Why hardware startups should screw VC and go straight to crowdfunding

Software’s always been the sexy sell of Silicon Valley. With low startup costs, margins on par with the most illicit drugs and the boom or bust mentality of the Internet era, it’s been the sweetheart of startups for nearly three decades.

But business is dynamic and times are changing. Hardware, the one-time ugly duckling of the entrepreneurial world, has been rapidly evolving, thanks in large part to the advent of crowdfunding. Startups, founders, and ideas that would have once taken tens if not hundreds of thousands of dollars in upfront costs and needed serious angel or VC rounds are cropping up each and every day.

And that makes sense. Why trade equity for investment when so much is at stake?

Crowdfunding sites like Kickstarter, Indiegogo and many others are flooded with potentially disruptive up-and-coming hardware startups.

But why buck traditional trends? Why are today’s founders forgoing seed rounds and revolutionizing the role of crowdfunding?

The power of the crowd

Money isn’t everything. Through over 80 interviews with a wide array of crowdfunding product creators, I seen one thing crystallizes above all else: Crowdfunding is the culmination of the lean startup.

Though most Kickstarters I’ve interviewed and consulted for raised well above and beyond their goals, the biggest takeaway they had was in fact the backers. Backers are your early adopters — your tribe, as Seth Godin would say — who help create and define the product.

From comments, feedback, and FAQs, your Kickstarter campaign shifts and shapes the entire direction of the company going forward. I’ve seen massive pivots, feature changes, and even failed campaigns come back to crush it. It’s invaluable and it’s something no VC firm can replicate.

But guidance and market validation aren’t everything crowdfunding has to offer. Unlike seed funding, crowdfunding’s a community of incredibly supportive and innovative early adopters. Sharing the story and struggles of your startup throughout and following the campaign strengthens and grows your tribe, your brand ambassadors, who in turn embody and spread the company and mission. This is viral marketing 101, and if you do it right, it’s hardwired into the very nature of crowdfunding.

Venture firms’ guidance, connections, and experience pale in comparison to the power of the crowd. In 1 vs. 100, who would you bet on?

Win-win, wins

Oculus raised $2.5 million through crowdfunding only to be acquired for $2 billion two years later. Pebble raised over $10 million for its early smartwatch. And Bragi secured $3.4 million to create the world’s first smart in-ear headphones.

These successes are opening the doors: greater exposure, more public interest, higher quality products. The entire platform is benefiting. This year alone Kickstarter has seen rapid growth across the entire site. From $112 million pledged in Q1 to $144 million in Q2, the crowdfunding movement is growing. This is completely at odds with the high pressure, excessively competitive world of venture funding.

So would you rather eviscerate your equity, lose control of your company, and shoot for the stars in a boom or bust push? Or is building a sustainable, profitable, backer-geared business enough for you?

Times are a changing

Kickstarter and Indiegogo are uncovering the hidden gems of hardware and giving them the platform for hockey stick-esque growth. They are shaking up once stagnant industries and scaring consumer giants into action. Past Art of the Kickstart podcast guests are receiving interest, licensing deals, and even potential acquisition offers from the likes of Nike, Google, Amazon, and Under Armour.

We are entering a true golden age of hardware and wearable tech. Makers, hackers, and garage gurus around the world are uniting through crowdfunding and using the worldwide wealth of information available to brainstorm, prototype, test, and perfect the once inconceivable products of tomorrow.

So what’s the takeaway? Hardware startups everywhere should look first and foremost to crowdfunding. Kickstarter and IGG are making it easier than ever for companies to acquire capital, customers, and quickly iterate on ideas and concepts for the market. With low risk, high rewards, and all your equity intact, what do you have to lose?

Matt Ward is a crowdfunding consultant and runs Art of the Kickstart, a podcast and blog helping inventors and entrepreneurs launch innovative products and businesses into the world through crowdfunding. Through this he’s interviewed and cataloged 85+ crowdfunding creators’ stories, strategies, mistakes and lessons learned.