A Disturbing Kickstarter Prediction

Posted by Rampant Coyote on October 4, 2012

Next week, my former boss at a video game company will be sentenced. It was going to be this week, but the judge decided that he wanted more evidence to determine if said former boss was consciously and willfully screwing people over, or if he was simply a guy who got caught in a bad situation and made some stupid decisions out of desperation. From the rumors I hear, the difference could be one to fifteen years’ jail time. That’s about all I’m gonna say about that, as I really don’t know enough or care enough to talk about it, but I wanted to use it as an illustration.

See, when things get hairy, people do some pretty strange things to try and preserve their business. Money that’s supposed to be allocated to X get allocated to Y. And then money that’s supposed to go to Z gets allocated to X to cover over the deficit. People do this. And so long as the money keeps flowing in, people can get away with it. Do it the right way, at the right time, and its creative accounting which pays off. Do it the wrong way, and you could be facing several years in federal prison.

When things are hitting a rough patch, the search for money to cover the gap between payments can get pretty desperate – especially when the economy is in a funk and banks aren’t making bridge loans anymore.

I’m not suggesting anybody is doing this right now, but with these larger companies doing Kickstarters now, imagine this: Contracts are getting a little slim, and your last self-produced “indie” title did not bring in the cash you expected. You are a small company, and have some small projects currently going, but it’s not enough to keep you solvent. You are looking at a horizon getting awfully close, and you are going to have to start letting people go if you can’t get some money in the door within the next 60 days. But how can you get that kind of cash?

Kickstarter.

With a talented group, whipping up a decent Kickstarter presentation within a week would look pretty easy. You have your design team and a couple of idle artists generate a pitch that sounds like a sure winner. You leave it vague enough that any viewer can insert their own idea of what the promised game is going to be. Then let the money roll in.

I’m sure that this would be done with the full intention of making good on the promises as best as possible. But when half the cash obtained ends up going to pay off the landlord, paying the part of the team that’s running late and has delayed a milestone payment, and paid off a few other obligations, there won’t be quite so much left to make a game. But with the critical money paid off in advance… well, it might not really matter so much if the resulting product is not up to par.

And with Kickstarter, when you rob Peter to pay Paul, you have near-zero accountability to Peter. It could damage your reputation, but legally there’s not much the Kickstarter backers can do.

And so Kickstarter becomes the go-to place to stave off bankruptcy. A quick hit for a couple hundred grand, and whatever is left over goes to fund a skeleton crew – if they aren’t too busy on other projects – to throw together something to show for it.

When it’s that or bankruptcy (or worse, jail time), don’t think for a second that it won’t happen.

I can’t say for sure it hasn’t happened, or isn’t happening right now.

Filed Under: Biz - Comments: 7 Comments to Read

Armaan said,

There’s been one independent game I know of that did multiple Kickstarters for funding. The first time was to fund the completion of their game for iOS and Android (which has yet to be released). The second time they said it was to hire a team to create a PC/Mac version of the same. Incidentally, the goal for the second kickstarter was five times higher than the first one.

After reading this post, I wonder if they hit the problem you mentioned: funds were running out and they needed a quick injection of cash for development, so they said: “Hey, we’re going to make PC version and need more cash for that” to make it look legit.
jwmeep said,

Yeah, really wouldn’t surprise me. One of these projects is one day inevitably going to fail, the question is what the fall out is going to be.
Anon said,

> One of these projects is one day inevitably going to fail, the question is what the fall out is going to be.

A kick back?
😉
Xenovore said,

Yeah, I can totally see that happening. On the other hand, however, that’s part of the risk you take when investing in something: you hope it’s legit and pays off in the future.

The fallout? Pretty straight-up, I think. If a company fails to deliver, that would be their last Kickstarter project. Their reputation would be destroyed, for one thing; no one would be willing to fund them again. Legally, investors can always sue, if they invested a substantial amount. Class action law suit maybe?

At any rate, this is why I won’t throw money at a Kickstarter project yet. I want some proof that Kickstarter works, that people aren’t abusing it. But no Kickstarter project that I’m interested in has successfully completed yet…
Xian said,

I have been wondering when there is going to be a high profile Kickstarter campaign that fails to deliver. Once that happens, then people are going to be a lot more wary of backing anything.

I have backed Grim Dawn and Wasteland 2 so far. Several others I have been interested in, such as Project Eternity, but I think I am going to wait to made sure my initial investments pan out before backing any others.
WhineAboutGames said,

I’ve known at least one case that raised a good bit of money (on indiegogo rather than kickstarter iirc) where evidence showed up to suggest that the rapid fundraising was more about paying off the dev’s surprise medical bill than them ever being likely to complete a project.

Said team has been in the process of making (several entirely different) Best Game Idea Evers for years and has never released anything, afaik, other than one buggy demo which was pulled from distribution. There were all kinds of explanations. It wasn’t ready. It was pulled for tweaking. Again. It was distributed at a convention and sold out, there are no more, even though nobody’s ever been found to own one. They can’t say anything because they’re in a talk with a Major Publisher. There was a fallout over artistic differences and certain people left the team and therefore that project has to be scrapped. Etc etc etc.

Do they have at least some intention of making a game? Um… Well, they’re interested in games, at least. But after a while you start to get the idea that these people are more con artists than incompetent.
twb said,

Given my experience with cap raises for entrepreneurs who *can* get funded through traditional methods, what concerns me about most Kickstarters is that the people involved don’t have investors riding herd on them to set realistic milestones and requirements. For someone like Steve Jackson (or you!), this isn’t a big deal — he’s been doing his stuff for years, and knows what his costs are going to be — but for complex hardware products, it’s a walking disaster. For game development, which combines all the worst aspects of software development and Hollywood productions, I expect most Kickstarter-funded projects to fail completely, even when they aren’t, as you predict, used as revenue-smoothing tools. (Similarly, the sad lesson of 38 Studios wasn’t “We needed more funding,” but “This is *why* we couldn’t get funding.”)

In traditional funding scenarios, investors contractually set terms that give them visibility into operations and the ability to make changes when things go south — and even then, they still expect that a third to a half of their investments aren’t going to get off the ground. In crowdfunding land, we have neither visibility nor control, though our individual investments are usually about two orders of magnitude below traditional funding levels.

As far as the companies involved are concerned, they also take on a novel burden: ten thousand supporters bring their own friction, and it’s easy to see how some of these companies (I refer to a recent NYT article) find themselves spending more time than anticipated dealing with Kickstarter rewards and communications than actually building their products. Not that traditional funding doesn’t become all-consuming (that’s pretty much your full-time job, if you’re CEO or CFO), but the transaction costs are a lot lower if you’re dealing with the established VC world.

It’ll be interesting to see what happens come the first high-profile Kickstarter fail-to-deliver; KS is already moving to level-set public expectations with their recent actions, but there’s still going to be a PR disaster, which will certainly lead to knock-on effects in the crowdfunding market. And, when that happens, game developers are going to find a public a lot less willing to pony up good cash on a bad bet.