Social media has transformed many areas, including real estate and online communications. Now, venture capitalists are betting the sector can even tackle product manufacturing.
Andreessen Horowitz and Kleiner Perkins Caufield & Byers are the latest venture capitalist firms backing Quirky, a company that uses social media to develop products that are then sold via major retail outlets like Bed, Bath & Beyond, Target and Amazon.com.
Norwest Venture Partners and RRE Venture Capital, two previous investors, are also participating in the round, which has raised $68 million. The investment brings Quirky's total capital raised to $97 million.
Bringing new products to market can be expensive and risky even for corporate giants. But by harnessing its 260,000 online community members via social media, Quirky can generate ideas and refine, name and price new products, said Ben Kaufman, the company's chief executive.
In exchange, the participants are paid a per centage of sales according to their level of influence. For example, the inventor of Pivot Power, a flexible power strip, is likely to net $500,000 this year, Mr. Kaufman said, while the creator of the product's tagline (“Flex Your Powerâ€) will earn more than $50,000.
“We'll pay out $2 million this year in royalties,†Mr. Kaufman said. The company had revenue of $6.7 million last year; Mr. Kaufman is projecting $20 million to $25 million this year.
Some firms like Kickstarter help inventors finance their ideas and others like Edison Nation serve as middlemen for inventors and large companies, but Quirky says it is social product development company that actually makes products.
“From inception to storefront or online presence, their time to market is up to 75 percent less than it is for the average product, and it's already gone through a serious vetting process with a lot of engaged consumers,†said Mary Meeker, a partner at Kleiner Perkins.< /p>
And that process, she said, is what gives Quirky the potential to be a consumer products powerhouse.
The company receives approximately 1,500 new product ideas every week, but most are rejected. Quirky develops only one or two of them, but Mr. Kaufman said he planned to use Quirky's latest investment to increase that to 10 to 15.
The products - like docking stations and toilet brushes - are designed and developed in Quirky's downtown Manhattan offices, where tooling machinery and 3-D printers churn out prototypes. Most of Quirky's manufacturing is done in Asia, although Mr. Kaufman's long-term goal is to bring as much production as possible back to the United States.
Mr. Kaufman said Quirky planned to use the new financing to expand operations. It also plans to add new invention categories like accessories for pets, sports, kitchen, travel and Apple products.
“To scale, he has to add more people and continue to expand distribution globally,†Ms. Meeker said. “There's no reason why they can't go up and down the food chain a lot more, gathering the best instincts of the best talent and rewarding them financially.â€
