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Some Notes on Crowdfunding

Robert Lashley Posted:
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Last week in this space I talked about a project that failed to get funded on KickStarter and has since had a weird journey. In the comments on that article and the comments of a news post we had on MMORPG.com yesterday about Origins of Malu one thing became painfully clear, there are still a lot of questions and misinformation about crowdfunding and how some of these sites work. Hopefully I can help answer some of those questions for you this week and maybe get you thinking about some new ones.

Not all crowdfunding sites are created equal. The one we have all probably become most familiar with by now is KickStarter. KickStarter has been around since 2009 and over that time has received over 1 billion USD in pledges by 5 million people. That’s pretty impressive. One of the key items that really separates KickStarter from other crowdfunding sites is that it operates on an all or nothing philosophy. Projects are given a finite amount of time to earn their funding. If a project does not reach its funding goal it gets nothing. Zero deniro. Nada. Zilch. I’ve seen a few people stating in comments that they were charged for projects that failed. If that is true get in touch with Amazon. Something is wrong. You should not have been charged. Or check your credit card again because you just might be mistaken. If you are wondering why you should talk to Amazon it is because they are responsible for processing all of KickStarters donations.

The biggest reason that all or nothing is a good idea is because it typically makes the project less risky for everyone involved. If you are trying to create something you consider innovative, keep in mind this isn’t just for video games, and you find out that people really do not want your product you have saved yourself a lot of time, effort, and money. If you want to back a project and turns out there isn’t enough interest you as the backer end up not being out anything. A great example of this is a project called Amplitude by Harmonix. A few years back Guitar Hero and Rock Band style games were guaranteed gold. Now players won’t touch them. By crowdfunding this game Harmonix can judge if their is truly a market for their product. If they fail to fund Harmonix has said they will not make the game. As of right now it does not appear that this game will see the light of day.

Another popular crowdfunding site is Indiegogo. While KickStarter has certain criteria that creators must meet to launch a project, like a clear objective, you can create a campaign to do almost anything you want on Indiegogo. For example I created a project in about 30 minutes last night about a research project warning people of the dangers of crowdfunding on the internet. Feel free to take a look at it here. Indiegogo also allows you to collect contributions even if your goal is not met. As a project creator this allows you to scale back your project based on demand. As a backer your are left with a lot more risk. You could be out your pledge and never see a product like anything resembling what you were trying to support. I have seen one MMO in particular use Indiegogo a number of times to generate funding. They basically figure they will keep going back to the well until it runs dry.

There are some other sites that are used for different purposes. RocketHub, Peerbackers, SoMoLend, Crowdfunder are different platforms with different areas of focus. There are even sites that are specifically for educational charities. Do not think that just because a rule applies to one that it applies to all. They can be wildly different. 

A big thing to remember is that under current laws you are making a donation. Once you give that campaign your money it is theirs to do with what they want. Recently a number of backers of the Occulus Rift were outraged when the company that was launched from a 2.4 million USD KickStarter was sold to FaceBook for 2 billion USD. Contributors are not investors. They are donators. On the other end of the spectrum if the company is goes belly up and never creates the product you donated money towards you have no recourse. You are not a creditor. You have no claim to their assets. 

This could all change. The Securities and Exchange Commission (SEC) is looking into Crowdfunding and ways to regulate the different platforms and has already started to make proposals. The problem with good ideas is that a couple people figure out how to twist it and ruin it for everyone else. The Attorney General for the State of Washington has filed a lawsuit against Altios Management for failing to deliver on a KickStarter that reached its funding goals. The State is attempting to apply traditional consumer protection laws in the suit. It remains to be seen if the State will be successful in their prosecution. If they are this would set precedent in Washington and we could see other states take similar actions.

There are a lot of great projects out there looking for backers. While most of them do not plan on failing it’s an inevitability that some of them do. I’d be willing to bet a lot of those that fail are due to a lack of good project management. That said if you see a project you like dig into it. Find out about the people behind the team. Is it a well known person in the industry with a history of success? Is it a relative unknown that has some great sounding ideas that have never been done? Have they successfully launched a project on a crowdfunding platform before? Is this as second go at a project that has previously failed? These questions illustrate a couple of projects that are out there right now for MMOs, other video games, and gaming culture.  The Far Reaches, Origins of Malu, and Tabletop.

I have mixed feelings about the whole crowdfunding scene. On one hand I think it is a great way to get creative projects off the ground that could not have been financed any other way. On the other hand it is pretty disheartening to see companies profit, and in some cases greatly, off of the generosity of others. Let me know how you feel in the comments below. Thanks for reading.

Robert Lashley /  Robert Lashley is a Staff Writer and Online host for MMORPG.com. Rob's bald and when he isn't blinding people from the glare on his head talking in front of a camera you can find him spending his free time checking out the latest games and technology. Feel free to hunt him down on twitter @Grakulen


Robert Lashley

Rob Lashley is a Staff Writer and Online host for MMORPG.com. Rob's bald and when he isn't blinding people from the glare on his head talking in front of a camera you can chase him down on twitter @Grakulen or find him on YouTube @RobUnwraps.