We hope you’ve all had a great summer. We know it’s been a long time since our last major update in February, so this will be a big update. We’ll give you the latest status on MI Guitar, including manufacturing and shipping, as well as a full update on what’s happening at Magic Instruments.
First, we want to sincerely apologize for our long radio silence over the past months. We know that silence makes backers nervous, that we haven’t forgotten about you, and we haven’t disappeared. We’ve been working hard to make your guitars and get them to you as soon as we can, but that's not an excuse for us to keep you in the dark. We know you’re eager to hear about our progress and get an update on when you’ll receive your guitars. In the absence of regular updates, it’s understandable to believe that something bad has happened, and we want to assure you that’s not the case. If we’ve lost your confidence as a result of our being quiet, I’m hoping we haven’t lost it forever, and can gain your confidence back. So we hear ya, we need to get a lot better at giving updates - good news or bad news - and we will fix that moving forward.
In our last major update in February 2017, we announced that we were pushing back the ship timing of the MI Guitar from March to October 2017, because we needed additional time to improve the quality, durability, and usability of the product (in particular, a more durable neck and a better-sounding yet more energy-efficient speaker. Also, we decided to add some significant new features, most of all the ability to learn guitar chords and technique, and to be able to play the instrument like a traditional guitar. Virtually all of you felt this was a major improvement in the product. We also added a new LED status indicator panel on the neck so you could tell whether you were playing in traditional guitar mode or magic mode (and within magic mode, what key (e.g. E, A, D#) and scale (major, minor or blues) you were in). As a result, we needed to do significant additional work in mechanical engineering, electrical engineering, industrial design, hardware prototyping, user testing, and firmware and mobile app software engineering. In case you missed the February update, you can read it here: https://magicinstruments.com/blogs/news/february-update
Why have we been largely quiet for the past few months?
We’re aware of all the backer comments that have been piling up on Indiegogo, Facebook, email and Twitter, and we’re sorry we haven’t been more responsive. The key reason we’ve been quiet is that we’ve been fundraising, raising the additional capital we need to get through manufacturing and beyond. Raising funding is a critical part of any hardware startup’s journey, as crowdfunding provides just a fraction of the total costs in getting a product to market. We believed it was best for us to stay quiet while raising money. In hindsight, we should have shared this part of our journey you.
We wanted nothing more than to quickly close our funding round, and get back to spending all of our time and focus on engineering, manufacturing and shipping product. However, fundraising is an all-consuming process - arranging intros to potential investors, setting up meetings, making pitches, having follow-on meetings, going through due diligence - and has taken us longer than we expected. A typical investor sees 100-400 companies before deciding to invest in one. So it’s been lots and lots of meetings for us. And, it’s been a challenging environment for hardware startups to raise funding, given the number of hardware startup failures over the past 18 months. The good news is that we have commitments from three venture capital funds for funding. However, we need additional investors to fill out the round, so we’re still fundraising, and we expect the process to take several more months.
Some of you might be asking why Magic Instruments needs to raise more funding. After all, isn’t the $400K+ we raised from the Indiegogo campaign, plenty of money? Also, didn’t Magic Instruments raise money from investors last year, and isn’t that enough to build and ship the guitar?
Yes, we did raise funding last year, but we always knew that we’d need to raise more money before we could get the product to market. Designing, engineering and manufacturing a high-quality innovative consumer electronics product is capital intensive, and typically takes a few million dollars in up-front costs for R&D, and to set up manufacturing. In our case, since a guitar is large in size and weight (compared to, say, a fitness tracker, baby monitor or security camera), our costs for prototyping, production tooling, and packaging are much higher than smaller form-factor products.
Our up-front R&D costs include paying for designing, engineering, prototyping, testing, iterating, developing the firmware, building a mobile app, building back-end cloud apps to deliver content, manufacturing, packaging, shipping, logistics and fulfillment, and customer support.
To give you an idea of just a few of our expenses in developing the guitar:
- The injection molding tooling for manufacturing the guitar body and neck will cost close to $300,000. The cost of tooling is proportional to the size of the parts, and guitar-sized parts are big.
- Our last four prototype guitars, which we built for testing, validating and iterating our design and engineering, have totaled over $100,000. All the mechanical parts that we designed in each prototype were custom machined by a model shop using a CNC machine. Custom milling large, guitar-sized parts is incredibly expensive.
- Industrial design of the guitar and gig bag has cost over $200,000. Perhaps we shouldn't have invested so much in making the guitar look good, but we think it was worth it.
- Identifying and selecting the right manufacturing partners and key components suppliers, and negotiating contracts with them, has cost over $50,000 in legal, consulting and travel expenses, to visit and qualify various factories in the US, Mexico and China.
- Negotiating licenses for song lyrics and chord charts from music publishers, so our mobile app gives you a wide selection of songs to play, required us to retain a music licensing consultant and specialized attorneys familiar with the intricacies of music licensing and negotiating with music rights holders. Securing music rights has historically been a minefield for music startups, so we wanted to make sure we didn’t trip up here, unwittingly violate someone’s rights, and get sued. We’ve spent over $150,000 so far on music licensing consulting and legal expenses to negotiate the necessary licenses for the app.
These costs alone greatly outstrip the funds we raised on Indiegogo, and don't include all the costs of product development (mechanical engineering, electrical engineering, software engineering, video production), or general operating expenses (e.g. office rent, website development, computer equipment, software subscriptions, marketing, salaries and health care for our employees, bookkeeping and tax preparation, etc.)
As capital-intensive as it is to get a well-designed, high-quality hardware product through production and to market, we believe it's just as important to build an organization and company that can continue to support and improve the product for our customers, AFTER we’ve shipped and the product is in your hands. This includes providing regular content updates, such as additional songs and guitar sounds, building new features and/or apps, and providing firmware and mobile app updates, bug fixes and performance improvements, and building and staffing a customer support operation, so that your guitar continues to be useful and enjoyable for many years.
We always knew that this was going to be a capital-intensive undertaking from the start. What we didn’t anticipate was how long this current round of funding would take to us raise. We’re still in the process of raising funding, and we estimate it may take a few more months before we close the round and be able to solely focus on manufacturing and shipping.
What does this mean for the timing of you getting your guitar?
Even though we completed almost all of the design and engineering work required to start manufacturing a few months ago, we’ve been holding off kicking off production until we complete our fundraising. We need to make sure we have enough capital to get us not only through the first production run, but to also sustain ourselves after the launch. Otherwise, if we run short of cash mid-way through, or shortly after production and couldn’t pay our manufacturing partner, or if we couldn’t provide post-shipment customer support or we couldn’t update the content or the apps, everyone would lose in the process.
Given it will take us 6-8 months after we kick off the production process to get to mass production and ship the units, we’re now looking to ship your guitars the Summer of 2018. Yes, we’re pushing back the ship date of your guitars, and we know this is disappointing for everyone who’s waited so patiently for their guitars. We’d like to offer all our backers and pre-order customers (who have pre-ordered a guitar before today) a credit for 3 months of basic subscription fees to our mobile app, which gives you lyrics and chord charts for our entire song catalog. (Our mobile app comes with a 30-day free trial, so this adds an three additional months free to that.) We know this isn’t much, but it’s still a real expense for us, as even if we’re not charging you a subscription fee for 3 months, we still have to pay the music rights holders every time you play a song within those 3 months.
What are the next steps? For us, it’s closing funding as soon as we can, then kicking off the manufacturing and production process. Once we kick of production, in subsequent updates, we’ll give you an insight into the various stages of manufacturing and production.