Startups Take Mixed View of Crowdfunding at Stanford

CrowdfundBeat – Robert J. Mullins – Sr. Staff  Writer,

September 16, 2013 - Stanford University has created a nonprofit startup accelerator called StartX with a $3.6 million grant, as well as a separate fund, Stanford-StartX Fund, to actually invest in emerging companies. But StartX organizers and some of the startups themselves see a limited role for crowdfunding in nurturing these fledgling businesses.

Crowdfunding certainly helps to develop a prototype of a physical product or to demonstrate some market validation for a company, but here in Silicon Valley, funding from angel investors or venture firms shows a startup is better qualified as a viable business than one that just asks for contributions online, said Cameron Teitelman, founder and CEO of StartX.

“In Silicon Valley, if you crowdfund instead of taking money from angels, then it’s a negative signal,” said Teitelman. “They’ll be like, ‘Why didn’t you raise from angels? Could you not raise from angels and you need to get money from random people?’” Teitelman said.

Teitelman presided at a StartX event Sept. 12 in Palo Alto, Calif., where 11 startups that grew up within StartX presented their business models to potential investors. It was also a kind of graduation ceremony for companies that worked within StartX over the summer. StartX is supported by Stanford University as well as Stanford Hospital & Clinics because some of the startups are medical related. StartX mentors advise more than 300 entrepreneurs– including Stanfod undergraduates, graduate students and alums — in the development of their businesses.

While the emphasis at StartX is on angel investment and venture funding, a few of the companies have also done some crowdfunding.

“We have sought crowdfunding in the past and will do it again in the future,” said Adam Kell, co-founder of FlameStower, maker of a device that uses flame, such as from a campfire, to recharge a cell phone much like you would use a solar-powered device for recharging.

“The concept is called thermal electrics so it basically does the same thing for heat that a solar cell does for light,” Kell explained. “You can cook a pot of rice and charge your mobile phone at the same time. “

FlameStower raised a small amount of money on Indiegogo to create a prototype and build 50 models of the devices that were used for beta testing, he said. The company is next planning to raise another round through Kickstarter to gear up production. The company is currently pursuing market opportunities in North America and Europe with an eye on expanding into Africa and India.

While embracing his crowdfunding strategy, Kell knows that crowdfunding is no guarantee of success.

“There have been a lot of crowdfunding successes where people haven’t necessarily built the strongest businesses. StartX has been really good about facilitating along the path of building the business,” he said. “I think having product out in the world proved that [FlameStower was] not just thinking of a neat idea.”

But others in StartXconsidered crowdfunding but decided against it.

TangiblePlay is a startup that takes popular board games and creates a video game version of it. At the Sept. 12 event, it demonstrated a version of Hangman on an Apple iPad. With the iPad sitting in a holder, the iPad camera watches tiles with letters of the alphabet tossed down in front of it. If the letters are in the word the player is trying to guess, they pop up on the iPad display.

It’s been said that crowdfunding is better suited to business-to-consumer products than business-to-business ideas because the average investor can understand the B2C concept. But Jerome Scholler, founder of TangiblePlay, thinks there are limits to how far crowdfunding can take a business.

“What’s happening with crowdfunding is that you put a project out there and even if you have a very successful project funding, it’s very hard to convert that excitement into a real business,” said Scholler. “So what we try to do first is create the business and maybe use crowdfunding to really market it but not as a founding platform.”

TangiblePlay used angel investing to develop the product to the point where it could demonstrate it at the StartX event. It is using seed money to scale the business to where the product can go into production. It may use crowdfunding at some point to launch the product onto the market but that remains to be seen, he said.