Kickstarter: Double-Edged Sword for Video-Game Entrepreneurs
BY John McDermott
Video-game projects raise serious cash via Kickstarter, but can those founders actually deliver products to market?
It took only eight hours for video-game project Double Fine to raise $400,000 on Kickstarter in February. At the time, it was the Kickstarter record for fastest campaign to reach its funding goal. The project ended up raising $3.3 million--more than eight times its original goal--to create a point-and-click graphic adventure game, a genre that had long been considered dead.
For video-game entrepreneurs, Kickstarter has become the crowdfunding platform of choice. From Double Fine to Ouya to Oculus, video-game projects have raised millions of dollars in relatively short amounts of time. Kickstarter says video-game campaigns receive six times the average pledge amount as any other type of campaign. For many of these video-game project founders, the platform democratizes product development in an industry with traditionally high barriers to entry.
"Game fans are early adopters, they live online, love social media, and they're a great fit for a crowdfunding service," Ouya founder Julie Uhrman says.
However, as many video-game entrepreneurs have found, managing the excitement of these über-fans-turned-financial contributors can be problematic. And although video-game campaigns bring in the cash, that doesn't mean the products make it to market.
A Growing Community
Kickstarter, a Brooklyn, New York, start-up founded in 2009, allows project founders to receive financial pledges, which can range from $1 to $1,000, to fund creative projects. Each founder sets a deadline and a financial goal. Those who pledge money receive a reward, which can vary from simply being listed as a "project backer" to receiving a private dinner with the project founders. Kickstarter takes 5% of successfully funded projects.
In 2011, 253 game projects--which includes video games and board games--raised more than $3.6 million on Kickstarter, constituting 4% of the overall money raised on the site. So far this year, more than 1,400 video-game projects on Kickstarter have received more than $30 million in pledges from Kickstarter users.
Video games make up 2% of all projects on the platform and have raised more than 9% of all dollars pledged to projects on the site, according to data provided by Kickstarter.
Video-game projects raise significantly more than the average Kickstarter campaign. Kickstarter projects receive an average of $4,7111 in pledges, but for video games, the average is a staggering $21,428, according to Kickstarter statistics. However, the success rate of video-game projects is substantially lower (23%) than the overall Kickstarter success rate of 44%.
Video-game hardware company Oculus says Kickstarter allowed the company to reach game developers interested in its technology without having to involve venture capitalists. Oculus is hoping to fund production of its virtual-reality headset, the Rift, through Kickstarter.
"We all felt like if we wanted to, we could take venture capital," Nate Mitchell, vice president of Oculus, says. "[With Kickstarter], we could bring this thing to market quickly and at the same time involve gamers and game developers everywhere to make the product that much better."
Uhrman, founder of Kickstarter-funded gaming console Ouya, says using the site is all about speedy fundraising and accessing Kickstarter's users, many of whom are gamers.
They have done more than that. At the close of its Kickstarter campaign on Thursday, Ouya raised more than $8.5 million on Kickstarter, more than nine times the company's original goal.
More Money, More Problems?
"[Kickstarter] is a double-edged sword," Oculus founder Palmer Lucky says. To date, Oculus has raised more than $1.5 million on Kickstarter with 22 days left in the campaign.
But the success has also created a problem. Mitchell says the popularity of the company's Kickstarter campaign may lead some to believe that Oculus's Rift headset is ready to use. But the company is only preselling a prototype and a software development kit, or SDK, so game makers can produce entertainment using the headset.
"We're trying to curb expectations," Mitchell says. "We're going to send out the SDK absolutely as soon as possible, but it won't be the polished, perfect experience you might expect from a consumer product."
Joshua Hernandez, founder-in-residence at Chicago-based venture capital firm Lightbank, points to Double Fine's story as another cautionary tale of the highly publicized video-game campaign success.
He says Double Fine founder Tim Schafer, the comedic star behind the company's Kickstarter video, is an industry veteran with a massive gamer following. Hernandez says an amateur game maker is unlikely to have the same fundraising success.
"Where do all these games end? I've funded two thus far, and it's been six- plus months, and it doesn't look like they're anywhere near completion," he says. "For someone like me, who understands how the process of developing a game works, that's fine. But for the layman, that's a different story."
Hernandez says that although it's imperfect, Kickstarter is a step in the right direction for the video-game industry. But he says he anticipates another platform will probably emerge to fill the gap between crowdfunded indie game development and the large publishing houses.
"Right now, these independent guys get money and nothing [has changed]," he says.
Hernandez says platforms like Kickstarter could benefit from large game studios, such as Activision and Electronic Arts, consulting on game improvements, marketing, and mass distribution.
Until then, Kickstarter's video-game producers are left to figure out getting to market themselves.
JOHN MCDERMOTT is a business and culture reporter whose work has appeared in the Chicago Tribune and Playboy and on AOL.com. He recently moved from Chicago to Brooklyn, New York, to work for Inc.com. @J_M_McDermott