Wednesday, August 14, 2013

If you can get both traditional and crowdsourced funding, do it (Arkami)

DISCLOSURE: I am employed in the biometrics industry. However, this post does not concern biometrics itself, but business models. And since my employer and its immediate competitors are large multinational firms, this particular company's funding methods are unrelated to those that affect me in my day job.

Arkami is a southern California-based company that is responsible for the myIDkey product. As a small startup, it found that it needed outside funding, and it recently turned to Kickstarter to achieve that funding.

Now the whole Kickstarter funding model is nothing new - if you've heard the commercials from Jim Koch (one of the two heroes of the Empoprise-BI business blog), you know that he started the Boston Beer Company with the help of funding from his "drinking buddies." And you can obviously do this outside of Kickstarter; recently, I participated in a crowdsourced funding campaign. But the whole idea behind Kickstarter and the like is that you ask ordinary people to chip in a few bucks for your project, and you offer them something in return. It could just be a thank you, or it could be something substantial; if you're asking people to fund product development, perhaps a certain contribution will entitle you to the product.

So Arkami started a Kickstarter project to raise $150,000 in development money. Partway through the funding round, Arkami had raised $354,000. By the end of the funding drive, $473,000 had been raised.

Now "social media experts" were probably falling all over themselves, saying that the wisdom of the crowds and collaboration and crowdsourcing and transparency and likes and comments and sharing cat photos were obviously valuable. #SoMe had not only liberated the Middle East (how did that work out?), but was now also bringing cool products to fruition.

However, while $473,000 is certainly impressive, it's not real money.

Arkami just announced that they've received some real money - $1.8 million worth. And they didn't go to the crowds to get it.

ALISO VIEJO, CA – August 13, 2013 – Arkami™, creator of myIDkey™, today announced a $1.8 Million Series A round of financing....

The funding round included investments from Gordon Clemons, McNeel Capital and Mark Swanson as well as a number of other veteran angel investors. The funding will be used to accelerate the development of myIDkey, meet customer demand, and facilitate company growth.

Perhaps the angel investors were impressed with the Kickstarter campaign, but they presumably evaluated many other factors in making their funding decision. Any yahoo can craft something to impress amateur investors, but professional investors want to see something more.

Now, if the myIDkey idea really takes off, then Arkami may eventually turn to another funding source - the one that Facebook pursued not too long ago.

So, the next time that some startup person asks you, "Should I look for angel investors, or should I crowdsource my funding?" your simple answer should be "yes."
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