The ugly side of Kickstarter

http://www.penny-arcade.com/report/editorial-article/the-ugly-side-of-kickstarter-why-the-risks-in-backing-gaming-campaigns-are-

by Impossible • 14 years ago

122 66 14 years ago

penny-arcade.com

gavanwoolery• 14 years ago

I would boil it down to one simple requirement:

If you do not have an excellent track record and/or functional prototype, don't ask for my money!

calloc• 14 years ago

Oh, you can ask for money, but don't be surprised if you don't get it :-)

waterlesscloud• 14 years ago

You don't need a track record for me to invest, but you do need a credible plan.

joezydeco• 14 years ago

Functional prototype is key. You nailed it.

It's a MAJOR difference to present a prototype of something like an iPod Nano watch-holder and say "well, we just need 50K to get tooled up and start stamping these out", as opposed to saying "well, we need 50K to get our ideas together and hammer out something that hopefully will be fun, on-time, and cheap".

Remember that old engineering joke about good/cheap/on-time, you can pick only two? That's gonna hit every single one of these game projects. It's hard enough making a game fun, but now you have to do it while making your budget and making your schedule? That's a recipe for disaster.

meepmorp• 14 years ago

> Remember that old engineering joke about good/cheap/on-time, you can pick only two?

That's not a joke. That's the capsule summary of every programming project I've ever been involved with, and where they went wrong (if they did).

Hell, sometimes you don't even get two out of three.

rollypolly• 14 years ago

Great article.

  A team composed entirely of production people, with no
  “business guys,” may not fully comprehend the total costs
  involved in creating a game.

Has any startup succeeded with nothing but engineers as founders?

olliesaunders• 14 years ago

Yes of course. There are startups just started almost by accident with no money. Game development projects are nothing like that though.

masklinn• 14 years ago

> Game development projects are nothing like that though.

Game dev was very much like that 30 years ago before budgets in the millions and teams of dozens. That's pretty much how Interplay was built.

And Indie studios still usually start out that way. Playdead (Limbo) was started by a dev/des and a developer.

eaurouge• 14 years ago

Much of the business knowledge required to launch a successful startup can be acquired in a few months of dedicated studying. So it's no surprise teams of engineers have launched successful businesses, and do so routinely.

Estragon• 14 years ago

"Months" actually sounds pessimistic to me, but I am ignorant, and I'd welcome a pointer to a list of the necessary biz knowledge and how to acquire it.

jiggy20113• 14 years ago

I think this depends on your product. If you have something hot that everyone wants then you can be an idiot at business. All you need to do is keep your costs low enough that you can carry on.

If on the otherhand you are trying to penetrate a saturated market , or sell something to big companies then business nous is going to be a hell of a lot more important.

lifeformed• 14 years ago

A lot of indie game studios start out this way.

twohey• 14 years ago

Dropbox is the obvious example.

ido3• 14 years ago

Of course.

You learn the business stuff as you go along, ideally before you run out of money.

jentulman• 14 years ago

Google, if we're being picky about the listed founders. Although I guess you could argue Eric Schmidt was one in spirit if not paperwork.

adambyrtek• 14 years ago

Eric was hired as a CEO much later (in 2001) in order to make VCs feel more confident knowing that the company has some "adult supervision". He wasn't there from the beginning.

runako2• 14 years ago

Mojang (creator of Minecraft)? 37 Signals (the Web design chops brought to the table by Jason Fried certainly make him an engineer by comparison to "business guys"). Microsoft. Apple. Google. VMWare.

monjaro• 14 years ago

Steve Jobs certainly was not an engineer.

vsviridov2• 14 years ago

It feels to me that the article is packing a lot of FUDge...

sliverstorm• 14 years ago

I am inclined to trust a Penny Arcade editorial on video game-related subjects. "Observe & comment on video game culture/industry" is basically their entire business model.

teamonkey• 14 years ago

Getting page hits is their business model.

LaGrange• 14 years ago

So? Fear, uncertainty and doubt can also be seen as being careful. Yes, they are spoiling everyone's fun by pointing out how everything would fail, but would you really prefer if nobody questioned the wonderful silver-bullet business models?

