Businessweek Archives

Customer-funded Innovation


How will the economic crisis affect the way innovative start-ups raise money?

That’s the question that prompted this post, and that led me back to this June 2008 article by my former (and dearly missed) colleague Matt Vella about Icon Aircraft, the start-up developing the A5 – a sexy, light-weight, sport plane. It turns out that Icon isn’t just developing an innovative product, it’s trying an innovative funding strategy – turning to a limited group of customers to raise $10 million dollars.

In case you missed the story, here’s Matt’s lovely description of the A5: “The small, futuristic aircraft, which features folding wings that tuck neatly under a slim rear tail, looks like a cross between a Lamborghini and the very light jets popular with globe-trotting executives. … When it finally rolls onto runways sometime in 2010, the A5 will cost about $139,000.”

The innovative funding program is the Icon 100 and it offers people the chance to put down a deposit of $100,000 (fully refundable) to own one of the first 100 planes to be produced. These limited edition planes will have an upgraded interior and special exterior paint scheme.

In the world of airplanes and high-end cars and motorcycles, it’s customary to ask customers to put down hundreds or thousands of dollars as a deposit. That money goes into an escrow account, and is refundable. And indeed, Icon is offering customers the chance to put down $5,000 to buy an A5. Such deposits serve as market validation when the company goes to VCs or other funders, but that money isn’t usable capital.

That’s where the Icon 100 program is innovative, because the $100,000 that each buyer puts down goes straight into the operating costs needed to bring the A5 to market. “That’s

$10 million that we don’t have to raise some other way,” says Craig Bauers, Icon vice president of sales. Forty-one customers have signed on since the program launched last June.

As an early stage start-up, Icon isn’t directly affected by the credit crisis that’s left many established companies hamstrung. But no one is immune to the economic downturn, including the more traditional sources of start-up capital like angel investors or Mom and Dad. Bauers admits that the number of people signing up for the Icon 100 program has slowed since last fall. Nevertheless, it’s a great time to have another potential source of funding.


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