Is Crowdfunding a Viable Startup Option?
HVAC Companies Consider Alternative Fundraising through Indiegogo, Kickstarter, and Others
The traditional way of bringing products to the marketplace is being turned on its head with the growing popularity of crowdfunding. While this method of funding new products and startup companies has been around for years, it was heavily regulated and difficult for entrepreneurs to take advantage of in the U.S. That all changed in 2012, when President Barack Obama signed the Jumpstart Our Business Startups (JOBS) Act into law, which essentially legalized equity crowdfunding.
Since then, numerous crowdfunding websites such as Indiegogo, Kickstarter, and Fundable have popped up, raising billions of dollars for various products, causes, and ventures. And, this trend is expected to grow. Fundable acknowledges this trend on its website, noting that over the last five years the crowdfunding industry has grown 1,000 percent, and is expected to generate $500 billion in funding and $3.2 trillion in economic value annually by 2020. As a result, companies are looking at this alternative method of financing in order to bring all kinds of new products to market, including products for the HVAC market.
How it Works
The crowdfunding concept is really quite simple: A group of people pool money together, usually via a website, in order to help companies or individuals finance business ventures.
John Pollock, partner, PoG Technologies LLC, decided to try crowdfunding in order to get his new product, FilterWatch, off the ground. As an engineer with no background in HVAC, Pollock came up with the idea for the product after he paid in excess of $400 to fix one of his air conditioning units. He found out that, if he’d changed his filters regularly, the costly repair likely would have been unnecessary. So, he was inspired to come up with a low-cost product to help solve this problem.
“My partner and I ended up designing an externally mounted, battery-operated sensor that, when attached to the return vent or room register, will monitor airflow and send an alert when the filter needs replacing,” said Pollock. “There are other methods available that claim to do the same thing, the most common being the thermostat that alerts a user when the filter needs to be changed based on the HVAC run time. We addressed the inaccuracies of that method, added positive visual and audible alerts, and added wireless support for home automation systems.”
Pollock crowdfunded three times in order to raise the $15,000 necessary to buy the molding equipment needed to manufacture the product, and, as of November, he had sold 650 units through his crowdfunding campaign. “We have also been contacted by one of the largest HVAC distributors in North America and will do our best to nurture that relationship.”
Like Pollock, Ran Roth and Omer Enbar, Sensibo’s CTO and CEO, respectively, had no background in HVAC, but both had worked extensively for various computer companies. They were inspired to create Sensibo — a device that connects any remote control-operated heating or air conditioning unit to the Internet — after suffering through the heat of another Israeli summer.
“We were tired of coming home to a hot environment and then waiting around for the house to cool down in order to be comfortable,” said Roth. “So, for fun, we came up with this device that could turn on the air conditioner remotely and cool down the house before we got there. We decided it was a good idea, and we started giving prototypes to people.”
Sensibo consists of a smart hub that connects to the home router and communicates via ZigBee to a pod that attaches externally via mounting tape to the HVAC unit. Only one hub is needed per home, but each unit must have its own pod. The device can be used with HVAC equipment from any manufacturer, as long as that system is operated with a remote control. Users can access and operate all of their units via the Sensibo app, which also offers features such as alarm clock synchronization, warm wake, fast cool, sleep mode, and more.
It soon became clear that if Roth and Enbar were to offer Sensibo on a larger scale, they needed to secure funding in order to test and manufacture the devices. “Israel is an entrepreneurial nation, and we come from the startup spirit, so we decided to launch a crowdfunding campaign in May 2014, and we raised $165,000 through 1,300 backers. Right now, we are in the final testing phase, and we expect to ship Sensibo to our backers in the first quarter of 2015.”
Ed Hemphill, cofounder and CEO, WigWag, came from a startup company that made high-end video conferencing codecs. As he traveled to places where video conferencing systems were installed, he noticed that most sites had a touch panel that was meant to automate everything, but he discovered that most users did not like that feature.
“I noticed that today’s automation systems were really hard to program and difficult to add capability to, so I wanted to create more than a traditional hub, which usually limits users’ abilities to incorporate devices of other protocols and prevents more advanced users from playing with the code and API [application program interface],” said Hemphill.
To that end, Hemphill created the WigWag Relay, which is a mini computer that allows smart devices to work together in a plug-and-play fashion in order to create a smarter environment. It connects WigWag devices together, such as Sensor Block, which detects and responds to motion, temperature, humidity, noise, vibration, acceleration, and ambient light; Glowline, which provides dynamic indirect or mood lighting; and other Wi-Fi devices such as light bulbs and smart outlets. Since it is built modularly, users can customize the relay with dongles for different protocols, including Z-Wave, Bluetooth, Insteon, ZigBee, and X10.
“Crowdfunding provided a useful way to simultaneously build momentum and gauge consumer demand for WigWag’s hardware and software, DeviceJS,” said Hemphill. “We used Kickstarter in order to validate that we were on the right path and that there were enough people who would be interested in this technology.”
WigWag’s campaign was successful, as it surpassed the initial goal of $50,000 and raised more than $450,000. More than 1,700 pre-orders were generated, and WigWag products will soon be available through the company’s website, as well as Amazon and NewEgg.
Tougher than You Think
While the concept of crowdfunding may be simple, its implementation can take a lot of time and effort. “Don’t let anybody fool you: Crowdfunding is every bit as tough as just going out and raising venture capital, if not more so,” said Hemphill. “You’ve got lots of individuals to deal with, and some of them get very upset if things don’t happen on time.”
Pollock agrees that crowdfunding can be challenging. “We were successful, but we worked hard at it. We modified our message regularly, and we tracked backers as the message changed. As engineers, this was a little frustrating because we wanted to be developing the product, not spending hours and hours on social media trying to lure backers.”
In the end, Pollock collected the funds needed to manufacture FilterWatch, and he learned what message resonated with the end user. “Still, it was a little disappointing to know we created a device we believe will save an enormous amount of energy and money, and some guy collected twice as much to make potato salad.”
Finding a message that resonates with potential investors is the most difficult part of crowdfunding, said Roth, which is why his company waited a year before rolling out the campaign for Sensibo. “If you start a campaign without the right public relations, a good idea could fail. We wanted to make sure both the product and the messaging were ready, so we took the time to create a pretty funny video, which ended up getting a lot of attention.”
While there are challenges to crowdfunding, Roth believes the rewards far outweigh the risks. “It allowed us to test our idea quickly, and we got wonderful ideas from the community. I think that was maybe the biggest advantage to the whole thing.”
Hemphill agrees, noting that crowdfunding draws together bright people who have a lot of great ideas and want to contribute to the development of the product. “Through crowdfunding, we were able to learn a lot about our customers and what they wanted before we shipped them anything. That was immensely valuable and one of the best assets that we gained from the process.”
Publication date: 1/19/2015