Kickstarter Pledges Are Risky Investments, Not Purchases

By John Walker on January 21st, 2014 at 5:00 pm.

2014 is going to be the real Year Of Kickstarter. While the phenomenon became enormous in 2012, and saw continued enormous successes in 2013, it’s this year that’s really going to count. This is the year that so many of those multi-million dollar projects are due to appear. It’s going to prove, I would like to argue, the year that we are going to change our understanding of what a Kickstarter pledge really is.

Here’s an important thing about games: sometimes they’re terrible. Mostly they’re average. Quite often they’re good. That’s how “average” works. What people don’t appear to be ready for is the possibility that these rules will apply to games that have been Kickstarted. Some of the games, from the indie projects raising $10,000, to the big-names-going-indie gathering millions, aren’t going to be very good. And others are going to be alright. And here’s the thing: that’s okay.

Clearly there’s some quality bias when it comes to the bigger name KS projects. There’s a far greater chance of greatness, when the money’s been raised on the back of its being pledged to developers with proven track records. There’s a reason people are willing to hand over such copious amounts of cash to Chris Roberts to make Star Citizen – dude made Wing Commander. There’s not only a far higher expectation on the game to eventually be good, but there’s also a greater chance it will be. Thing is, it could still be just about good enough. It’s still possible. And that’s just fine.

January’s seen a couple of high profile Kickstarter games appear. The highest profile of them all, Double Fine’s Adventure – eventually named Broken Age – has released its first half. And it’s pretty good, but not incredible. And The Banner Saga has appeared from the ex-BioWare team who saw both enormous fundraising and alpha success, and it’s, well, mostly good. Neither has changed the world of gaming. And of course, that’s just fine.

Then there’s, say, GODUS. Over half a million raised, and, well, it’s for sale and so far it’s not very good at all. And of course, that’s just fine.

At a farther extreme, there’s examples like Unwritten. Months after being successfully Kickstarted, Roxlou Games realised the game simply wasn’t going to get made, due to family problems, issues with the project, and so on. There will likely never be an Unwritten. And of course, that’s just fine.

What all this points toward is the reality of Kickstarter that has always been the case, but almost everyone has refused to acknowledge. As much as it may feel like it, pledging to a Kickstarter (or Indiegogo, or whatever else) is not pre-ordering. It’s funding. And we have to grasp this.

It’s certainly not helpful that the entry point tier for almost every Kickstarter is that which will secure you a copy of the finished game. It’s doubly unhelpful that if this weren’t there – if funding the project were separate from buying a copy when it’s finished – then they would likely receive far fewer backers. But as counter-intuitive as it seems, what we’re actually doing is giving the project the amount of money a copy will cost when it’s done, in the hope that one day it will be done. Rather than in expectation of it.

Because that’s the reality of game development. Lots of games get stuck in development hell, or simply run out of funds and can no longer be supported. Others get canned because it becomes apparent that it’s never going to come together. Some are given up upon because they’re terrible, and they can find no way to fix it. And none of this is changed with the funding method. Whether privately, publisher or crowd-funded, these risks are still very much in place, and they’re risks Kickstarter backers need to take on board before putting in their wedge of cash.

I think it’s so sad to see people claiming refunds from Unwritten. It demonstrates just how little understanding there is of the process for someone to demand their $20 back because the game didn’t get finished – $20 that will have been spent already, on not being able to make a game. That money was invested in a project that didn’t work out. It wasn’t leant. And it wasn’t a purchase. It absolutely does not merit a refund.

There are of course exceptions to this. If a pile of money is raised, and then not used for the purposes stated, that’s fraud. If someone asks for £50,000 and then goes off on a world cruise, and never attempts to develop a game, there’s a legal dispute in hand. (Although this isn’t so clear cut. If I asked for £50,000 to fund my making a game for a year, that money would be partly for tools and staff, but partly to pay my salary. If backers give me £150,000 in response to my appeal, that extra £100,000 really is mine to spend how I see fit, and if that’s to increase my salary, that’s a valid use of it.) But we’re not talking about cases of fraud here – we’re talking about cases where the game just simply doesn’t come together, or is perhaps a dreadful game on release.

