There is a lot being written about startups serving as the new R&D for the Fortune 500. While it is certainly true that large companies may struggle to innovate (the frequent subject of jokes in the social media world) and that investments in (or acquisitions of) early stage companies can act as a gateway to innovation for large, less agile organizations, it is not true that startups are the only source of technological advancement or that investors seeking innovation should be fishing only in the incubator ponds.
On the contrary, we see significant advancements coming from the small and medium sized business community, but often, by not being a part of a highly-touted tech incubator with an internal PR machine or not having sophisticated marketing capabilities in-house, the innovations of these SMB’s do not garner the same attention. This is unfortunate both for the companies, which may miss out on valuable exposure for their solutions, and the investor community, which may never see these compelling (and less risky) investment opportunities.
For example, FAFCO (a LOHAS Capital client), was founded in 1969 (yes, that’s not a misprint) and is one of the oldest and largest solar thermal manufacturers in the U.S. FAFCO is rapidly deploying its new solution, CoolPV, an enhanced solar electric panel that generates electricity and heats water from one panel using the same valuable roof space. Because CoolPV cools the solar electric module, it increases the output of the PV module by up to 20%. Including thermal energy, CoolPV can generate up to 4x the power of PV alone.
Likewise, SPARROW is the latest product of KWJ Engineering (another LOHAS Capital client). KWJ has been delivering innovative solutions in gas detection since 1993 and is a company of engineers and scientists with hundreds of collective years of experience in advanced gas sensing technology. The SPARROW, a consumer wearable air monitor and alarm that measures carbon monoxide, is the next evolution of their wearable gas sensor product line that started almost a decade ago with the Pocket CO, a commercial solution used by thousands of firefighters and health and safety professionals.
Notably, many of these SMB’s delivering new, innovative solutions to market are electing to raise capital through equity crowdfunding. They are raising capital to accelerate the commercialization of their products and services but doing so in the course of a crowdfunding marketing campaign that also builds awareness about the solutions with, in part, the target markets they hope to exploit. Ideally, some of their (existing or recent) customers or supporters become actual stakeholders, creating exciting new marketing options for the company.
From an investment perspective, these more mature organizations may also be great candidates for crowdfunding because they are established organizations with lower risks for investors but delivering real innovation from a position of deep industry experience – not two guys in an incubator with limited (or no) real background in what they are undertaking (in fact, a lot is now being written about age and experience and the sources of innovation).
For example, LOHAS’ launch of FAFCO’s CoolPV campaign has roared out of the crowdfunding gates, garnering over $200,000 in investment from 70 investors in the campaign’s initial days. Investors solely focused on startups are likely to miss out on these types of investment opportunities, which is unfortunate because professional investors might be offered preferred, pre-crowdfunding terms and/or be able to catalyze a campaign simply through their participation (generating greater follow-on investment).
So, for the SMB developing innovative solutions and fearing that there are not clear paths for investment to accelerate commercialization, recognize that crowdfunding may be a path for which the company is particularly well suited. And for the early stage investor shopping exclusively for innovation on the incubator aisle, remember that innovation does not come just from startups, and some of the best investment opportunities may be in a different (often overlooked) part of the store.