It's even quite benign for FUD — they're not saying "this is a load of crock," only "this is not magic".

vsviridov2• 14 years ago

So, you're saying that we should just give up and trust big publishers who know best?? Kickstarter is inherently risky and pointing it out with a big hoopla is kinda silly. It's as "buyer beware" as it gets. Out of all successfully funded projects that I backed on kickstarter - most came through... Only very few didn't.

sparknlaunch12• 14 years ago

At the end of the day every startup needs to consider 'business fundamentals'.

Without knowing how your product will build value and profit, you are pretty much sailing on a sinking ship.

Taking funding too early in the process also puts your future ownership at risk. How hard are you willing to work with no or minority equity?

patio11• 14 years ago

There are a lot of indie game developers who come from an enthusiast background rather than a business background (some may have been professional enthusiasts but someone else gets them a check every two weeks), which causes a lot of this. Enthusiasts don't understand that salaries for engineers chew money really, really quickly.

HN is not exactly immune to this: see people commenting like that $20k for a ruby project was more than a few week's wages.

dasil003• 14 years ago

> see people commenting like that $20k for a ruby project was more than a few week's wages.

I suppose if you're 20 years old with no responsibilities and you sit in a room coding 16 hours a day you could stretch $20k pretty far. If someone has the ability and desire to work for a formal $30k salary then I don't begrudge them declaring what they can do on the cheap.

On the other hand, I roll my eyes when someone who spent 500 hours building an app says it's profitable because they have enough paying users to pay the server costs.

jiggy20113• 14 years ago

That really depends on a few things. If they built it as something that they wanted to build anyway than having it pay for the hosting + some change might be a good outcome.

Also if your app is making a profit, even a small one then everything else being equal it will eventually make a return on those 300 hours if it holds.

ido3• 14 years ago

As someone who went from professional enthusiasts (web-game industry) to indie about a year ago and crowd funded my first game[1], I think I can say a few words on the subject.

First of all, you correctly identified the biggest cost to making games: paying programmers. The solution to that is to be the programmer yourself (or have a programmer friend be your equal partner).

Past that tho, making 2d indie games is (or can be, if you're smart about it) very cheap - Cardinal Quest's entire art budget was around $3000 (music, graphics, etc). Since it also took about half a year of my time to make that's an almost negligibly small amount of money.

The game ended up making a bit over $30k from the desktop and flash versions (direct sales for the former, branding deals and ad revenue from the latter) and the android (done but not yet released) and ios (almost done) versions will hopefully make at least that much again.

It's less than a normal programmer's salary (I didn't get to keep all of it as there were some costs such as the aforementioned music & graphics) but it's enough to pay my living expenses and thus fund my next game.

[1] http://cardinalquest.com

chamakits• 14 years ago

100% Unrelated to the original topic.

I clicked on your website's link in all honesty expecting (without justification) something that would be horrible. The website design and the game logo fully went along with my original (again unjustified) bias. But the game pictures intrigued me to click further, and I saw the youtube video.

The youtube video was not only extremely well edited, but showed what was very interesting gameplay. I further went on to click on the Kongregate link, and had fun for a bit. The reason why I'm saying this is because you clearly dedicated enough love to this project, and to me, the product itself seems amazing. I know you are currently opperating with a very low margin, but if you are considering continuing with this or future games, consider spending a bit more time/money on marketting (I hadn't heard of this game before), and branding (consider investing some money on the website and game logo).

All that aside, this game is amazing (though I won't be buying it for a recently selfimpossed spending freeze, but some time in the future! :D ), and I wish you all the best. Let the world (or at least HN) know of your future projects!

All the best!

muhfuhkuh• 14 years ago

"HN is not exactly immune to this"

Wait, isn't the whole premise of Y Combinator exactly that? Giving $20k to hackepreneurs to build a company? The mentality isn't born in a vacuum.

sp332• 14 years ago

HN = Hacker News. YC = Y Combinator. They're not the same group of people!

wmf• 14 years ago

Sometimes people on HN confuse spending $20K on living expenses while you're trying to start "the next Dropbox" with bidding $20K for a contract job that can never make you rich. I suspect most Kickstarter projects are closer to the latter.

jonnathanson• 14 years ago

IMO, it's a two-sided problem. You've got indie developers with little understanding of the business pitching consumers who have even less understanding.