And yes, as you pick at these threads, all manner of things start unravelling. But this all starts to lead to a clarity of what a Kickstarter pledge really is. What about if someone asks for £25,000 to make their game, but it becomes clear after spending that and being nowhere near done, that this was never going to be enough? Well, again, it’s tough to the pledger. That’s part of the risk of investing in such a project, and it’s absolutely why people should withhold pledges when they suspect the target isn’t going to be enough.

If people started to view their pledge as an prospective investment in that project, rather than a very early pre-order for a game they like the sound of, there would be far more scrutiny before money was put down. Someone announcing they’re going to make an MMO for $5,000 isn’t going to make an MMO for $5,000. Putting in $25 because you like the sound of the finished game is a naivety on your part. You’re a bad investor. We have to start weighing up what the chances are of making good on our investment – am I likely to get a game that is worth this cash if I give it? What are the chances of that successfully happening? And most importantly of all: being aware of the risks and challenges of making games, and the possibility of failure, am I willing to risk this money on not getting a return?

Tim Schafer did something very smart, and weirdly forgotten, when he launched the Double Fine Kickstarter. He said, “Whether it goes well, or whether it all goes to hell, we’re going to show everything.” He then adds, “Either the game will be great, or it will be a spectacular failure.” There was no pretence that the money he was asking for ($400,000, of course) was going to guarantee a finished product to play. That they were going to film it, for a quarter of the budget, meant that either way there would be something at the other end of the process, admittedly. But the game, the other three quarters, was never a promise. And that, really, is how it should always be.

So the next time we go to pledge on Kickstarter, we have to let those words ring in our ears. “Either the game will be great, or it will be a spectacular failure,” then adding, “Or it’ll be just fine.” And then put forth our money with this in mind.

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202 Comments »

  1. stupid_mcgee says:

    I’m sorry , but the vast majority of these conversations are like trying to discuss gravity with a room full of 8-year old children. The vast majority of you have no idea what you’re talking about and are using highly specified terms in very awkward and incorrect ways.

  2. teamcharlie says:

    Can we at least use the right word here?
    investment – the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.

    donation – an act or instance of presenting something as a gift, grant, or contribution.

    Kickstarter pledges are donations. Sometimes you get tote bags, sometimes you get video games, sometimes you get that warm feeling in your heart of helping out a worthy cause. Sometimes you feel cheated. Anybody who thinks these pledges are an investment either does not know what that word means or has a Beany Baby mentality about kickstarter swag and an incredibly poor understanding of how likely it is for that stuff to ultimately be worth anything.

  3. malkav11 says:

    I think it’s very important for people to go into Kickstarter knowing that things happen and a project funding doesn’t mean that project will succeed or deliver on the originally estimated timeframe. But I also don’t think it’s accurate or helpful to talk about it being an investment in more than the broadest sense. You’re not buying a stake in the game (or other project deliverable(s)), you’re making a speculative preorder on something that may never exist.

  4. Don Reba says:

    Here’s an important thing about games: sometimes they’re terrible. Mostly they’re average. Quite often they’re good. That’s how “average” works.

    No, this is not how average works. Hypothetically, there could well be a situation, where games were either good or bad and none average. With people, something interesting occurs: when you take a lot of faces — ugly, normal, gorgeous — and average them, the resulting face is among the best-looking ones. Most of us are non-average and suffer for it. :)

  5. frightlever says:

    “I think it’s so sad to see people claiming refunds from Unwritten”

    Sad, insofar as the guy doesn’t need more problems and charity is a good thing. But there’s nothing wrong with people making a financial decision to ask for their money back. You agree to deliver the goods that are promised in your Kickstarter rewards, so backers ARE owed what they were promised – so what other recourse do they have but to ask for their money back or look at it as a charitable donation to a hard luck case?

    I wish this article had been written a year ago and drummed into the RPS writers, Nathan in particular who has been breathless in his hurry to get people to back certain projects.

  6. Nonoga says:

    The article pinpoint a rather valid point covering a part of the negativity from some disappointing players, ie the KS released isn’t a classic. But the most troubles come from many players with expectation of AAA games, I clearly saw it for The Banner Saga. I think Bioware name brought players mainly playing only AAA games and they think a 1M budget is more than enough to build a large well polished AAA game. They compare with what they know, ie only AAA games and for sure it can only be a disappointment.

