Dear Backers, Supporters and Early Customers,
Here is our final update for 2017. The topics we’ll cover are customer support, fundraising, manufacturing, refund policy, and future updates.
In our previous update from September 2017, (here in case you missed it: https://magicinstruments.com/blogs/news/fall-update ), we let you know that were delaying the shipping of your guitars until Summer 2018. It was taking us longer than expected to raise capital from investors to fund the high up-front costs of manufacturing.
We realize this announcement, along with our lack of more regular updates and our lack of responsiveness to your emails and messages, has made a lot of you disappointed and upset (and rightfully so).
So, first, I’d like to apologize for our lack of responsiveness and communication. We don’t have any good excuses for that. We were so focused on fundraising that we didn’t properly prioritize customer support, and neglected to respond, in a timely fashion, to your many emails, Indiegogo messages, and Facebook messages.
We are determined to do better. Over the past two months, we have responded to virtually all new inbound customer messages within 48 hours, and most within 24 hours. We’ve been steadily working through our backlog of outstanding customer messages, and have now responded to almost every message that has come through in the past 4 months. We may have missed a few messages, so if yours slipped through the cracks, please let us know and we’ll get back to you much more quickly from now on.
We’ve also held phone calls with some of our most vocal backers, to get your feedback, criticism, and advice. As hard as it’s been for us to hear some of the feedback, it’s been great to connect and hear your perspective. You have let us know, loud and clear, that it’s mostly the lack of communication and responsiveness that’s been unacceptable.
We know still have a long way to go before our previously poor customer support turns into good customer support. Thank you for your patience and understanding, and thank you to everyone who’s cared enough to write or call. We’re going to keep on improving, and the proof is in our actions, not words.
Next, I’d like to update you on our fundraising efforts.
Over the past year, we’ve been trying to raise a $2 million funding round. Despite getting a term sheet from one of the top Silicon Valley venture capital funds, and verbal commitments from some others, we haven’t been able to close a lead investor for our round (someone that can write a $1 million check). We’ve heard from numerous investors something along the lines of, “we love your product and the team, but no venture capital firm has ever had a successful exit on a musical instrument, and also we don’t want to fund manufacturing risk, so come back and talk to us once you’re shipping product.”
A larger trend that we’ve also been fighting is that venture capitalists have by and large shied away from funding consumer hardware startups in the past year. This is partly due to the lack of exits in the space, as well as the failure of well-funded companies such as Jawbone, Lily Drone, 3D Robotics, Pebble, Skully, Njoy, Hello Sense, FUHU, Zeebo and Juicero. As a result, it’s been incredibly difficult to raise capital, especially for a non-traditional category like musical instruments.
So we’ve been stuck - we haven’t been able to start manufacturing and shipping without raising the round, and we haven’t been able to raise the round without already manufacturing and shipping.
Our lack of success in fundraising is a key reason we haven’t provided more regular updates over the past 6 months. We didn’t have much to report on the product side as we finished most of the engineering, and on the business side, we had already lined up most of our manufacturing and supply chain partners. Most of all, we feared that regular updates letting you know about our struggles in fundraising would scare off new potential investors.
Now for the good news. We have figured out a way to start manufacturing the guitars without having to first raise a big round of funding!
Previously, our plan was to manufacture our guitars in a high-volume contract manufacturing facility in China. We were going to make the plastic parts of the guitar using injection molding, which is a manufacturing technique whereby molten plastic is injected at high temperature and pressure into a hard steel tool. The benefit of making plastic parts via injection molding is that you can make high quality parts at very high speed, at a low cost per part. However, the disadvantage of injection molding, particularly for a physically large product, is the high, upfront capital costs for the tooling. Combined with the MOQ (minimum order quantity) requirements of the factory, we needed $1 million just to commence the manufacturing process, with first units expected 7-9 months down the road.
Around two months ago, we learned of another manufacturing technique for making high-quality plastic parts - urethane casting - that doesn’t require massive, up-front capital for tooling. Instead of expensive hard steel tools, we can make soft molds of our parts using a platinum silicone. We then pour liquid polyurethane casting resin at room temperature into the silicone molds. The polyurethane resin hardens and sets in a few hours, and then we can remove the finished plastic part from the silicone mold.
Urethane casting has several disadvantages versus injection molding. These include: 1) the risk that the parts don’t form perfectly, if air bubbles are trapped inside the mold, 2) silicone molds yield only around 25 parts each before we have to make a new set of molds (versus hundreds of thousands of parts for hard tooling), 3) it’s laborious, time-consuming and harder to scale up manufacturing, and 4) the per-part unit price is significantly higher.
However, the biggest benefit that urethane casting brings us is that it only requires around $30K in up-front fixed costs. Which means we can afford to get started with this manufacturing technique today. For the volumes that we need to produce right now, to fulfill your orders – urethane casting is more than adequate. (We’ve heard of some companies that produce thousands of units a month using this manufacturing method.)