Sharper minds than mine have already demonstrated the emerging pattern on Kickstarter: that a majority of the "backers" don't really see themselves as investors, or even charitable givers. They see themselves as consumers pre-ordering hot products. They're handing over X dollars in exchange for Y goods (and maybe a tiny bit of Z street cred). It's a very transactional relationship. And the problem with such a transactional relationship is that the backers/buyers are expecting to get Y as quickly and cheaply as possible, nevermind how the sausage gets made. (Ironically, Kickstarter is all about the sausage-making process, but its users are uninterested in process; they want finished goods).

The article raises a lot of good points about the problems that the Kickstarter paradigm presents for indie developers, hobbyists, and enthusiasts. But it only scratches the surface of the backer-as-consumer issue, which, to me, is a much dicier one. In the long run, I think this dynamic will be net-beneficial to indie content and product development. In the short run, would-be developers and creators will need to think critically about precisely which stage of their fund-raising vs. sales vs. marketing activities take place on Kickstarter, and about who the Kickstarter audience represents in the lifecycle of their product launch. (Are Kickstarter backers your hardcore fans, with a higher willingness to pay to get the goods before everyone else does? Are they early product evangelists? Are they beta testers? Are they something else? And, most important, do they see themselves as any or all of these things?)

I suspect that the long-run winners at the Kickstarter game will be the ones who develop the most sophisticated and savvy method for differentiating both among Kickstarter user sets, and between Kickstarter users and mainstream consumers -- and, accordingly, the best ways to differentiate the product offering to these sets of users.

dave_sullivan• 14 years ago

Great article, two great points I got:

Once you're 90% done, you've still got the second 90% to do (so much for 80/20)

If someone is selling a porsche for 5000 dollars, you wonder what's wrong. With some of the proposed budgets for kickstarter projects, you've got to wonder what's being overlooked.

iamgopal3• 14 years ago

I did't read the article. gray on black ? seriously ?

Emouri• 14 years ago

It takes one or two clicks to change that. If you feel so strongly about it you might want to install some readability clone.

I used http://readable.tastefulwords.com/ for this article myself.

dalore• 14 years ago

I prefer a black background, it's easier on the eyes. Green on black is my preferred setup. Gray on black is far better than white on black. It's also better at night if there is little to no light in the room.

iamgopal3• 14 years ago

That was serious overlooking on my part. I didn't realized that most people read at night with little or no light in the room.

Radzell• 14 years ago

I think the beauty of kickstart is that you lose you money, but in most cases you lose very little. Professional VC and backers know not every project ends up where you want. Not everyone succeeds. This way you lose a little money if it doesn't instead of a professional VC taking thousands on a flawed ide see groupon or pets.com. I doubt you would ever lose your shirt over a failed kickstart investment matter a fact backing for more than some extra money you have laying around complete defeats the purpose.

georgemcbay• 14 years ago

You lose very little, sure, but you never gain any money.

Using this logic, one should just play the lottery because hey its only a buck and the EV, while a sucker's bet, is still better than any Kickstarter project.

idspispopd• 14 years ago

I can't help but think they're writing with the Yogventure! kickstarter in mind.

The article mentions a "two-man team with a game prototype", an unproven studio, an example of a minecraft-related game costing over 1.2M and much discussion about the cost of development being high.

These talking points match criticisms held for the Yogcast kickstarter project. The main concern being that their budget is incredibly small for a game with such an ambitious feature list. That the duo don't have the necessary experience or expertise to develop a title. That the studio is unproven, with this as their first project. Alongside a feature list which reads like "Minecraft /w better graphics."

ruediger• 14 years ago

The problem with start ups is that engineering is fun but business and administration is no fun. Nobody is enthusiastic about filling out tax forms and yelling at people because they are missing deadlines. People with experience in administration are rarely looking for a chaotic start up that can't pay a good salary.

