James Proud, a former Thiel Fellow who sold his first company, is back with a new company and sleep-tracking product called Sense that’s “part-Nest thermostat, part-Fitbit,” as Forbes describes it.
In its original story, Forbes makes the company sound bootstrapped, saying Proud “seeded the company with earnings from selling his first startup,” and that the company’s “unmanufactured product” is now “subject to the whims of backers on Kickstarter,” where it launched a campaign this morning.
If that’s true it’s a little odd, given that Hello, the parent company of Sense, raised at least $10.5 million from 44 investors as part of an $18 million round back in January. So shows an SEC filing we’d stumbled across earlier this year.
Maybe the company used up that capital to develop the company’s slick prototype. Hello hasn’t yet responded to a request for more information this afternoon. [Update below.]
Even if it was short the $100,000 it needed to ship its product, it seems like it would have made sense to disclose the funding to Forbes. Instead, I did, asking the Forbes reporter in a tweet if the company was bootstrapped and sending him a link to its Form D. He later thanked me and updated the story, writing that “Forbes uncovered documents that Hello Inc. raised funds prior to launching its Kickstarter campaign. Details on that fundraising round have been included in the above story.”
Forbes added elsewhere that “Proud did not discuss Hello’s previous fundraising and was only willing to talk about Kickstarter.”
Forbes wasn’t the only outlet that didn’t report on Hello’s backing. The Verge, Buzzfeed, The Next Web, Ubergizmo and others to write about the device and its Kickstarter campaign, didn’t mention anything about it, either. TechCrunch meanwhile reported that Proud “didn’t disclose external venture funding, but you could assume there’s probably some significant round given that they’ve been working secretly on the product for about a year.”
For what it’s worth, I think it’s smart for venture-backed startups to test out their products on Kickstarter and other crowdfunding platforms. But if those companies want to turn to the public for support, they should be up front about their financing situations, both with reporters and with the people who might contribute to their campaigns.
Kickstarter may not insist on knowing about its customers’ balance sheets. (I’m still waiting to hear back from the company about whether publicly traded or venture-backed companies need to provide it — or campaign contributors — with salient information about their financial picture.)
I happen to care, though. Maybe it isn’t sporting of me, but if a company is going to go to such great lengths to tell people its creation story, why leave out something so significant?
UPDATE: Last night, Proud wrote me on Twitter that “always when asked about funding, simply said we’re not talking about it right now, but acknowledged we had raised money.” He then added, “[T]oo many companies launch with a focus that *isn’t* product. I did not want that to be the case for us.” Kickstarter has also responded to my questions this morning, saying that neither venture-backed nor publicly traded companies need to provide disclosures to potential campaign donors.
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You raise an interesting point. Frankly after having run my own hardware Kickstarter, the cost it takes to develop and manufacturing a product is relatively high in comparison to other ventures. On top of that most hardware Kickstarters give away a physical product that needs to be produced. The margin here is likely going to be significantly lower than in a gaming/software Kickstarter, for which you can create as many digital copies of a reward at next to no cost as seen necessary. At the same time, it is often expected to sell Kickstarter rewards at a discount, which can lead to margins of just 20-40% depending on the project’s creator reward pricing. Anyways, I think it is clear to anyone in the industry that these companies will have raised some money or will need to raise money. In all honesty, I’d rather have them raise the money upfront so that there is less risk of a failing Kickstarter.
With that said, many projector creators needlessly are afraid to state that they are funded and that the project will succeed either way. Without the sense of urgency, you will certainly receive less support for your project. It is probably not the most ethical thing to do, but as a startup founder you can never have too much cash to be honest.
Just my 2 cents.