Psychonauts 2 Backers Can Be Investors, Says Regulator

Many backers who funded Psychonauts 2 on the crowdfunding site Fig are now considered ‘investors’, says a US regulatory body, paving the way for them to get a return in real money if the game sells well. Fig is a video games-focused fundraising site partly founded by a bunch of veteran developers including Brian Fargo and Tim Schafer. It lets you throw some quids into a project as a punter – just like Kickstarter – but also lets people invest in it. As well as welcoming serious accredited investors, it hoped to let any old mug invest by giving $1,000 or more at an ‘investor’ level – but the US Securities and Exchange Commission needed to have the final say on letting anyone have a crack. Now they have, and they’ve approved the whole thing. What does this mean? Can you invest in the next big project? More importantly: should you?

First of all, the ruling means that, if everything goes right for Double Fine and Fig, then those backers who dug deep into their pockets will now become the owners of special shares which pay dividends. There is a cap on that investment and you can only earn a maximum of 3 times what you put in. So if you handed over $1,000 you’ll only ever get as much as $3,000 back. And after three years, the dividends stop.

It’s an interesting angle and it’s something that the likes of Kickstarter and IndieGoGo don’t do. If all goes right, it will set up how Fig do things in the future. Plus, the ruling gives it something of a governmental ‘seal of approval’. It also seems to be well-timed, considering the company is launching its campaign for Wasteland 3 next week.

But before you go throwing your savings into the pot and strutting around the house in your only business suit, as if you’re Gordon Gekko, there are some things you should really consider.

Firstly, this does not offer you any protection from loss. You are listed as a ‘non-accredited investor’. That money, just like in any investment, is being gambled. Not only that, it is important to understand that you are not investing in a game, you’re investing in a company – two companies actually. The developer and Fig itself. Buried deep in this offering circular (a document for those who previously invested in Psychonauts 2) is a line that makes sure you ought to know exactly that:

“An investment in our Fig Game Shares – PSY2 is not an investment in any game, game developer or license agreement. Proceeds from this offering may be used to fund the development of other games, as well as other expenditures not related to Psychonauts 2.”

and

“The investment described herein is highly speculative and involves a high degree of risk of loss of all or a material portion of an investor’s entire investment.”

Not only that, but there is a health report and audit of Fig as a company. As you might expect, as a new company they are only making losses at the moment.

“…the Company has not generated any revenue, incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.”

That’s not surprising, given that lots of companies operate this way, trundling on and waiting for the cashout. Most of Silicon Valley does this and Psychonauts 2, the first real project, gathered $3.8 million in fundraising cash, making much of that a moot point for those particular investors. But there’s no guarantee that the next project will be a success. You would still be wise to look over this whole thing carefully if you were taken with the idea. It’s not a spontaneous splurge of sixty quid on Kickstarter for a game you’ll probably forget about. It’s a big chunk of money you might never see again. And you are not Gordon Gekko, you’re a punter with a suit.

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37 Comments

  1. Premium User Badge

    Oakreef says:

    What does this mean for people outside of the states? If I’m in another country (say Ireland, which is where I am) and I try to become and investor on Fig would there be further legal hoops to jump through?

    • Premium User Badge

      Lars Westergren says:

      You can from a lot of countries, most of Europe probably, pretty sure Ireland is included. I did, I don’t remember any special legal hoops. Provide an ID, probably.

      • frightlever says:

        When buying US shares you usually submit a W-8BEN in order to pay reduced tax on your dividends. May not be the case with this particular sort of “investment”, but possibly worth looking into.

    • General Ludd says:

      I’d be careful about ending up with a US investment and US income as it will create US tax filing obligations.

      Avoiding this and leaving you liable only for tax in your own country is one of the legitimate uses off offshore companies. (This doesn’t reduce your actual tax paid normally: if you paid US tax on any investment income then you can deduct this from your UK tax bill. It does though simplify life massively.)

  2. grundus says:

    Project CARS had that investment thing, I backed it before all the controversy. I put £50 in back in 2012 and I’ve had £75 back since, and I’ve spent the lot on other, better racing games.