ABS• 14 years ago

totally misleading title, something I wouldn't have expected from a site like penny arcade.

rpwilcox3• 14 years ago

I'm actually kind of surprised the love kickstarter gets from the HN community.

You know what I want from my kickstarter investment? Equity.

Yes, rewards are OK ("yay a poster!") and there is something to be said about getting the satisfaction of early investment in a product... But I see kickstarter projects as an investment, and thus I want to see a (potential) return.

Perhaps this is an advantage of the JOBS act: let 100 "kickstarter clones but with community expectation that you're buying stock options instead of kudos." bloom.

_delirium• 14 years ago

> I see kickstarter projects as an investment, and thus I want to see a (potential) return.

They are pretty explicitly not an investment, though, and the site is quite clear about that. I don't think an equity model would serve them well in most of the markets they're working in, either; it would attract a different audience that they aren't targeting. Kickstarter is modeled off some successful crowdfunding efforts in the arts from the early 2000s, like Trent Reznor's and Radiohead's, and aims to connect fans, not investors, with people undertaking projects.

Would it really be an improvement if, instead of getting a limited-edition box set and maybe access to preview chats/etc., fans got an equity stake in Reznor's label in return for crowdfunding his next album? Do the thousands of fans who kicked in for his last crowdfunding drive even know what equity is and what to do with it? That seems like adding a huge amount of complication for something few fans actually want.

Impossible• 14 years ago

Equity just doesn't make sense at the level that most people are backing KS projects. What kind of equity are you expecting if you back a $100K project for $15? Maybe, if the project is wildly successful post Kickstarter, you'll see a couple hundred dollars?

There are also projects on Kickstarter that will never be profitable, not because of failure but by design. People use Kickstarter for art experiments and to fund parties and special events that don't generate a product that will be sold after the initial funding. You'd be better off going on AngelList if your goal is to fund projects for high amounts of money and get a return on your investment.

That said, I don't think there anything explicitly stopping someone on Kickstarter from giving small amounts of equity to backers, and it might be something that people do for very high tier ($5K-$10K) reward levels.

rpwilcox3• 14 years ago

> What kind of equity are you expecting if you back a $100K project for $15?

A very little amount yes. But if I can invest $100 (or $1,000) into a Kickstarter project maybe I "lose" it all, maybe make my investment back + enough money to buy a pizza. Maybe I double my investment, which then I can pour into other kickstarter investments.

Where AngelList falls down is don't you have to be a qualified angel? So someone with only hundreds to invest, or a thousand dollars, is locked out because AngelList is looking for investors with tens of thousands of dollars? (Although, again, the JOBS act might change that dynamic...)

tedunangst• 14 years ago

A $15 share of a $100k company is more than 100,000 times larger than a single share of Apple, proportionally.

dspillett• 14 years ago

> You know what I want from my kickstarter investment? Equity.

If you are looking for an equity return investment worth picking your nose for then kickstarter projects simply are the right place to be looking.

What you put into KS projects is not an investment, you are essentially just helping the project out. If you are looking for financial return on the money you put down then you either need to properly invest in companies (though that is of course rather expensive and risky) or for smaller amounts you need to find a savings account with a reasonable rate of inflation. The medium amounts there are several "crowd funding" options that provide loans to individuals or small businesses - you'll likely get a higher return from this than a savings account but there is of course a risk that you could make a loss instead.

I've put money in the put for a couple of things on KS, not because I want some financial return on "investment" but because I want to see the thing happen or be made for one reason or another (a valid reason being just because I think it is a neat idea and even if I don't personally want it I think the world would be a little more "cool" on average if said product/service/show/what-ever got off the ground).

24pfilms• 14 years ago

As a recent indie game developer Kickstarter does somewhat look like a viable model to fund your development. But like Hollywood, there is great stuff and there is crap with a lot of gray in the middle. In my situation I am making a very small iOS twitch game built on the Unity3d platform. As most know the advantages of Unity is it's ability for delivery to a variety of platforms and rapid iteration of development. Our project will have 2 month development.

