United States - Flag United States

Please confirm your currency selection:

Are you sure you want to log out of your MyMouser account?
Bench Talk for Design Engineers

Bench Talk

rss

Bench Talk for Design Engineers | The Official Blog of Mouser Electronics


Proof-of-Concept Funding and the Crowd Funding Option David Talbott

Proof-of-Concept Funding and the Crowd Funding Option Theme Image

One of the greatest challenges engineers face in developing an idea is paying for it. Building and testing prototypes can be expensive. It involves design work, PCB fabrication, buying components, assembling and testing circuits, building enclosures, and beyond all of that, it requires market outreach to find potential customers who can test inventions under real use-case conditions. Doing all those things takes time and money, yet in this highly competitive world, time is something that is in short supply. If an inventor takes too long to perfect their innovation, someone will beat them to market with a competitive product. That’s why it is so important to have a well-managed, rapid prototyping program that can take an idea and turn it into a market-ready product as quickly as possible. Of course, speeding up the process requires money and resources.

Proof-of-Concept Funding

Proof-of-concept (POC) funding provides funds needed to take an idea beyond early conceptual stages. With POC funding, innovators gain the means and resources they need to establish the viability of an idea through further development, prototyping to confirm technical sustainability, and marketplace testing.

Traditional Proof-of-Concept Funding Options

POC funding can come from any number of places. For instance, if you develop an idea that aligns with your employer’s product line or is something the company could potentially sell to its customer base, the company might provide the funding needed to prove the idea’s viability and develop it into marketable technology. Some technology companies have programs that offer support and funding for promising innovations based on their technology, regardless of where those innovations come from. Many universities with engineering programs give POC funding grants to further the development of research into a marketable product. Technology incubators and hardware accelerators are also options for POC funding. Technology incubators, typically hosted by regional businesses, provide workspace and access to venture funding. Hardware accelerators furnish funds for technology and business development in exchange for an equity interest in the venture. Though many traditional sources exist, obtaining POC funding through grants, venture capital, and accelerators can be challenging because these funding sources are highly selective.

The Crowdfunding Option

Crowdfunding is a popular and accessible source of POC funding. It promotes ideas to a broad audience of potential investors who may include your own network of friends and contacts as well as others who take an interest in your idea. This is very different than a traditional approach to funding, which requires carefully preparing a proposal and selling the idea to selective funding sources one pitch at a time. Crowdfunding casts a wide net. Rather than seeking out one or two large investors, crowdsourced POC funds can come from hundreds or even thousands of small pledges. It is especially valuable as an early-stage funding mechanism that may serve as a stepping stone to more significant venture capital once you establish the viability of your idea.

Crowdfunding offers a number of advantages over traditional funding sources. One of the most important is it gives you an early read on market interest in your idea. If you present your proposal on a crowdfunding site and it fails to generate interest or raise funds, this tells you something about your idea before you invest a large amount of money into building prototypes. On the other hand, if you raise ten times more money than you expected, you have a good indication that the design can generate public interest and most likely addresses a market need. Although raising money is what you are trying to do, crowdfunding also allows people to comment on your product idea and ask questions. This kind of market feedback can help validate and even refine your product design.

Another significant crowdfunding advantage is that it gives you instant market exposure. Not only are you exploring how receptive the market is to your idea, but you are promoting your idea at the same time. This initial market exposure is the first step in building market interest and brand awareness for your idea. Along with that comes a much larger audience than you would be able to reach through a traditional fundraising strategy. Crowdfunding websites have global audiences, and they work like social media. If people like your idea, word spreads.

Most crowdfunding sites focusing on technology projects use a rewards-based model that offers rewards to backers. These rewards can take many forms, such as a discount on a product or a preorder that puts the backer in line to receive the product as soon as it’s available. Table 1 lists leading crowdfunding sites and their fee structures.

Table 1: Popular crowdfunding sites and their fee structures.

Site

Description

Fees

Kickstarter

This rewards-based platform sets funding goals. If an idea fails to reach its funding goal in the allotted time, all monies collected are returned to the backers. Only after a goal is reached does Kickstarter release funds to the creator. Then it is up to the creator to fulfill the promises made to the backers.

5 percent of collected funds plus payment processing fees if the fundraising goal is achieved. No fees if the goal is not achieved.

Indiegogo

Rewards-based platform that offers a fixed funding goal in which the creator receives funds only when the goal is met, or flexible funding in which the creator receives funds as they come in. You can continue raising funds after the campaign ends to support production or order fulfillment. Creators are responsible for fulfilling the promises made to the backers.

5 percent of collected funds plus payment processing fees on all funds distributed to creators.

Fundable

Supports both rewards-based campaigns and equity-based campaigns in which backers get an equity stake in the business. Creators are responsible for fulfilling the promises made to the backers.

$179 US dollars per month during the campaign period, plus payment processing fees.

Conclusion

Crowdfunding is often the fastest way to receive real market feedback and idea validation, and it is an excellent way to raise money for early-stage prototype development. It can also prove an idea to the point where a hardware accelerator or other investor is willing to take a serious look. Although crowdfunding may not give you everything you need to develop your idea so that it is ready for manufacture, it is a great place to start.



« Back


David Talbott is an IT and Technology Analyst with Mighty Guides who focuses on emerging technologies including deep learning, cloud and edge computing, and ubiquitous connectivity, and how these technologies converge to create powerful self-learning systems.




Comments are closed.

All Authors

Show More Show More
View Blogs by Date