  3. yusefsmith says:

    Not a big fan of the Invest’em’ups that hide the actual investment (in a company) behind a cool facade (a particular game).

    • Sizeable Dirk says:

      I have these railroad bonds. Trains are awesome right?

      *shows investor video with an American flag superimposed over bald eagles and explosions with generic 90’s rock music*

      Guaranteed money back or more! *cough*in2361*cough*

      • AngoraFish says:

        It’s worse than that though. It’s a highly speculative investment where your losses can be as high as 100% (getting zero back), and yet your potential upside is, at best, 300%.

        For any investment with that a very high prospect of 100% downside you’d want a hell of a lot more upside than tripling your money (and remember, that’s the MAXIMUM you can score, odds are exceedingly good that you’ll get much less), think early investor in Google or Amazon kind of territory.

        If the game takes off like hot chips on a cold winters day (unlikely, but that’s the only reason you make these kinds of highly speculative investments) the makers clean up, taking 100% of profits over your arbitrary cap, while you still end up with a piddling return.

        The entire setup is swung almost entirely to the benefit of FIG and the developers. It’s nearly as bad as a film industry tax minimisation scheme.

        Sadly, there’s few better examples of the maxim that a fool and his money are soon parted than this that I can think of.

  4. Maxheadroom says:

    I’m fine throwing £25 at an idea of a game knowing it might never amount to anything. Less so $1000

    • Malcolm says:

      I suppose this is more for the monied crowd who are currently ponying up implausibly large sums for the higher crowdfunding tiers. Far more than I’d be willing to risk, certainly.

      • April March says:

        I’ll never even understand those people, but a chance of getting three times my investment sounds a lot better than the developer coming to my house to cook me dinner. Well, it depends on the dinner honestly.

    • draglikepull says:

      I’d assume that below a certain level, the overheard of managing investment payouts isn’t worth the hassle. Who wants to pay an accountant to divvy up $3 investment returns to 20,000 people?

  5. C0llic says:

    This is a good idea, and probably a natural evolution of crowd-funding once kick starter fever dies down. Has it already? I’m not sure about that; lots of things still seem to easily hit their goal.

    If you are prepared to put in a sum of money that large, it’s only fair that you be legally treated correctly. I’d definitely see this is as a positive compared to the silly rewards large sums get you in a typical kickstarter (come take a tour round our studios!, shake x person’s hand in a helicopter!). It feels a lot more honest.

  6. Iain_1986 says:

    Gamers – Can’t think of a group of people i’d want less as investors in my project/company.

    • Maxheadroom says:

      We’re not all cockpockets.
      Some of us have no preference between Battlefield or CoD and couldn’t care less if you have a PS4 or an xbox

      • frightlever says:

        If you have dozens or hundreds of backers with a monetary investment, as well as an emotional one, some are going to be the fanbois from Hell. It’s going to create some toxic situations on forums when there’s criticism. Though… that is pretty much the definition of SNAFU.

    • shagen454 says:

      Sounds fairly elitist to me. I think many gamers probably make very decent investors. Especially, considering many of us who grew up in the 80’s & early 90’s – playing legendary PC games, are reaching middle age, have expendable income and like to invest in companies & projects that have a viable & successful future while having an interest in product/company & make some returns on the side.

    • Sizeable Dirk says:

      If gamers pooled all the game-dev related kickstarter/patreon/indie-whatever money into a publisher co-operative instead, I wonder if that entity would end up being worse than the traditional publishers.

      • Premium User Badge

        Lars Westergren says:

        Someone in the RPS forums took it on themselves to investigate that.

        link to rockpapershotgun.com

        • Sizeable Dirk says:

          That was comprehensive. Although my mental image was a board of Superfans keeping their All-Star Dream Team of developers in the company basement, Stephen King’s Misery -style.
          Forcing them to work with crappy crossover fanfiction and kindergarten-level concept art.

          Then whipping the devs when the game released to the board’s exact specifications is crap.

  7. Czrly says:

    It actually sounded interesting for experienced “value investors” who know what they’re getting into… but that cap of 3:1 means that researching the “value” will simply never be worth the time and money.

