Somewhat conveniently, last week’s article where I talked about my scepticism of the Oculus Rift and similar VR headsets coincided with the announcement that Facebook would buy the Oculus Rift for 2 billion dollars. What has ensued is a downward spiral of hate and depression as nerds and gamers lament that the Oculus, their once proud darling, has become the tool of what they see as a greedy corporation. It’s ‘selling out’ at the highest level many have proclaimed. However, the people who seem most vehemently against the change are those who funded the project on Kickstarter. Citing the deal as a betrayal, which wasn’t in line with the future they were presented with in the Kickstarter pitch, some of these backers have claimed that they should have their pledge refunded, or, more audaciously, that they deserve a cut of the 2 billion dollars. Today, I want to look at why these are absurd claims rather than the merits of the deal itself.
Firstly, I want to examine what Kickstarter is. Kickstarter is a crowd funding portal that allows developers the ability to go out to the public at large for money to fund a project, thus skipping various middle-men such as publishers in the gaming industry. A person or company will pitch an idea for a project, which can be as tiny, or large like the Veronica Mars movie. They lay out certain information and people can choose whether or not to give them money. In exchange, portals like Kickstarter have incentives for pledging a certain amount of funds. The Oculus Rift page has several such incentives ranging from a thank you from the team with a $10 pledge to being flown out to spend a day with the team for a $5,000 pledge.
Kickstarter has been called a donation service. As long as there are incentives, it’s not. If it were a donation, you would receive nothing back from the one asking for pledges. However, Kickstarter also has nothing to do with investing. You aren’t investing in the product in order to gain a return later via equity. What Kickstarter provides is a basic contract. You provide a pledge of funds, and you are given the incentive in exchange. Your interest in the project ends at the point. You have no say in how the company develops and no ability to profit or suffer from future fortunes.
I’ve heard mention that the creators of the Oculus Rift committed fraud, and, if the backers knew the company were willing to sell to another company like Facebook, they wouldn’t have pledged. However, it cannot be fraud. The incentives are what you contracted for, not the final product’s future. Misrepresentations and omissions from the pitch of the product does not amount to a fraud because it’s just that – a pitch. The creators weren’t giving potential backers a thorough look at the company’s business plan or what they would or would not be willing to do. They were providing an idea that could get people excited enough to support via the purchase of an incentive.
In true equity crowdfunding, which is being looked at in various security commissions across the globe right now, a person would invest in the company, becoming a shareholder instead of simply buying one of the incentives. This person would thus have a say in how the company is ran and would also benefit from transactions such as the Facebook deal. However, Kickstarter is not equity crowdfunding. It’s vital to realize that no matter how much you support the product that you’ve been pitched, you are not gaining an interest in the company or its future.
It would be disastrous for crowdfunding portals like Kickstarter if the pitchers were liable to backers in this way. Kickstarter, as mentioned above, exists to allow creators more freedom from traditional means of financing. However, if content creators were suddenly at the beck and call of scores of backers, who have no proprietary interest in the company, it would greatly disincentivize anyone from using the service. Kickstarter is an amazing tool for content creators to push innovation in their various industries by ducking under the gatekeepers who traditionally guard the funds needed to get projects made. If content creators moved back towards traditional forms of financing, this huge avenue for innovation would be lost, or at very least muted.
Yes, it is unfortunate that some Kickstarter projects fall through, or change in scope. This is the risk that backers take when making their pledge. They know that they are often pledging for a concept and that concepts and companies change as projects develop. It would be wrong to stifle this. Kickstarter projects like the Oculus Rift changing and making business deals that benefit the company and its creators is part of business. It is wrong to hold these projects to some imaginary standard, which may very well not be in the best interests of the company as a whole. The general public, which is a position backers find themselves in, has no say into the running of the company and the deals they make. They can lament the deal; dissuade others; or even straight out boycott the product. However, they are not entitled to a say in the making of the deal, nor are they entitled to any reimbursement.
To be owed reimbursement, you’d have to have been cheated of what you bargained for. If the Oculus Rift team did not deliver on its incentives, there would be a right to reimbursement. This can be seen with the aforementioned Veronica Mars. One of the incentives was to be able to stream the video instantly. They failed to deliver this in some cases, and thus issued some refunds. This is normal, and makes sense. What doesn’t make sense is the idea that backers deserve a single penny from the profits of the movie, which is exactly the same as wanting to receive some form of compensation from the Facebook deal with the Oculus Rift.
Therefore, backers should not be reimbursed. It would set a terrible precedent and stifle growth in the non-equity crowdfunding market. What backers need to take from this incident is that there are risks that projects you pledge for won’t wind up exactly the way you wanted them to. It’s important to remember that the content creators don’t owe you anything outside your incentive, and you have no control over the company other than what any non-backer could exercise via protests and the like. Backing doesn’t give you control, and you have no idea how good that is.
– Mistranslation for the Modern Gamer