Last week’s deal between global distributor Arrow Electronics and crowdfunding platform Indiegogo represents a first-of-its-kind partnership and offers a potential glimpse into the next level of the crowdfunding model. Specifically, innovators and entrepreneurs will look to crowdfunding platforms to not only help them secure financing for a concept, but also provide the services and support to get their product into mass production.
Under the deal, announced May 20, qualifying Indiegogo entrepreneurs will receive online access to Arrow’s design tools, engineering experts, prototype services, manufacturing support and supply chain management services. Arrow estimates that the benefits offered to these entrepreneurs through the “crowdfund-to-production platform” could be worth up to $500,000.
Howard Orloff, former chief marketing officer at ZacksInvest and co-founder of VestLo, said that the Arrow-Indiegogo deal illustrates the growing importance of crowdfunding, not just among entrepreneurs but also among large established companies such as General Electric, which in 2013 entered a strategic co-investment partnership with Israeli crowdfunding platform OurCrowd.
“I think you’ll see deals like this across nearly every vertical,” Orloff said.
Dave Mandelbrot, Indiegogo CEO, said the Arrow deal represents “the next phase” of his company’s commitment to enabling entrepreneurs to take their ideas from concept to market.
“We have done a very effective job of enabling entrepreneurs to get funding, but that’s only part of the journey that entrepreneurs are on,” Mandelbrot said. “The next part is to actually get their products manufactured and into the hands of those backers or consumers that really got behind that product. We are very confident that this partnership with Arrow is going to really allow us to serve entrepreneurs in that way.”
According to a 2015 report by market research firm Massolution, total global crowdfunding investment last year reached roughly $34 billion, up from about $880 million in 2010. The same report predicts that crowdfunding investment is on track to top total venture capital funding for 2016.
Crowdfunding is a centuries-old concept that has taken on new life in the age of the internet. To date, online crowdfunding has been focused almost exclusively on helping entrepreneurs and artists by allowing those people interested in a project to provide funding to help it happen. More recently, crowdfunding platforms have inked deals with venture capitalists and service providers designed to go a step further.
For example, Kickstarter and Eastman Kodak last month announced an initiative to support independent filmmakers. Last year, General Mills business development unit 301 Inc. launched a multimillion-dollar capital fund through crowdfunding marketplace CircleUp to seed the development of emerging consumer food brands, becoming the first Fortune 500 company to launch an investment fund through CircleUp. Indiegogo itself earlier this year launched “enterprise crowdfunding” services to provide services that let large, established firms engage with the company’s audience of early adopters, entrepreneurs and makers.
But the partnership between Arrow and Indiegogo is the first deal specifically involving a global electronics distributor, designed to help fledgling electronics entrepreneurs not only get their product concepts funded, but also into mass production.
“I don’t think there was really as much of a need [for partnerships between crowdfunding platforms and distributors] before,” said Matt Anderson, chief digital officer at Arrow.
Anderson said the exponential growth in crowdfunding in recent years has resulted in more potential entrepreneurs getting access to capital, but then grappling with the challenges associated with taking the concept from a drawing on the back of a napkin to an actual product that consumers can use.
“I think innovation is really moving out of the hallowed halls of the largest companies in the world, and now it’s becoming much more democratic and social,” Anderson said. “If we are going to really propel the next wave of innovative and cool technology forward, it really requires someone with technical skill sets, design skill sets, manufacturing skills sets and supply chain to come and work with crowdfunding to make those great visions a reality.”
Orloff stopped short of calling the Arrow-Indiegogo deal a game-changer, but he said it was a smart move by Arrow that would enable it to “cherry pick” from available business opportunities with up-and-coming entrepreneurs. “I don’t know if it’s an evolution of crowdfunding so much as a strong brand really leveraging its brand currency to leverage a gap,” he said. “There’s a need.”
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