Episode 11: Searching Kickstarter for the Next Killer Smart Home Product

The David and Goliath story of startups entering an entrenched industry and disrupting its leading players isn’t a new one. Yet within the smart home space, an unlikely development has birthed a particularly startup-friendly environment. Crowdfunding websites like Kickstarter and Indiegogo have provided the right financing dynamics and access to early customers for startups to successfully launch smart home products. In the second episode of a 7-part series on the future of the smart home, Andrew investigates the evolving role of crowdfunding for smart home startups that have been making waves with innovative hardware devices. Interviewees Episode Excerpt Crowdfunding: A Success I Didn't Bet On My personal relationship to Kickstarter is not one that I enjoy repeating. I met Perry Chen in 2007 when I was introduced to him by Sunny Bates, a long-time friend and Kickstarter’s first investor. While Chen’s initial idea was around getting fans of bands to fund the bands’ music, he quickly came up with this idea that people would pay for a product in advance simply because they wanted to see that product created. He offered me the chance to invest and I turned him down. Why would people devote their time offering to buy products that didn’t exist? I’ve done a fairly good job in my career in sizing up entrepreneurs and the opportunities in front of them. But here’s a story of a company that I badly misjudged, and it’s because I didn’t appreciate the dynamic behind the vision and how vital it would become to the future disruption of so many industries. From an entrepreneur’s perspective, it should be obvious why a platform where you can visually or verbally describe a future product would be appealing. Why waste time on building something that people don’t want when you can ask people ahead of time whether they would buy your product? For those of you who haven’t used Kickstarter or aren’t familiar with it, that’s exactly how it works. You can browse products that people want to build. And if you like what you see, you can commit to buy the product if and when it’s ever built. What surprised me was that, in a world where you might think every conceivable product is available on Amazon, there are still lots of products people are willing to pay for that are yet to be conceived. When innovation comes in a form so dramatic that it can disrupt an entire industry, it almost always comes from startups. In the case of technology giants like Amazon, Uber, and Tesla, these companies followed the same path as so many of their predecessors: they relied on venture financing. In all of their cases, the venture capital came from the bluest of blue chip Silicon Valley venture firms. Some of the most well-known startups in the smart home space have followed a similar path. Nest, the smart thermostat, started with two engineers who had considerable experience in building mass market products. Together, they had worked at Apple on the iPod, iPhone, and the iPad. Their Series A round of financing included capital from two of the best-known venture firms in Silicon Valley: Kleiner Perkins and Shasta Ventures. In 2009, Dropcam was formed by two former startup engineers from Google this time: Greg Duffy and Aamir Virani. Dropcam reimagined the way security cameras should operate inside of a home and constructed a hardware device that seamlessly connected to your WiFi network, enabling you to stream video from your home directly over the Web. The company was also backed by a top venture firm in Silicon Valley, Accel Partners. Both Nest and Dropcam eventually sold to Google. These companies aren’t outliers in their financing strategies, but in the smart home vertical (as in others), a new path has emerged for funding this type of company. It’s worth noting that hardware companies are often more expensive to build than their software company counterparts,