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.
Co-Founder & CEO of Keen Home
Co-founder & CEO at Tovala
Co-founder & CEO of Minut
CEO of Cambridge Sound Management & Founder of Nightingale
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, making them more difficult to finance. Crowdfunding sites like Kickstarter and Indiegogo have played a central role in disrupting the smart home space, particularly because of how they’ve helped a number of startups overcome the challenges associated with funding so many esoteric ideas that required the development of both hardware and software components.
At about the same time Nest sold to Google, another company called Canary launched a crowdfunding campaign on Indiegogo for a security device that was installed inside your home. It included a camera, microphone, night vision, motion detection, a siren, a thermostat, and the ability to measure air quality and humidity. It was connected to your WiFi network and alerted you not only of intruders, but of a fire or anything else out of the ordinary in your home. The initial crowdfunding campaign set a goal of $100,000. When the campaign closed, more than $1.9 million was raised from 7,460 people. Canary was launched.
A Brief History Of Crowdfunding
When I was doing the research for my smart home series, I went to Kickstarter’s website and typed the phrase “smart home” into their search bar. The result yielded 202 campaigns for new products. Today, Google, Apple, and Amazon have the largest market share for what we’ve come to think of as smart home operating systems (Google Home, Siri, and Alexa). But initially, two of the most important smart home operating systems (Wink and SmartThings) had their roots in crowdfunding sites (Quirky and Kickstarter, respectively).
SmartThings launched in 2012 on Kickstarter, positioning themselves as a company that adds intelligence to everyday things in your world. They offered a hub and an app. You installed the hub in your home and then you’d connect your smart lights, locks, sprinklers, etc., allowing you to monitor and control your smart home from your phone. The goal of the campaign was to raise $250,000. When the fundraising campaign was over, it had raised over $1.2 million. In 2014, Samsung paid an estimated $200 million to acquire SmartThings.
One of the other major smart home operating systems today is Wink. They were a spinoff from a crowdsourcing platform called Quirky that launched in 2009. Quirky allowed users to submit “inventions” that their team would review. If approved, Quirky would research and develop the product and then sell it from their website. According to a New York Times article, one in four inventions submitted to Quirky were for smart home products, which is partially what spurred the company’s founder, Ben Kaufman, to launch Wink. To increase the acceleration of smart home product adoption, Wink promised to be an “open operating system” to facilitate interactions between apps and products from unrelated vendors all in the smart home ecosystem. While Wink succeeded, Quirky ultimately went under.
In 2016, Professor Ethan Mollick at the University of Pennsylvania’s Wharton School published his research on the “Kickstarter effect.” He found that, as of 2016, over $2.5 billion had been raised on the platform and roughly 90% of those successful products went on to ship. In 2017, Kickstarter launched a program called Hardware Studio. The program was designed to educate and connect creators by providing accepted teams with everything from help developing production plans to office hours with engineers.
Keen Home: An Indiegogo Hit
To get a sense of the impact of crowdfunding sites on the smart home space, I spoke with three startups that experienced success crowdfunding their products on Kickstarter and Indiegogo. One company that offers a product I would definitely use if I were building a new home is Keen Home, a startup that offers smart vents. They raised $40,234 on Indiegogo in 2013 and went on to become part of Techstars and R/GA’s connected devices accelerator, where they raised a $1.52 million seed round. In 2016, they received a $750,000 investment on Shark Tank from Robert Herjavec. I spoke with Nayeem Hussain, Co-founder and CEO of Keen Home, about his vision for the smart home.
Nayeem Hussain: “Our vision is to create innovative hardware software solutions for home infrastructure. It just so happens that HVAC was our entry point just because there is not very much innovation happening there, beyond the smart thermostat, which we looked at as just part of the solution. We thought a critical piece was missing . . . room by room temperature control. If a smart thermostat is a single switch, it’s still a single switch to control all the lights in your home. We provide that granularity of control, which leads to a lot of really interesting value propositions beyond just comfort and control, but also energy efficiency.
“. . . We think of the home as as a body, looking at those key systems that keep a body or a home running. That’s HVAC, plumbing, electrical, disaster prevention. Many of those systems are not necessarily in front of somebody to look at all the time, but they’re integral to making sure you’re safe, secure, efficiently living in your home. If any of those systems malfunction, you’re not looking at a couple hundred dollars. You’re oftentimes looking at thousands of dollars of remediation. We chose home infrastructure very purposely because there’s very little innovation in those spaces.
“If you take a step back and look at the smart home as an industry, you see a lot of money, a lot of design, a lot of innovation flowing into security, flowing into the thermostat, light bulbs, entertainment. But very little innovation and investment is going into some of these infrastructure pieces, which means to us that they are green fields, from a competition perspective, but most importantly, they’re very critical to a homeowner being able to have that peace of mind when they go home.”