We’ve done a lot of research, and have met with a number of experts and companies that provide silicone molding and urethane casting services. We’ve spoken to some of the leading manufacturers and distributors of silicone and polyurethane. We’ve ordered and analyzed samples of various types of silicones in different durometers and polyurethanes with different shore hardnesses, strength factors, pot and demold times.
In the past month, we have been working with an expert mold-maker and caster who has analyzed every part of our guitar, and has determined that it’s feasible to manufacture our guitar with urethane casting. We’ve hired this expert to make our first sets of molds, as well as cast the first parts, and we will be officially kicking off our manufacturing process in January 2018. We will be making your guitars in the USA.
Since we’ve already made a high-quality prototype of our final production design, we will be using the parts from that prototype as the “master” to create the silicone molds for the entire set of plastic guitar parts. (We’ll be sourcing the few metal and rubber parts separately, as well as the electronics.)
Once we’ve made around 100 guitars successfully, we’ll understand what the key bottlenecks are, and what kind of cycle times we can achieve, and we’ll then look to scale up manufacturing.
Overall, we’re thrilled that we will be able to start manufacturing the guitar in the US sooner than later. I’d rather not overpromise the delivery date right now, but we should be able to start shipping the first units before Summer 2018.
The next steps for manufacturing are:
- Make silicone molds of all the plastic and rubber parts in the guitar. The large plastic parts (guitar body front and back) are the most complex and risky, so we’ll be tackling those first. We’ll have to do some minor reengineering of some of the parts to optimize them for urethane casting (e.g. thicken some walls). We will make the first set of molds in January 2018.
- Cast the first parts, and determine how much reengineering needs to be done to optimize the molds to yield high-quality parts. We’ll also determine whether we need any additional equipment, such as pressure pots or an industrial oven in order to ensure high-quality parts and high yields.
- Make the small metal parts in the guitar that provide structural support for the guitar strap buttons and input/output jacks and ports. We will find a local metal fabricator in Los Angeles for this.
- Find a US-based manufacturer for the electronics. Our circuit boards are straightforward to make, so this is mostly a matter of finding the right vendor who is willing to work with us at the right price. Over the past few weeks, we’ve met with several electronics manufacturers, and expect to select one in January 2018.
- Finish the firmware. Although most of the firmware is done, we have some additional work to finish the algorithm to process the inputs from the strings, as well as support the new LED display panel on the guitar neck. This should take around two months.
- Complete the first assembly of the first guitars. We’ll be hand-assembling the first number of units ourselves, so we make sure everything is done right, and whatever tweaks we need to make will get done.
- Scale up manufacturing. Once we’re confident that we can successfully make and assemble the guitars, we’ll look to scale up manufacturing. There are four key inputs: 1) the number of molds that we’ll be using simultaneously for each part, 2) the yields per mold, 3) the number of workers we can hire and train for the mold-making and casting processes, 4) the equipment we can purchase and implement to help expedite or automate some processes (for example, using a meter-mix machine to inject precise amounts of liquid polyurethane in the molds, instead of hand pouring).
So, assuming things go well, we’re looking to start shipping the first units before Summer 2018. However, how quickly we can scale up to ship all the units remains TBD, and we’ll keep you posted on this front.
There are three final things we’ll discuss in this update: Fundraising (reprise), Refund Policy, and Future Updates.
We still need to raise capital, but we no longer need $3 million, we need $500K. We are no longer solely reliant on raising from institutional venture funds - we can now raise from angel investors. If you know of any angels that might be interested, please feel free to have them contact us at email@example.com to obtain further information.
*Disclaimer: This is not an offer to sell or a solicitation of any offer to buy any securities. Offers are made only by prospectus or other offering materials. To obtain further information, you must complete our investor questionnaire and meet the suitability standards required by law.
Until now, we’ve offered refunds (albeit sometimes quite belatedly) to everyone who has asked us for one. However, we’re now at the point where we need every dollar of capital that we have for manufacturing, to ensure the success of the overall campaign. So, from this day forward, we won’t be accepting any new refund requests from Indiegogo backers. Yes, we understand this sucks if you were planning to ask for a refund, but under the terms of your Indiegogo user agreement, you didn’t purchase a product, you backed a campaign. (There are examples of campaigns that failed because they wanted to do right by customers, issued too many refunds, and ended up shutting down as a result.)
To clarify, any Indiegogo backer who has asked for a refund prior to today will still receive a refund. Also, anyone who pre-ordered on the Magic Instruments website via our Shopify store can also receive a refund, even after today, due to FTC regulations.
We know our lack of regular updates is a leading source of frustration for many of you. Starting in January 2018, we’ll be issuing bi-weekly updates on our progress. Some of these may be brief updates, but we’ll actually have real progress to report on manufacturing, and not just news (or lack thereof) on fundraising.
Some Final Thoughts
We want to wish everyone a Happy Holidays and Happy New Year! Magic Instruments has had a tough 2017, but we are heading into 2018 with a clear path to manufacturing and shipping your guitars, fresh momentum, and a determination to overcome any obstacles.
Please let me know if you have any questions and concerns. If any of you want to chat over the phone, please feel free to give me a ring at (415) 500-5537.
Thanks and regards,
CEO, Magic Instruments