Konnected embraces crowdfunding for an equity raise

DIY security company Konnected is in the midst of raising up to $1.07 million on the StartEngine crowdfunding platform to fund its next phase of growth. Unlike the startup’s previous crowdfunding campaigns, which were designed to raise money for building new products, this is an equity raise, with supporters getting stock in the five-year-old company.

Konnected founder and CEO Nate Clark said he decided to raise money to help grow the company; he chose crowdfunded equity as a way to avoid having to go to venture capitalists. “I saw firsthand what happens when you have venture funding and lose your mission because of a push to grow the business,” he said. “It would be a different vibe and different business model if [Konnected] were led by a VC.”

That doesn’t mean he’ll never seek venture capital, just that based on his active community of users and previous experience with crowdfunding he’s excited to sell shares to a broader audience of existing customers and those who search for investments on StartEngine. So far, the funding has netted a bit more than $556,000, with 393 investors participating.

Konnected got its start in 2017 with a crowdfunded campaign to build a board that consumers wire into an existing alarm panel in their home. Both the original and the second-generation Konnected panels let buyers repurpose the existing sensors from an earlier or existing security installation and control it from their smartphone. Konnected subsequently added integrations that tied the older components to new platforms such as Amazon Alexa and Samsung’s SmartThings. The third-generation Konnected product added support for Ethernet and Power over Ethernet.

Installing any of the Konnected panels requires a bit technical skill because users have to pull out the existing board inside an alarm panel and rewire the sensors through the Konnected panel. It’s on a level of difficulty on par with replacing a thermostat, so non-experts can actually do it. I did.

When I used it, I thought it was an excellent product, both because it used what was already in an average home and because Clark was so clearly trying to meet the needs of the user community. Konnected responds to user feedback with product updates and features, and seems focused on bringing security to a modern era.

And now, like HomeAssistant, Samsung SmartThings, and other old-school DIY smart home platforms, Konnected is trying to boost its offerings to appeal to more mainstream users. With this in mind, the company is building a smart garage door opener and a cloud platform. But to fund these growth plans, Konnected needs more money.

I’m intrigued by Clark’s decision to use crowdfunding, for two reasons. The first is that Konnected is one of a few remaining IoT hardware startups that built something necessary and useful for early adopters and is now trying to parlay that into a product for more mainstream customers. I’d love to see it succeed, and the market for connected security products is only expanding.

The second reason I’m intrigued is because I think the wave of VC money that flowed into the smart home space caused problems. The wash of funds resulted in poorly thought-out hardware businesses that strove to grow hardware sales without thinking about the ongoing cost of connected hardware. This led to the creation of subscription business models, which can be a really hard to sell for consumers who just spent money to buy the connected device itself. Pressure from venture investors also drove many startups to sell to larger companies, shrinking the overall number of smart home options consumers might have otherwise had.

Nor is Konnected big enough for a venture capital-style investment. The company reported $1.1 million in revenue for 2020 and a $187,000 profit. While it is raising money, it considers the fundraising as an accelerator to growth based on the fact that it is currently profitable and hopes to continue being profitable. Indeed, Konnected’s financials are almost inverse to those of traditional venture-backed startups, which emphasize growth over profitability and spend accordingly.

At least one of Konnected’s investors is fine with this. Jason Passwaters, who is also a Konnected customer, invested more than $50,000 in the startup after getting an email about the fundraising campaign. He said that when he looked at Konnected it reminded him of how smart devices such as Ring and the thermostat from Ecobee changed the market. After all, as he noted, “Ring was bought by Amazon for, like, a billion dollars” back in 2018. Last year, Generac purchased Ecobee for $770 million.

However, Passwaters said he isn’t “some big investor,” and that he invested the money in part because he believed in the tech, liked the overall opportunity, and was impressed with Clark’s energy. While he did read the financial documents affiliated with the offering, he seemed happy to participate in the fundraising and figures that if he simply gets his money back that would be “cool.”

I really hope it works out for both Clark and Passwaters. And not just because it will benefit Konnected, but because I think this is a model that will benefit some of the smaller, grittier DIY smart home projects out there as well, such as Hubitat or HomeAssistant.

Update: This story was updated on February 10, 2022, to correct the founding date of Konnected. Clark began working on it in 2016 but incorporated the company in 2017. The caption was also changed.