I've thought this for a few months now. There needs to be some alternative to Kickstarter where we aren't just pre-purchasing a game, but actually pooling a bunch of smaller investments ($100, $1000, $5000, etc) that will actually show a return on investment. Almost like selling "stock" in a product instead of a company. So that say 50% of real profit will come back to the product *shareholders* based upon the size of their investment relative to the total pool until they have a 200% ROI.
For example, if I *invested* $1000 in the Pathfinder project, out of a total pool of $10,000,000 investment capital raised during the crowd source investment period, I'd get 0.0001% of the final (after expense) profit that came in every month, or if the product made 2M profit in a month, I'd get $200 back. Eg, the investment would pay itself off in 10 months.
Ordinarily investor relations are much more skewed, in that the investor claims a larger chunk of profits and has much stronger input into what's being made, but often they also don't really know what the hell they are investing in.
I think such a model might work, but I don't think it exists in any form at the moment. Is this just me having a goofball moment? Or would other people throw far more money at game projects they believed in if it was an *investment* instead of essentially a pre-purchase?
Goblin Squad Member
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Not sure if you've seen this already:
http://www.gamesindustry.biz/articles/2012-04-20-game-specific-kickstarter- alternative-to-launch-at-e3
It also starting in Europe, is worth mentioning before going international.
I like the purchase system atm personally; it's more about being a part of the whole process (communicating with devs etc) and seeing good idea that suits one's own taste in games and giving it nudge (token donation) along the way to becoming reality. Any actual "results" are a welcome addition to that in my book.
But I think having the above option of investment as well is also potentially a good thing as well.
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Goblin Squad Member
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In the 1930s the government cracked down on the sale of securities in non-public companies. That was the end state evolution of a long series of battles to stop fraudulent schemes involving the shares of private companies.
People who NEEDED those investments to be real were getting badly hurt. Like "grandma can't eat and has no place to live" hurt.
Rules were imposed that restrict the ability to invest in such companies to people who have a substantial net worth. Those people are called "accredited investors". The idea was that if you were rich, you were either unlikely to be stupid, or if you got burned you could recover and not become a burden on society.
For 80 years that's been the situation. The only way to get equity in a non-public company was to be a founder, to receive it as a grant (or a grant of an option), or be an accredited investor.
Obviously, that places some tough restrictions on entrepreneurs. Its one of the reason that the class of investors called "Angels" exists. Angels are high-net-worth individuals who try to invest in startups at the earliest stage. Typically, the earlier you get into an investment, the bigger the return on your risk is. Angels take a lot of risk (and lose a lot of money) but when they hit lucky they can see huge returns.
The idea of "crowd funding" a company has been around a long time but it's been very hard to figure out how to do it within the law. There's a lot of pressure at work to break open this logjam, but there are powerful interests trying to keep the genie in the bottle.
Some fear a return to the 'bad old days' when grandma would starve. Others want to protect their powers (see: SEC). Others want to keep the status quo which benefits the wealthy and gives them leverage over entrepreneurs. Some are just folks who hate and fear change.
Until and unless the laws are relaxed to allow informal investments in startups, I don't think you'll see much success in any "crowd funding" model that relies on equity.
And frankly, from the perspective of an entrepreneur, I'd much rather do it the Kickstarter way, pay for performance, rather than pay for equity. With equity comes all sorts of headaches, from notification requirements to people who treat showing up at annual meetings and wasting everyone's time as a sport, to frivolous lawsuits, to the need to get lots of agreement when doing things like dilution, or issuing new classes of stock, etc.
RyanD
And frankly, from the perspective of an entrepreneur, I'd much rather do it the Kickstarter way, pay for performance, rather than pay for equity. With equity comes all sorts of headaches, from notification requirements to people who treat showing up at annual meetings and wasting everyone's time as a sport, to frivolous lawsuits, to the need to get lots of agreement when doing things like dilution, or issuing new classes of stock, etc.