    But what those players don’t realize is it’s the genre, the approach, the uncommon design base, are the real reason to buy or pledge such game. They buy such game for wrong reasons, expect some AAA stuff and disappointed they create a lot of negativity around such games. At reverse some players are more open, and either expect some come back to genres forgotten, either except an original approach, in that contexts the flaws are more acceptable because the choice is between nothing and something with good and bad points.

  7. Dobleclick says:

    The intro to this article is kind of misleading IMHO. I was expecting a list of kickstarted games to be released in 2014, but not a single one got mentioned. Shame…

  8. DatonKallandor says:

    Oh look an entire article that is patently, objectively false in an effort to make developers they like but who failed for one reason or another feel better.

    No Kickstarter is not an “investment”. READ THE KICKSTARTER RULES. A DEVELOPER IS REQUIRED TO DELIVER.

    You are not allowed to go “oh shucks, too bad” and not deliver. No amount of editorializing is going to change that basic FACT.
    You are wrong RPS – factually WRONG.

  9. Ninja Foodstuff says:

    FYI that’s not how average works. That’s how Gaussian distribution works.

  10. Keithustus says:

    Any other legal-minded folks on here? I wonder whether the most appropriate Restatement (2nd) of Contracts section would be 154 (b): “A party bears the risk of a mistake when he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient.” In other words, whether backers who have reason to know that projects can fail, yet proceed anyway, would be a voluntary assumption of that risk? Or is this inapplicable since it is not a basic assumption of the contract that the project will be finished? Any takers?

  11. jrodman says:

    (EDIT: This was a reply to Ich Will’s reasonable insight of comparing a kickstarter backing to a bond, as opposed to a stock — not all investments are expected to deliver dividends.)

    It’s just that, in order to achieve a useful level of investor interest, bonds have typically had to balance the risk vs the return. But when your investors are notably naive, this is much less true.

    I wonder if one way of trueing this up would be to actually regard it a bit more formally as an investment with some rules in place for what can and can’t be done, or alternatively some requirement that the investors become edumucated on the realistic risks to qualify as some class of knowledgable investor.

    Or perhaps more simply you could split kickstarters into:

    * You will get the thing.
    * You may get the thing.

    Where games would mostly (but not always) be in that second category.

  12. Ich Will says:

    Oh sorry about that – I deleted it before I saw that you had replied because I foresaw someone jumping in to explain the technicallities of why a kickstarter was not a bond, which I’m under no illusions, it’s not but you have quite succinctly made the point that I was trying to make!

  13. MadTinkerer says:

    No, no, no. Games always belong in the second category. Because all Kickstarter projects belong in the second category.

  14. jrodman says:

    @MadTinkerer:

    No, no, no. Games always belong in the second category. Because all Kickstarter projects belong in the second category.

    I .. don’t agree at all.

    Some kickstarters are like “We want to mass produce this specific t-shirt” and suchlike. All they have to do is

    * Take the money from the backers
    * Deliver some of it en-mass to the t-shirt making people
    * Deliver some more of it en masse to a mail-shit operation, or alternatively just do the mailing themselves.

    So there is very little expected risk, and there should be NO reason that the goods are not delivered, and if they’re not delivered you should get a refund.

    There’s a *lot* of kickstarters in this category, perhaps the majority.

    There are also kickstarters that are like “We need funds to achieve a community goal”, where the goal is something like restoring a theatre, or fixing a dance school, or whatever. These kickstarters are (often) even simpler:

    * Take the money from the backers
    * Give the money to professionals who do that type of work

    Of course, these types of kickstarters do not include any rewards besides encouragement ones, like “get a free ticket to one of our productions” or “complementary coffee mug”.

    Or “we need money to finish our album” types of kickstarters

    * Take money from the backers
    * Use it to pay for the studio time they
    * Pay some more to have the duplicators mass produce CDs, or just send out mp3 files

    All of these things are things that should *just happen*, and do. They don’t involve year-long gestation periods of trying to accomplish the goal, they represent a known, totally achievable quantity of work or expenditure that will be accomplished in nearly clockwork manner.

