By Oon Yeoh
The last time I wrote about crowdfunding, I talked about how the creators of the Veronica Mars TV series used Kickstarter to fund a movie based on that character. The campaign was wildly successful, raising nearly three times its original goal.
Helping artists raise money to do projects is the kind of thing Kickstarter is famous for. But it’s also used for raising seed capital for tech projects.
One such project is the Oculus Rift, a virtual reality set aimed at offering great functionality at an affordable price. Its Kickstarter campaign sought a modest US$250,000. It achieved its goal within 24 hours, and by the end of the campaign, it had raised an impressive US$2.4 million!
In return, funders who gave at least US$300 got a developer kit, while those who gave less got T-shirts. This is typical of how Kickstarter applicants reward their funders. Those who contribute more get an early version of the product while those who contribute a small amount get a token gift.
That Oculus Rift managed to raise nearly 10 times the original amount it sought proved that the market was hungry for virtual reality. This evidently caught Facebook’s attention, with the social media giant gobbling it up late last month for a cool US$2 billion. While this acquisition isn’t on the same scale as Facebook’s Whatsapp buyout, it isn’t exactly chump change either, especially for a company that had gone hat-in-hand to Kickstarter just a couple of years ago.
The gaming folks reacted badly. There were two main objections. The first was criticism that Oculus had “sold out” to a big corporation. Markus Persson, creator of the popular Minecraft game, was very vocal in his opposition to the acquisition. In the past, Persson had talked about making Minecraft available for Oculus Rift. “I just canceled that deal,” Persson tweeted. “Facebook creeps me out.”
Oculus founder Palmer Luckey responded to such criticism by posting on Reddit that the Facebook acquisition will make it possible for Oculus to sell its virtual reality kits at a cheaper price and keep the platform open to developers. “I am 100 percent certain that most people will see why this is good in the long term,” he wrote.
The second criticism was that its Kickstarter funders will not be getting a single cent from the sale of the company.
“I think I would have rather bought a few shares of Oculus rather than my now worthless $300 obsolete VR headset. What’s two billion dollars amongst 9,522 friends? I’d be happy with my $300 back,” wrote Carlos Schulte, one of the 9,522 people who supported Oculus’s Kickstarter campaign.
Has Oculus played out its early funders? Although at first glance it might seem that way, if you really understand what Kickstarter is all about, you’ll realise that this is not the case at all.
Kickstarter is not an investment platform. When people fund projects on Kickstarter, they are not becoming shareholders. Rather, they are early buyers of the product or just mere supporters of it.
And that’s not likely to change anytime soon. “Kickstarter won’t switch to an equity-based model,” its CEO Yancey Strickler said last year. “We believe the real disruption comes from people supporting things because they like them, rather than finding things that produce a good return on investment.”
But the furor surrounding the Facebook acquisition is likely to spark change in how people look at crowdfunding. The Kickstarter model – which serves as a kind of pre-sales or pre-order mechanism for enthusiasts – is one approach. But the equity version is something that is gaining momentum.
Crowdfunding companies like Wefunder, SeedInvest and Crowdfunder are all just waiting for the US Securities and Exchange Commission to allow equity-based crowdfunding. When that happens – and it’s bound to, sooner or later – there should be hoards of ordinary folks who will take the opportunity to invest in start-ups.
But that doesn’t mean that the Kickstarter approach will disappear. There will always be those who believe in supporting a worthy initiative simply because they are ardent fans and want a project to succeed. So there will be room for both types of crowdfunding, and start-ups will all be better off for it.
Oon Yeoh is a new media consultant.