We are a consumer electronics business that completed a successful crowdfunding campaign which jumpstarted our business. However after some months, our manufacturing expenses are very high and we have started to look for investment options. We have some offers from VC's, but we are not sure if they will be a good fit for a hardware startup. Is giving away equity to crowds of people a sane thing to do? Has anybody been in this situation or has experience in it?
I don't think there's a right—meaning, sane—answer here. How much capital do you think you'll need over the next 4-5 years? Series A? Series B? So on? Some, but not all, institutional investors will take a look at a cap table made longer by crowdfunding the way kids look at a pool that's been peed in. They might politely decline to hop it. I don't say that to scare you, but just so that you'll be aware. Totally agree with Owen's point: it might make sense to raise LESS money with a MORE strategic investor. One dollar with Investor B might have more long-term value, in the form of introductions or domain expertise, than the same dollar from Investor A. Regardless, ask yourself this question: what is the absolute minimum we need to raise right now? Now multiply that times 1.5. Then, figure out a Plan A, B, C, and D for getting there. Plan A might be a big influx of cash. Plan B might be a mix of cash and some business development from a new advisor. Plan C might include minimal cash, a new channel partner, and a few big contracts. Plan D might be a pivot or hopping into bed with a manufacturer to cut your costs.
Happy to discuss more if you'd like. Get in touch!
Answered 7 years ago