel, Nest by Google, Solair by Microsoft, Jasper by Cisco and Atmel by Microchip can be seen as strengthening their foothold and consolidation of services in the IoT ecosystem.  These market leaders have also formed alliances and partnerships with other horizontal leaders, SMEs and start-ups to build their own ecosystem. Some of these partnerships are Samsung-SAP, Cisco-GE, Apple-IBM. All these happened because of the awareness of the industry that there was too much fragmentation with companies working in silos. These heavy-duty collaborations are essential for the IoT market to succeed. It is interesting to note that innovation is a key element and the start-ups are going to play a crucial role in that. 2lemetry, Estimote, Digital Lumens, Litbit, Skycatch are some of the leading start-ups getting attention with their innovative ideas.

What the market looks for

When businesses plan for the IoT transformation, the major considerations are the ease of interoperability, seamless integration, maintainability and scalability factors. The other factors being reducing risk and lowering the cost of implementation and operation.

The market needs vendors, device manufacturers and services providers who can help to quickly rollout the IoT solution with the essentials. These include automated discovery and provisioning of sensors and actuators, device control, seamless storage and processing of data, security of data and devices, analytics capability and monetizing of the services. This is where these collaborations are going to benefit the end customer and the industry as a whole.

The Benefit and Value Add

The crux of this collaboration is the desire of every player in IoT, big or small, for a transformation from a product business into services business, seeing the long term and continuous monetization opportunity. In essence, the alliances of platform leaders with vendors at different planes of the spectrum will influence the choices of picking devices, software, services and operators in an end to end IoT solution. The positive note about all these collaborations and alliances is that it is going to eventually help the end users with competitive pricing, faster deployments, innovative and effective solutions.