For most companies, early stage backing from incubator Y Combinator and high-profile investor Tim Draper would seem to clear a path toward venture funding.

But when "smartwatch" maker Pebble went looking for VC funders, it came up dry.

So the company stopped looking for traditional investors and started looking for customers—and along the way, became a viral crowdfunding sensation.

On April 11, Pebble founder Eric Migicovsky started a Kickstarter campaign for his fledgling company—essentially offering pre-orders of the company's still-in-development smartphone-synced watch. The page took off, bringing in $1 million in the first 28 hours.

Setting a Kickstarter Record

Now, with about $5.5 million raised via the crowdfunding website—and another 28 days left in its Kickstarter campaign—the smartwatch that no one wanted to invest in is the most highly funded Kickstarter project ever.

Migicovsky says he started out making watches that integrated with BlackBerry phones. When he decided last year to create a new device that did the same for iOS and Android smartphones, the idea landed him in the renowned Y Combinator start-up incubator. Four angel investors—including Y Combinator partner and Gmail creator Paul Buccheit and Draper Fisher Jurvetson managing director Draper—gave Migicovsky the money he needed to begin designing Pebble.

After that, though, the money stopped—and so did product development.

"Hardware companies are somewhat hard to fund," Migicovsky says. "VCs have less experience with hardware."

"We knew how much it would cost to bring this product to market and we didn't have that in our bank account," he adds.

Backers to Receive Watches

Migicovsky turned to Kickstarter, posting a video of a Pebble prototype and its various possibilities—including mail and messaging, music controls, exercise data tracking and more—and listed the project's fundraising goal at $100,000, an amount he said would allow them to sell 1,000 watches.

Early "investors" basically pre-pay for the watches; different funding levels buy a promise to ship one or more of the watches in September. (Big donors could also get custom watch designs.)

Worth noting: Backers are putting their money into a product that is still just a prototype—and they get no protection if the project fails.

Still, the resulting cash influx has allowed Migicovsky to increase his staff, going from five to 10 people, and add new planned features to the watch, including water resistance and higher-quality plastic for a better feel, he said.

And Migicovsky, at least, is confident that Pebble will deliver on its promise. "We having an amazing support network. We're feeling good," he said.