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Watchmaker Pebble: From Crowdfunding Hype to Product Launch

Pebble Watches
Source. Getpebble.com
Pebble Watches

Upstart watchmaker Pebble announced at CES this week it would ship its smartwatch on January 23.

The smartwatch connects to a smartphone. "The idea is that instead of having to constantly pull out your smartphone, you can just glance down and see the key portion of the message right there," said Pebble CEO Eric Migicovsky on CNBC's "Squawk on the Street" Thursday. If you want to ignore the call, you simply shake your wrist. "If it's someone you can brush off, you can just cancel it right there," he said.

Fun features aside, Pebble's arrival to market hasn't been smooth. After becoming a darling on crowdfunding site Kickstarter last year, the startup ran into trouble when demand far outpaced supply, and the upstart wasn't able to deliver by September 2012 as promised.

(Read more: How Trendy Funding Puts Pressure on Startups)

And there in lies crowdfunding's rub. Skeptics argue the fast-growing funding platform that connects investors with startups can reward nascent ventures that aren't ready for business. But fans note crowdfunding is a way for capital-starved entrepreneurs to pocket financing, when they're ignored by large investors or traditional lenders.

How Crowdfunding Works

Crowdfunding broadly allows founders of nonprofit, for-profit, artistic and cultural ventures to fund projects by collecting relatively small contributions from a large number of individuals — often strangers — through the Internet. Since its founding in 2009, Kickstarter contributors have invested more than $300 million in more than 31,000 projects.

Pebble is a breakout success story in the crowdfunding space. It has raised $10.3 million in funding through some 68,900 backers since its Kickstarter campaign launched in April last year. "Our goal initially on the crowdfunding platform was to sell 1,000 watches. After 30 days, we had sold 85,000 watches," said Migicovsky, who also co-founded Pebble.

Manufacturing operations were moved overseas from the San Francisco Bay area to make 15,000 smartwatches a week. "The scale of our manufacturing had to go up by quite a bit," he said. Plans to source components through online sources were scrapped, and Pebble had to scour the globe to secure enough components to make the watches.

Despite the uncertainty surrounding crowdfunding, the space is marching forward — even as the Securities and Exchange Commission has delayed rules on the fast-evolving funding platform. The rules were supposed to take effect this month as part of the JOBS Act (Jump-Start Our Business Start-Ups), signed by President Obama last April. (Read more: The Crowdfunding Crowd Is Anxious)

Seeking Alternative Sources of Cash

Small-business owners, meanwhile, are finding ways to make crowdfunding work within the current guidelines, especially as traditional lending and credit conditions remain weak.

The net percent of owners expecting credit conditions to ease in the coming months was a seasonally adjusted negative 11 percent, according to the National Federation of Independent Business's December reading on small-business sentiment. In fact, more owners expect it will be "harder" to arrange financing. (Read more: Small Business Confidence Nearly Flat for December)

In this environment, industrious business owners are turning to everything from pawn shops (yes, luxury pawn shops to be exact) and upstart banks for cash infusions. (Read more: A Financial Service for People Fed Up With Banks)

And whether or not crowdfunding plays a role, expect more startups such as Pebble to mine the wearable technology space — among the trends at CES this week in Las Vegas. (Read more: At CES 2013, the Connected Home of the Future)

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