The venture world is hunting for the next batch of billion dollar unicorns in the hardware market, and investors are turning to the crowd to source their deals.
VCs have already committed $516 million in funding for hardware companies this year, according to CrunchBase data — a significant jump from the $398 million captured in Q1 of 2014.
Projects that win over consumers on crowdfunding sites have proven able to reproduce that success in shopping centers and malls — Misfit raised $55 million in venture funding after its Indiegogo debut, and Pebble, Kickstarter’s most funded project to date, is holding its own against Apple in the smart watch race.
With big exits like Oculus VR, Nest, Beats, GoPro and Square, it’s no wonder that angel investors like Gil Penchina are now developing investment theses around the crowdfunding campaigns that give many of these hardware companies their initial boost.
Penchina has partnered with Indiegogo to launch a new syndicate on AngelList dedicated to investing in successful campaigns. His previous fifteen syndicates have been backed by over two thousand people and put $12 million dollars to work in deals alongside traditional firms like Battery and Bessemer.
The Indiegogo investment platform went live on AngelList yesterday and saw $75k in capital committed in the first five hours. They’re hitting the ground running and closing a deal today for Bluesmart, the YC-backed smart luggage startup that raised over $2 million in its December 2014 campaign.
Indiegogo has a good track record for identifying startup winners, which include social robot Jibo, home security system Canary, and the Misfit Shine. Since 2013, successful Indiegogo campaigns have raised a combined $210 million in follow-on venture funding.
“On a high level, it’s something like a 10 to 1 multiple — whatever you raise on Indiegogo you can raise ten times more in VC funds following,” says Indiegogo founder Slava Rubin.
“Companies are able to validate a product, test marketing, and prove that they can bring these things to market — this makes the conversation with VCs very different,” says Rubin.
Crowdfunding has proven a strong indicator of potential for many seed-stage funds. Hardware accelerator Haxlr8r is currently the most active investor in crowdfunded hardware projects, with 26 investments recorded to date.
The syndicate structure democratizes the investment process, especially in light of the new equity crowdfunding rules the SEC released yesterday. Previously, only accredited investors with $1 million in net worth could invest in private companies, but with the new Regulation A+ rules, anyone can invest up to 10% of income or net worth.
Penchina expects that many Indiegogo project enthusiasts will gladly invest $1000, the minimum investment on AngelList, to purchase a chunk of companies that they already bet on once.
“My parents were teachers, I’m first generation American, I didn’t go to Harvard or Stanford — this is about democratizing access to investing for people like me rather than leaving it to the elites and the rich,” Penchina says.