Our team is comprised of myself (Ex-EA, ex-Squaresoft and serial startup guy) a pair of outsourced programmers, a optimization and art integration programmer (ex-UBI) and a 3d artist. I will handle many of the art and sound tasks as well as the final call on things.

The budget is under $30k. I know this is doable and possible because I have a clearly defined budget, and experience to quantify this budget.

This game is to provide hopefully two things: To quantify that a financial success can be built from this model. Positive Revenue versus Negative Revenue. Build a core following of player who like our work. To use the potential revenue to build a bigger project.

There will always be scammers and people who want to rig the system. I have thought closely about using KS for our second game which will require a budget of $100k, but at this time I don't have the followers and the public cred (in my mind to validate the success of a kickstarter campaign) although we do have great a prototype, art and a working business plan and design doc. Hopfully this first game/risk will allow us to grow into what we desire as a viable business model for all involved.

JabavuAdams• 14 years ago

Two months sounds unrealistic to ship a polished game, even though Unity is a very productive platform.

I've done a GDC demo in Unity in one month with a team of about 7. It was a good concept demo, but not polished enough to release as a product.

I also shipped a Unity game in about 2 months, doing all the programming and art, with predictable results. The game-play needs polish, and let's not even talk about the visuals.

Games really do benefit from iteration. In some sense, this is the danger of trying to schedule a game project. It's a great way to build some life-less me too game. Often the most successful new games have had schedule disasters that forced almost complete re-writes.

evincarofautumn• 14 years ago

Just read this the other day, and it was humbling. I’m working on a game with the intent of launching a funding campaign via Kickstarter. Basically, whenever you’re dealing with any non-trivial amount of money, there are going to be unpleasant complexities to deal with. I sat down and factored in all the fees, taxes, deductions, and hidden costs I could think of. Thanks to this article, my budget is now a lot more realistic and a lot less hand-wavey.

CoffeeAndCoffee• 14 years ago

I think we're still in the infancy of crowdfunding. Backers are donating real dollars into crowdfunded projects, and they're obviously going to want to see a finished product. It's going to be interesting to see how crowdfunding evolves over the next 10 years.

state_machine• 14 years ago

"I’m going to go ahead and call it: We’re a few months away from the first Kickstarter scam or controversy. There is too much money at stake and too little critical thinking at the moment, and that’s an inviting situation for people looking to make a quick buck."

jiggy20113• 14 years ago

Yes, what's to stop someone posting: "Hey guys we need $100,000 to make $awesome_thing" then once/if you raise the money paying someone on eLance $300 to crank out some POS that technically ticks the boxes?

driverdan• 14 years ago

There have already been failed projects (with controversy) and we'll continue to see this increase in line with the increase in volume of deals. I haven't heard of any outright scams but I'm sure they're either in progress or coming soon.

(IANAL)

I also expect to see lawsuits in the near future, possibly with government investigation into Kickstarter resulting in changes to required project terms. Very few projects have clear legalese defining what your money will be used for and any (or no) guarantees. I bet the percentage of people running projects that consult with an attorney beforehand is in the single digits. This will inevitably lead to legal issues.

When you fund a project you're generally pre-purchasing. Pre-purchases are a legal obligation to the company. If they don't deliver they have to return your money. Very few people running projects realize this. Clearly stating no guarantees in the project description may get around this but then again, possibly not.

If you're going to run a Kickstarter project speak with an attorney and make sure you have a solid business plan with all expenses calculated, including Kickstarter's cut and tax obligations.

Ralith• 14 years ago

Echoes of Eternia comes immediately to mind: http://www.kickstarter.com/projects/1465600975/echoes-of-ete...

hristov• 14 years ago

Can somebody explain exactly how one would owe taxes on Kickstarter? Let's say you get a bunch of money from Kickstarter by preselling a game. What you have is money but you will also have a liability (i.e., the obligation to provide the game). If your funding matches your budget, by the time you fulfill your liability, (i.e., you finish the game and send it off), you will have spent most of the money on development. You would not have significant profits.

So I do not see how you would owe a lot of taxes other than payroll taxes, or various incorporation taxes.

The ugly side of Kickstarter

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