Kiwi company’s funding mix: CIA, No 8, Kickstarter
How do you get an investment from the CIA’s venture capital fund?
“Believe it or not, they phoned us,” says ikeGPS CEO Glenn Milnes.
We’ll get into that spook connection below. First, some immediate history.
Mr Milnes’ Wellington-based company came onto NBR’s radar this week with a successful campaign on crowd-funding site Kickstarter.com.
ikeGPS has blew through its $US100,000 goal, raising $US153,000 and counting with 10 days left on its campaign.
The company is raising money for “Spike”, a smartphone accessory that uses a camera, laser and compass to take accurate 3D measurements of any object you photograph. The measurements can be geotagged and instantly shared.
Many companies that take to Kickstarter to appeal for cash are startups.
In ikeGPS’s case, it’s going in the other direction: it’s an established company that’s looking to raise money to take expensive technology developed for military and power company customers, then launch a cheap, consumer version.
ikeGPS CEO Glenn Milnes tells NBR his company, formed in 2003, has previously sold industrial-strength mobile measurement gear. One laser-equipped measuring gadget can cost in the region of $13,000.
With the rise of powerful iPhones and Androids, it saw an opportunity to develop a smartphone accessory that offered much of the same technology at a much lower price.
ABOVE: ikeGPS' promo clip for Spike, taken from its Kickstarter page.
Like many on Kickstarter, ikeGPS’ campaign is based around pre-orders, which begin at $US299 for early-bird Spike buyers.
In ikeGPS case, there’s no doubt about whether manufacturing will get tee’d up. The company will simply use its existing facility. Mr Milnes says some components are contract-manufactured, but R&D, design, and final assembly all takes place at ikeGPS’ Newton, Wellington office.
Last week, Kickstarter opened its doors to Australians and New Zealanders (previously, it’s escrow payment system has restricted it to US citizens).
Previously some New Zealand companies have got around this restriction by taking on a US partner; in ikeGPS’ case that was unnecessary, Mr Milnes says – his company already has a sales office in the US (as well as one in the UK).
“We developed the current platform for the US military,” he tells NBR.
ikeGPS’ laser-measuring gadgets have also been adopted by power companies in North America, who use it for measuring power poles. Most sales are to the US, UK and Asia. Mr Milnes spends around half his time at his company's Colorado office. Sales are made on the home front (the NZ Army is small customer), but it’s not a point of focus.
How did ikeGPS break into the US military-industrial complex, which can be lucrative, but also has a reputation for being notoriously difficult for newcomers to crack.
It all started with that phone call Mr Milnes mentions above.
The CIA’s venture capital arm, In-Q-Tel, liked ikeGPS’ technology and wanted to invest.
It subsequently took a small strategic stake, in 2011, which it still holds today (ikeGPS largest investor remains Jenny Morel’s No 8 Ventures, the VC company behind the Morgo series of conferences for entrepreneurs).
With the deal, ikeGPS became In-Q-Tel’s first Australasian investment.
In-Q-Tel has been controversial. Companies it’s backed include Palatir, whose mass communications surveillance technology is said to be used by the NSA (Palantir mantains a secretive Wellington office).
What do the spooks think about ikeGPS taking technology it developed for the US military, then marketing a cheaper version of it to all-comers on Kickstarter?
Mr Milnes points out In-Q-Tel has backed many companies that have produced mainstream commercial technologies. For example In-Q-Tel, invested in the satellite imaging technology that was bought by Google. Its product was later launched as Google Earth. It was the same story with the company whose product became Google Sketchup (meaning that, yes, through the CIA, Google's user-frienldy 3D modellig software is part-funded by the US taxpayer. The Federal government chips in $US56 million a year toward In-Q-tel's investment fund, which is just oe of the many ways Uncle Sam subsidises Silicon Valley. And remember that no less an invention than the internet emerged from a government-funded technology created by DARPA, the Defense Advanced Research Projects Agency).
It was still hard work making sales to customers inside the US Defence establishment.
“We’ve all got a lot less hair as a result. But once you’re embedded inside one of those organisations it’s good,” Mr Milnes says.
The CEO won’t comment on his private-held company’s finances, but sales revenue is growing fast, and that it is profitable.
ikeGPS has just taken on five more staff for a total of 24; Mr Milnes says it’ll have 40 within a year.
Xero Xero Xero
Is there any thought to the company going public?
“The NZX is really interesting given the sentiment toward growth companies at the moment so it’s looking like a great place to be looking right now,” Mr Milnes says.
And no wonder given Xero's recent experience, plus that of recent tech listings like SLI Systems and Wynyard Group (whose CEOs, like Mr Milnes, are Morgo conference regulars).
However, there are no immediate IPO plans in the works.
Would ikeGPS use Kickstarter again? (It’s already added stretch goals to its current project, with new features being added to Spike as more money rolls in.)
Definitely, says Mr Milnes.
Kickstarter's true advantage
Kickstarter.com has been a great way to generate pre-orders for Spike, and fund the smartphone gadget’s manufacturing.
Yet the CEO says “It’s been more of an amazing experience for what’s happened off the site than on it. It’s been an incredible way to engage with the development community and a there’s been lot of interest from corporates looking to partner.”