Counterpoint: In Defense of Equity Crowdfunding and the “Professional Investor”

I'm writing this in response the Rob Fahey's piece last week on GI.biz, Equity Crowdfunding is a Wolf In Sheep's Clothing. In it, Mr. Fahey, whose work I usually admire, makes some very black and white assertions as to what he perceives as dangerous differences both in motivations and in protections for investors in games versus other opportunities. As someone who has been in the business of green lighting, financing, producing, marketing, and releasing games from independent developers for more than twenty years now, and has also been involved in the emerging equity crowd-funding business for games for the past three years, I felt the need to offer a different point of view.

Mr. Fahey makes the point that donation based crowdfunding by fans ala Kickstarter or Indiegogo is motivated by pure love for the game project and/or its creators, whereas equity crowdfunding (which is a bit of misnomer in the case of both Fig and Gambitious's models, as you're really investing in revenue share of a project, not equity in a studio or the IP itself), involves more cold calculation of commercial viability, due to the fact that only "professional investors" can legally participate in these types of investments at the moment, pending the final results of legislation that has been moving since 2012 to make them legal for everyone in the U.S., the U.K. He imagines that this will inevitably result in fewer passion projects, such as reboots of old forgotten properties, reinvigoration of forgotten genres, and enabling creators to really do what they want to do for the sake of the art.

To illustrate how this might be a bit of an over-generalization, I would ask Mr. Fahey and anyone reading this to have a look at Devolver Digital's catalogue. It is a mix of a revival of beloved IP's such as Serious Sam, Shadow Warrior, and Duke Nukem, fiercely original 16-bit indie throwbacks such as Hotline Miami, Luftrausers, OlliOlli and many others, and then the most random passion projects you can imagine, such as the interactive adaptation of Hatoful Boyfriend (a pigeon dating simulation) and the upcoming Dropsy, a upcoming point and click adventure about a large unsightly clown who wants nothing more than to hug everyone he meets. The entirety of our catalogue over the past six years is practically a mirror of the types of passion projects you see on Kickstarter, and yet, the five founders of Devolver - cold, calculating professional investors that we are - greenlit and funded all of them; we scrapped and found a way to make money out of each and everyone of them to get both a return on our investment AND to enable the creators to keep doing what they do and make a living at it. We did this because we love games and game creators, but we would not do it if it wasn't also a viable business and a way for us to make a living. These things are not mutually exclusive!

"Not one patron of the arts, nor investor in any artistic endeavor in the history of art and commerce, has ever given their money in hopes that the project would never be completed"

In fact, the creators and all of the creations that Mr. Fahey refers to revitalizing through the magic of crowdfunding donations have one thing in common: all of these beloved IP's, genres and creators we are looking to support only exist because at some point in time, someone with money to invest paid to help make these games happen, and they did so almost universally with the hope that they would make a return on their investment, or at least get their money back. The same goes with every quirky, artsy, independent film at Cannes or Sundance each year. Or any weird record or book you've ever bought. Someone, somewhere paid for it with time and/or money, and they did so hoping that they would make some back.

Not one patron of the arts, nor investor in any artistic endeavor in the history of art and commerce, has ever given their money in hopes that the project would never be completed because the artist hadn't thought the project through properly or didn't have the resources to complete it if it took more time and money than they imagined (by the way, 100% of them do), but this is exactly what we see happening in far too many cases utilizing the seemingly utopian Kickstarter model.

I cannot agree more with Mr. Fahey's statement that crowdfunding has been an amazingly important and sorely-needed movement for the independent gaming world; probably more so than any development from the business side of the industry's history. That is exactly why Devolver believes it is something to be protected and bolstered, so that in a few years time it doesn't become a faded memory of piles of money thrown at projects that largely never saw the light of day.

This is exactly why we invested in Gambitious in 2012 after Obama signed the JOBS Act (we were a bit ahead of ourselves, clearly) and have been actively involved in managing Gambitious's slow meandering path of fits and starts while waiting for the dust to settle on the international legislation, which seems imminent. We have, as we told the founder of Fig at a lunch at SXSW in Austin more than a year ago, decided for now to run only private placements from "professional investors," - or "qualified investors" more correctly - and then publish the games ourselves to ensure that these investors get their money back. (We are glad to hear that Fig is doing something very similar, and wish them the best of luck with it, FWIW.)

Gambitious managed to get our first successfully equity crowd funded game, Train Fever, to the finish line with a mix of some qualified investors and more than 600 smaller "fan" investors from Switzerland - a proper crowd supporting an upstart indie Swiss developer. We released the game in Fall of 2014 on Steam and the game was profitable after less than a week. By the end of 2014, 635 very happy investor fans got a check for their money back and then some. And they'll keep getting them for years to come. Since then we've funded 5 more games and shipped several of them already, for now using only a growing network of qualified investors who are excited about games, since we're still not comfortable accepting non-qualified investments from most of the major markets yet, until the standards and regulations to protect less wealthy investors are in place.

"Your average game fan who chooses a project to invest in will know as much or more about what they are doing and the risk they are taking as your average investor in anything"

It is our great hope that by sometime next year, gamers from both sides of the Atlantic will be able to invest in projects they find interesting in the same way that they might buy into a stock or mutual fund on E*Trade, with some hope, but certainly not a guarantee, of a return. And, as a man who lost a great deal of his worth along with so many in the market crash of 2008, I can tell you that a great many people investing in public companies and the more highly regulated markets are much less informed (or misinformed) of those companies and funds' inner workings than Mr. Fahey seems to imagine. Apparently, many of the investment banks whose only job is to be experts in such things weren't so well-informed or protected by all the federal regulations either, as many of them collapsed right along with the portfolios of us punters.

This is only to say that once the regulations are in place, it is my personal belief that your average game fan who chooses a project to invest in will know as much or more about what they are doing and the risk they are taking as your average investor in anything. All investments, from real estate to stocks to small business or entertainment are, at the end of the day, placing your bets as best you can with the information available, so it may as well be a bet about something more fun than porkbellies or government bonds.

And for those that choose to keep contributing on a smaller, donation-based level as fans, they can at least be somewhat more assured that someone with somewhat of a business acumen is involved and quite literally invested in doing what it takes to get these projects to the finish line in a market-ready state, an assurance that does not currently exist in the responsibility-free world of Kickstarter or Indiegogo projects.