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Crowdfunding highlights wearable startups shortcomings, but may prove valuable for corporate players

October 27, 2015 By Nic Abraham

Crowdfunding – where individuals raise money for a project (campaign) in exchange for a pre-release product – has become a popular method for wearable electronics developers to raise money. Kickstarter, the largest non-personal crowdfunding platform founded in 2009, helped raise $500 million for projects in 2014 and $1.72 billion since inception. Crowdfunding has seen its share of wearable success stories; for example, Pebble (a smartwatch) is currently the third largest crowdfunding project, reaching $20 million by March 2015. Corporations are starting to take the lead and also use crowdfunding for their wearable projects; Sony launched a crowdfunding platform in July 2015, which includes projects like Sony’s SmartWatch.

Only 34% of wearable projects on Kickstarter were able to reach their goal amount, and companies also struggle to hit their crowdfunding commitments. To understand crowdfunding in wearables, we analyzed the top wearable projects from top crowdfunding sites Kickstarter and Indiegogo.

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Crowdfunding results for wearables campaigns.

None of the top five wearable companies on Kickstarter or Indiegogo were able to ship their products out in the estimated timeframe; besides Pebble’s second campaign, these campaigns were on average late by over eight months. This delay reflects the inexperience of such campaigns on their inability to translate from a prototype to high volume manufacturing, and can bring in negative feedback from backers and potential customers. In addition many of these companies required additional funding (both Pebble and Oculus Rift raised rounds over $10 million before their deliveries were fulfilled) as the amount from crowdfunding was not enough. Five companies were able to raise rounds much higher than their initial seed round, which shows that successful crowdfunding demonstrates to investors the market potential for a novel technology.

Post-campaign is another issue entirely; besides Oculus (which Facebook acquired for $2 billion), most of these companies were unable to capitalize on their crowdfunding success. For example, three of these Indiegogo campaigns are unable to deliver; Kryeos went bankrupt before it could complete shipments, Healbe’s product failed to meet consumer expectations, and Ritot doesn’t even have a prototype. Larger companies, like Sony, have a better chance over startups in making successful crowdfunding campaigns. By running its own crowdfunding platform, Sony can get valuable insight on the demographics of customers of new technology to determine if a project in a new area is worth pursuing (like how startups attracted investors with crowdfunding data). Not only does it show which projects are worthwhile, but the demographics and feedback from the campaign can give insight on how to tailor the project further to the needs of customers. Large companies are also able to deliver products in a timely manner as they have the financial backing and manufacturing partnerships to back up the campaign, which will help retain customer loyalty that has plagued the growth of some of the crowdfunded startups.

To read more insights from Lux Research analysts visit Lux Populi.

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