    The game kickstarters where it’s about “We need money to try to make a thing for a couple years” are really out of the ordinary.

  15. The Random One says:

    @jrodman (I’m trying to reply to him but since the comments are broken (YOUR FAULT WILL) I probably won’t be able to)

    You’re right. It’s easier for us gaming people to forget that using Kickstarter for commercial projects is not what it was originally envisioned for. There are a lot of Kickstarters that are for, say, setting up an artistic intervention in some location. Those are closer to patronage; you pay because you want the project to go through, and you don’t get access for supporting, because its whole point is that it’s free for all to access.

    So there should be a third kind of Kickstarter: You won’t get the thing (often because there is no thing for you to get).

  16. stupid_mcgee says:

    @ jrodman: Kickstarter was always intended to be about backing physical goods from an already in-place asset, not about providing long-term business nor project funding.

    And you’re right when you say that most Kickstarter projects are simple things, like, “we want 5,000 presses of our already recorded album onto vinyl.” The way many of the video game Kickstarters work is more like, “we have this great idea for an album and we have these people doing studio work and we want to record here. So, give us money so we can write a bunch of songs, record the album, get artwork made, and then publish the album.”

    In the normal pitch there’s a product that’s ready to be produced, they just need the funding to have it produced. For the video game pitch, you’re paying for an idea where the funds are being used for general purpose to create the project.

    With most normal Kickstarter projects, there is no risk. And these are the projects that Kickstarter was founded on. These newer models, I don’t like and they do not meld well with the stated intentions and TOS of Kickstarter. In fact, I would argue that Kickstarter should ban these kinds of pitches. If you want this kind of funding, there’s other crowdfunding sites that cater to this model. However, that will never happen. Primarily because video games tend to have larger funding projections than a band pressing their music or a dude making shirts. Since kickstarter makes more money if higher-valued projects succeed, Kickstarter is all but too happy to sit back and just let things play out how they will. After all, even though they completely facilitate every aspect of the transaction, they claim to bear absolutely no responsibility whatsoever.

    -edit-

    BTW, I really am very upset at how Kickstarter has progressed over the years. I was originally very hopeful for it. It provided a great avenue for inventors to get funds to take their projects from the garage to the factory.

    As someone who is prototyping some robotics right now, I can tell you that the process is difficult, intensive, and expensive. Luckily, I know how to 3D model. I took my model and sent it to a 3D printing service for the prototype parts. Tested them. And now I’m looking at injection molding facilities to produce the needed parts as well as breadboard automation. Again, it’s very nice that I have a wide skillset (graphic design, some fairly basic programming, 3d modeling (I dabble in music, too)) so I can do a lot of these things myself. Otherwise, I’d have to pay people.

    If I were to a do a Kickstarter it would be, “hey, I have this prototype of this thing. Here’s how it works. Isn’t that neat? I want x amount of money so I can pay for the parts, packaging, and a trip and entry fee to CES.” The typical idea is that backers provide a funding for product runs. Because these runs are in the levels of thousands (often tens of thousand or higher), there’s still a lot of profit to be made by selling the extra product, even after you’ve given the backers a copy of the product. Hence you’re funding a production run and hoping this person can sell these and then make more, beginning a business out of it.

    IMO, if you want to release a game on Kickstarter, the game should be finished. Or at least feature-complete. I don’t mean you can’t add features, but the game should be at a stage where development is on assets and on expanding these features. What you ask for is up to you. CES? PAX? Posters? Ads on RPS?

    The focus should not be, “we have an idea. Pay us and we’ll make it!” It should be, “here is our actual product. Isn’t it neat? We want to hire some QA people, do some debugging, release it and sell it to a publisher/pay the publishing fees ourselves.” Kickstarter was meant to help entrepreneurs get their goods out of prototyping and into production, not to fund a business’ basic funding nor its projects’ development cycle.

  17. jrodman says:

    @stupid_mcgee: I sort of think that the “let’s make a game” scenario has some value, but the structure of Kickstarter as it currently is set up doesn’t support it well.

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