Yeah, I totally get that. But as a gamer with disposable income I sink 30-60$ into kickstarter projects basically pre-ordering games I want that are unlikely to be funded by publishers. Shadowrun being a great example, I'm going to love a new classic RPG style Shadowrun. What I don't understand, maybe since I've never made more than 80k in any given year; is pumping $500 into a kickstarter campaign for a game. I don't want to play any game enough to *spend* $500 on it. However, I absolutely understand *investing* $500 in a project you have faith in.
I've done it with plenty of hobbyist software projects of my own (or colleagues) that later end up paying for themselves, usually in time savings. So, I'm very interested in seeing this "Kickstarter alternative" at e3, but unless it involves some ROI beyond playing a game I don't see dropping more than $100 on any game with only the game and useless fluff in exchange.
LOTRO was handing out lifetime subscriptions for $400 (my dad got his for $200 during a special). I still wish I'd had the money to spare at the time.
I would gladly spend $1,000 in exchange for lifetime subs to PFO for my wife and me.
Yeah, but the thing you have to keep in mind is that just because something is funded on Kickstarter doesn't mean it won't run out of money, have-to do another Kickstarter, or never actually be completed.
Any such incentive you got out of the campaign would be a "maybe lifetime sub if the game actually gets made". If it gets made, but badly you're then looking at a lifetime sub of a game whose lifetime was a month or two.
In order for a Kickstarter MMO to get funded more than a very small amount there would haveto be some pretty hardcore pledges by the developers, and extremely proven developers (not marketing people) fronting the project. Stuff like, "if we fold we'll open source." Things that would probably hurt the chances of landing regular investor funding. I don't think anyone expects something like Kickstarter to raise the multi-millions needed to make an MMO.
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Goblin Squad Member
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Others want to keep the status quo which benefits the wealthy and gives them leverage over entrepreneurs.
Hey! I resemble that remark (at least insofar as the securities law status quo keeps me gainfully employed).
The JOBS Act opened up investment opportunities for non-accredited investors, but the amount of money you can raise is pretty small (<$2m) and you can't do two simultaneous offerings, one directed at non-accredited investors and one directed at accredited investors because those will be aggregated together by the SEC.
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Goblin Squad Member
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Pre-purchase? I'm not sure if you are thinking that's what it is or not, but I'm not getting the pre-purchase vibe from it.
Since this Kickstarter isn’t meant to fund the final video game
I don't see anywhere that you get a pre-purchased copy of PFO. It's only going towards funding a Tech Demo, which unless you paid lots, won't really get to play. Any leftover money from this goes into development.
Also, they said they can't guarantee PFO either. But I'd like to not think about that.
Goblinworks Founder
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In the 1930s the government cracked down on the sale of securities in non-public companies. That was the end state evolution of a long series of battles to stop fraudulent schemes involving the shares of private companies.
People who NEEDED those investments to be real were getting badly hurt. Like "grandma can't eat and has no place to live" hurt.
Rules were imposed that restrict the ability to invest in such companies to people who have a substantial net worth. Those people are called "accredited investors". The idea was that if you were rich, you were either unlikely to be stupid, or if you got burned you could recover and not become a burden on society.
For 80 years that's been the situation. The only way to get equity in a non-public company was to be a founder, to receive it as a grant (or a grant of an option), or be an accredited investor.
Obviously, that places some tough restrictions on entrepreneurs. Its one of the reason that the class of investors called "Angels" exists. Angels are high-net-worth individuals who try to invest in startups at the earliest stage. Typically, the earlier you get into an investment, the bigger the return on your risk is. Angels take a lot of risk (and lose a lot of money) but when they hit lucky they can see huge returns.
The idea of "crowd funding" a company has been around a long time but it's been very hard to figure out how to do it within the law. There's a lot of pressure at work to break open this logjam, but there are powerful interests trying to keep the genie in the bottle.
Interesting news regarding recent changes to equity financing rules and a crowd funding equity site to compete with kickstarter:
Cheers,
Jim