    Is it worth it as a blind gamble? You could make more betting on horses!

    Also, DoubleFine have tarnished their record with me – DF9 and DFA both. I think I’ll put my fiver on Lucky Strike or whoever the brown-coloured one with four hooves is…

  8. Baranor says:

    Disappointment is likely.

    Anything over a 5% return on investment on a yearly basis should be treated with a healthy dose of skeptisism.

    Anything above 10% is usually risky.

    Anything above 20% is usually a fraud.

    A return of 100% per year is very, very unlikely. Of course, you might have invested in a notched pickaxe.

  9. LaundroMat says:

    *crawls from under rock* Psychonauts 2? Yaay!

  10. meepmeep says:

    The investment described herein is highly speculative

    Yeah, but high risk with the possibility of high returns!

    There is a cap on that investment and you can only earn a maximum of 3 times what you put in

    Oh.

    • Premium User Badge

      Lars Westergren says:

      I’ve tried to invest in only ethical and environmental funds for a decade for my pension and other savings, I’m used to constantly losing money. 3* return sounds awesome to me.

  11. Bishop149 says:

    Well this is interesting.

    Traditionally investment of this type has been reserved for the very rich. There are literally laws that are designed to prevent poor people making money this way by imposing a financial barriers to entry on the market. . . . or, less cynically, to prevent poor people bankrupting themselves quickly.

    This almost looks like a bit of sea-change in the whole nature of capitalism, quite a small one when you take into account the restrictions, but still “investor” status for Joe Bloggs Everyman is quite a thing.

    • Premium User Badge

      Lars Westergren says:

      Stocks themselves could of course be considered a form of crowdfunding.

      There are quite a lot of “crowdfund investment” sites these days. In Sweden we have Pepins which is now owned 10% by Paradox for instance.

      • yusefsmith says:

        This is wildly off the mark. Crowdfunding and stock ownership are apples and oranges.

        • Premium User Badge

          kfix says:

          …and both are a form of fruit. Or both are a form of raising money from a wide group of disparate investors.

  12. Sizeable Dirk says:

    So just put a space sandbox idea through Fig and the company is saved for a decade at least. That market segment can’t be trusted with their money.

  13. malkav11 says:

    Videogames and/or videogame companies generally don’t seem like wise investments to begin with. You might do okay off investing in the stock of a massive publisher like EA or Activision, since they’re not going anywhere anytime soon and are old hands at maximizing profit. But other than that, the industry is so chaotic and easy-come-easy-go that I wouldn’t trust my money to it.

  14. anHorse says:

    …that’s an awful deal for the investors (and an excellent one for the company)

  15. BlakeMan says:

    The fact that your money is being used to invest in a company rather than the game makes this a great risk in it’s own right however that three year cap is the real kicker. I am assuming that three year counter kicks off the second you invest and you are investing in a company that has no product yet. If this goes down like some crowd funded projects it could very well be that the company does not even release the product in the next three years meaning you are investing in a company that may not make a dime and will be burning cash during your return window.

    Imagine playing a game of poker that had a one minute timer per hand and no rules on how long each player had to take their turns. If the timer hits 0 all the money goes to the house. It’s imply a bad bet.

  16. iviv says:

    Something something Spacebase DF-9.

    Not touching anything by DoubleFine until it’s actually released and reviews are coming in. Not going to get burnt again.

  17. Tannhauser says:

    People have run the numbers from Fig’s statement, and it is pretty dismal for investors. Psychonauts 2 will have to sell about 2.2 million copies at full retail price for investors to break even, anything less and they’ve lost money in this scheme. At that point Psychonauts 2 would have made $91 million, this is after Steam’s cut.

    If Doublefine could convince publishers that they could sell that much in the first place, they wouldn’t need crowdfunding to make Psychonauts 2. I don’t see anyway for the game to sell that much, Psychonauts hasn’t even reached 2 million copies after years of sales and being in a popular Humble Bundle.

    It looks like the investors are going to be burned pretty badly on this.

    • Hedgeclipper says:

      Yeah, assuming DF can stay on budget. Anyone want to buy a bridge?