Crowdfunding for the crowd, not the funds: Why Lively launched on Kickstarter after raising VC money

By Erin Griffith , written on April 18, 2013

From The News Desk

Welcome to a new era of crowdfunding, where the "crowd" part is more important than the "funding."

Before "smartwatch" became a household term, the makers of the Pebble watch had been rejected, repeatedly, by investors. When the project's Kickstarter campaign exploded, VCs were suddenly desperate to invest, not just in the Pebble watch, but in any promising crowdfunded project. Kickstarter once hosted VC rejects; today investors lurk on the site looking for new deals.

But now, the power of Kickstarter has gone a step further: Companies that have already raised venture capital are using the platform. The latest example is Lively, a cellular hub with sensors designed to help independent senior citizens stay in contact with loved ones without requiring an Internet connection.

Yesterday Lively announced its Kickstarter campaign to raise $100,000. The campaign comes just three months after the company raised $2.5 million in Series A funding from Maveron, a Seattle-based venture capital firm. With $2.5 million in the bank, Lively does not need another $100,000. So why go to Kickstarter?

It is not, despite the makeup of the word "crowdfunding," about raising money. "We don't really see Kickstarter primarily as a crowdfunding platform for us," CEO Iggy Fanlo says, adding, "Most hardware companies would probably say the same thing." Instead, the company is using Kickstarter as a way to experiment with reaching its audience and raising awareness. "That's why the target is low," he adds. It's about getting an audience interested and invested, both emotionally and monetarily. Help with forecasting demand is nice, too.

See, a Kickstarter campaign gives the blogosphere several news hooks to write about the product before it is even introduced. Here is our campaign! Our campaign is almost over! Our campaign has reached its goal! It is ideal for building buzz when a product has merely been prototyped, long before the normal buzz cycle for such products occurs.

In Lively's case, that is a strange strategy, because the product isn't targeted at the gadget-loving readers of blogs that write about Kickstarter campaigns. Lively's potential buyers are what the company calls "sandwich parents," people caring for aging family members as well as their own children. They're not scouring tech blogs for the latest Kickstarter project to back. But with this campaign, Lively is hoping to introduce a new audience to the idea of crowdfunding hardware.

Beyond basic promotion, Lively also hopes the campaign will get that audience truly, emotionally invested. Even if it backers throw in just $1, Lively can stay in constant contact with them, making them more likely to follow through and buy the product when it is available. Being an early supporter like that builds loyalty.

Lastly, the campaign just makes practical sense: Kickstarter helps product developers get a sense of how popular their product might be. Without it, ordering that first manufacturing run can be a blind guess. If Lively's Kickstarter campaign blows up, Pebble-watch style, the company will know to go big on its first order. If not, it'll have a better sense of how conservative to be. For example, the vast majority of Pebble backers donated enough to pre-order a watch. "It's a beautiful thing to have when you're building a physical product, to see that demand and interest," COO David Glickman says. Lively will sell its product direct to consumers through its site and through TV shopping channels before looking for retail distribution.

It's not all sunshine and roses, though: Kickstarter is fighting hard to avoid a negative stigma when major campaigns that don't deliver on their promises. Pebble and other pre-order hardware campaigns were among Kickstarter's most successful (not to mention, profitable). But Pebble, and, by extension, Kickstarter, experienced a backlash when the watches shipped late and didn't work properly.

As a result, Kickstarter's founders have strongly discouraged the rise of a "shopping" mentality among backers, tersely declaring on their blog last September that "Kickstarter is not a store."

Lively's approach to Kickstarter has some precedent. Romotive, which makes the adorable iPhone accessory Romo, initially launched with Kickstarter campaign but later raised $6.5 million from Sequoia Capital, SV Angel, Crunchfund, Lerer Ventures, PivotNorth Capital and angel investors including Tony Hsieh. (Hsieh, Lerer Ventures and Crunchfund are PandoDaily investors.) Even though the company is now flush with VC money, Romotive took to Kickstarter to fund the second version of its product. CEO Keller Rinaudo explained to PandoDaily that the Kickstarter community of "happy-to-tinker" customers helped provide early feedback on the product before it went into major manufacturing.

Likewise, custom clothing business Blank Label used Kickstarter as a sample group to provide feedback on future products. SmartThings used Kickstarter as a promotions vehicle (though the $85,000 it raised helped things, too).

As crowdfunding evolves beyond the money into a marketing and demand-forecasting platform, Kickstarter can also evolve beyond its reputation (to some) as a place to buy techie gadgets. Because, guys, they mean it, Kickstarter is not a store.

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