Shaz, Ash and I started Plugged in 2011 in Austin, Texas. We originally set out to sell a stripped-down headphone with a popular sound for a fraction of the competition’s price. At that time the Beats-Monster divorce was about to get started and Skullcandy was gearing up to go public. Market data suggested that the $342 million US market in premium headphones (any priced over $100) was primed to explode as the gale-force tailwind of smartphone penetration was really picking up. Basically, more people with iPhones and Androids meant more mobile streaming of music and videos and growing demand for the accessories needed to consume that content on a train or in the library.
For the first year and half we were in the lab creating and re-creating prototypes until we had something that we knew was a great value – our first Crown headphone. With simple, minimal styling and solid sound at the price point, Crown was our first foray into the marketplace – and we had a lot to learn. Consumer electronics is flooded at the bottom. There is an endless supply of no-name, low-quality, commodity-grade garbage floating around in the entry-level segment of audio. But that bucket of products wasn’t really our competition because we knew the customer we wanted – the customer we ourselves are - would never seriously consider buying any of those headphones. We aimed to go toe-to-toe with the Beats and Skullcandys of the world. While the first Crown headphone was solid-footing on which to start building a reputation for quality and value, it was going to take an infusion of capital to really give the market-share leaders a run.
The venture capital game can roughly be split into to two camps: technology and consumer products. The technology camp gets all of the press – this is where the likes of Peter Thiel, Ben Horowitz and Fred Wilson invest in companies like Snapchat, Uber and Instagram. On the other hand, the vastly smaller consumer products venture capital camp if often looking for consumer packaged goods, like Vitamin Water, Chobani Greek Yogurt and Ben & Jerry’s Ice-cream – successful brands in categories with high customer lifetime values because they’ll come back and buy over and over again. Plugged straddles the fence between these worlds, very much a technology company but one that sells physical hardware and a lifestyle brand. The VCs we approached early on had a hard-time shifting gears from their normal thinking to wrap their heads around what Plugged could be. What was always an easy sell, however, was the global market opportunity in this category. This got even easier and proved decisive for our fundraising efforts when Apple bought Beats.
Pitching for funding is always about getting the investor to see your version of the future and believe in your plan to make it so. As convincing as my team and I could be, when the world’s foremost technology company, Apple, shelled out $3.2 Billion for a competitor, it verified our claims of the opportunity in an incredibly strong way. Within a few months of the Beats deal closing, we closed our first seed round of $250,000.