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?
It's a bit tricky to call without understanding better what you mean by consumer electronics business.
If you smashed it out the park because you built the next 'Pebble Time' watch then I think most people (angels/VC) would be sympathetic to you courting the crowd.
However, if this was a more standard, less aggressively B2C electronics/hardware and your costs have runaway on you, you're likely to have a harder time.
I work for the largest angel network in the UK, so we are seeing a lot of people straddle the fence between crowdfunding/angel/VC and there's no doubt in my mind it's worth developing a strategy.
Be careful with the VC's - they are a fantastic way to scale, but if you are having cost control issues and you need the cash then that seems like a pretty shaky leg to stand on to me and that will probably be reflected in the terms you're given. Plus shooting £500k+ into a bucket that still has a few holes in it will put a lot of pressure on you as founders. Especially when you are now having to incorporate a whole new reporting structure.
The crowd is excellent source of cash but it sounds like some additional skills/contacts wouldn't hurt. I have a number of our investors who will steer clear of crowdfunding sites, it might be as much to do with the desire to feel they found the deals themselves. Or they have an expectation (again unless very B2C) that the company should mature beyond crowdfunding or at the very least do a blended angel crowd round and this largely means letting the angels in first.
There is no use in me hammering on about Angel Funding - because that is a non-discript term. Angels are people - if you think there is an individual who can add experience and really help you build your vision then to me it seems well worth hunting them down.
If cash is key and the business faces a gloomy future without it then at this point that's got to be your central goal.
So to circle round to your initial question of sanity, my answer yes - but be aware you face over exposure/deal fatigue (if people see you repeatedly raising) and the crowdfunding platforms often expect you to have part of the money already committed to create momentum.
It sounds like you know what a crowdfunding campaign entails - all fundraising is time consuming but preparing and knowing your strategy in advance will really help you.
Do feel free to reach out if you want help devising one.