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Crowdfunding success can help kickstart interest from VC firms

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The nights are the worst for any new parent, but Arturas Vaitaitis doesn't dwell on the sleeplessness. For him, a soundly sleeping baby was bittersweet.

"I had anxiety issues. I couldn't sleep. I would wake up in the middle of the night and go up to my son and see if he's fine," said Vaitaitis, who lives in North Bergen and works on Wall Street. "I would poke him, which would wake him up, which is a horrible thing to do."

But out of those experiences came the idea for Monbaby, a high-tech baby monitor encased in a button that Vaitaitis invented and is now trying to turn into a viable business.

His story is featured in a three-minute video on Kickstarter, the crowdfunding site where Vaitaitis, a native of Lithuania, is looking to raise $10,000 in the next 30 or so days.

For him, Kickstarter is more than just a fundraising tool; it's a proving ground. That's critical as more and more angel and venture capital groups are looking for proof of concept before they're willing to invest.

Because as one angel investor told Vaitaitis early on: "Show me a thousand preorders on Kickstarter and the money is yours."

Crowdfunding is fast becoming a major player in the startup space. The federal Jumpstart Our Business Startups (JOBS) Act has made it easier for entrepreneurs to raise money from the masses, and many, including Vaitaitis, are taking advantage.

Vaitaitis is seeking product crowdfunding, which is popular through sites such as Kickstarter and Indiegogo and gives entrepreneurs money to create a physical product. But there are also equity crowdfunding sites, such as SeedInvest and Wefunder, that allow people to invest in startups, sometimes for as little as $100.

Katherine Kish, executive director of Einstein's Alley, a nonprofit that supports technology growth in New Jersey, said the impact of crowdfunding is so far more psychological than financial.

"It gives new entrepreneurs a sense that there is another way, and I think it might give them more confidence (to approach angels and venture capitalists)," Kish said. "I think it gives new energy and new avenues and new doors to the whole funding world, but it's not a significant percentage yet."

Part of the reason why the crowdfunding concept has such significant potential is because the barriers to entry in the startup space are lowering, Kish said.

The costs of prototyping are minimal, compared to what they were years ago. And if 3D printers continue to gain momentum, those prototypes can be made in hours rather than weeks, she said.

The need for personnel in startups has gone way down, too, which limits the high cost of labor, she said.

"This is one of the sea changes that we're starting to have come on the horizon," Kish said. "The goofy company with the Candy Crush game? They don't have many employees. They don't need many employees. We're starting to see that that huge cost of labor is not such a big deal anymore."

For those reasons, Jim Gunton, a general partner with the NJTC Venture Fund, said he believes crowdfunding is poised to be huge in the not-so-distant future.

"I have to think that over the next five to 10 years, that's going to take a bigger and bigger part of how investing gets done," Gunton said. "It just makes a lot of sense."

It does for Vaitaitis.

At first, he was thinking a Kickstarter campaign would generate publicity and elicit customer feedback, in addition to raising funds. More and more, he sees startup pitches beginning with a slide about traction, a sign that investors want proof of concept before handing over any cash.

"Everybody's looking for traction, having a large customer base or a large interest of press," he said.

Now that he is halfway through the campaign, his mindset has shifted. He no longer plans to seek angel or venture funding in the near future, regardless of how much money he raises.

Instead, Kickstarter has proven to him that Monbaby has potential. So he's going to take the customer feedback he's getting through the site and the publicity Monbaby has already generated and see if he can make it work without outside investors.

"We're going to be going with the natural growth plan," he said.

E-mail to: maryj@njbiz.com
On Twitter: @mjohns422

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