
The ugly side of Kickstarter - Impossible
http://www.penny-arcade.com/report/editorial-article/the-ugly-side-of-kickstarter-why-the-risks-in-backing-gaming-campaigns-are-
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patio11
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.

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

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dave_sullivan
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.

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evincarofautumn
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.

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idspispopd
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."

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state_machine
"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."

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jiggy2011
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?

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rpwilcox
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.

~~~
Impossible
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.

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rpwilcox
> 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...)

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defen
Do you know how much of a nightmare it would be for a small startup to deal
with thousands of effectively anonymous investors, each of whom has only
invested a few tens or hundreds of dollars? You have to deal with voting
rights, transfer of equity, shareholder lawsuits, etc, of people who you have
no previous contact with and no way to vet. What's to stop a competitor from
"investing" in your company to gain access to your financials? It just doesn't
seem like the risks and costs are worth the reward.

~~~
gus_massa
And another problem is that most of them are not "accredited investors".

From: <http://paulgraham.com/startupfunding.html>

    
    
      The SEC defines an "accredited investor" as someone
      with over a million dollars in liquid assets or an
      income of over $200,000 a year. The regulatory burden
      is much lower if a company's shareholders are all
      accredited investors. Once you take money from the
      general public you're more restricted in what 
      you can do. [1]

~~~
rpwilcox
I don't think that matters, in the post JOBS act world (in the US)

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24pfilms
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.

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JabavuAdams
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.

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rollypolly
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?

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eaurouge
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.

~~~
jiggy2011
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.

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hristov
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.

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gavanwoolery
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!

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joezydeco
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.

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meepmorp
> 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.

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ruediger
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.

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sparknlaunch12
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?

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CoffeeAndCoffee
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.

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Ralith
Echoes of Eternia comes immediately to mind:
[http://www.kickstarter.com/projects/1465600975/echoes-of-
ete...](http://www.kickstarter.com/projects/1465600975/echoes-of-eternia-a-
modern-take-on-a-classic-desig)

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

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Radzell
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.

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georgemcbay
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.

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

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dalore
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.

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iamgopal
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.

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msabalau
It seems possible that a site based on a web comic about video games may well
often be viewed at night rather than during business hours.

Penny Arcade is reported to have several million readers, and has extended
this success to run a series of conventions (one of which just signed a 10
year contract with the convention center authority in Boston), a series of
video games, and the founding of the charity Child's Play. Some people might
believe that Penny Arcade has a rough understanding of the type of design that
engages their intended audience.

If you are intending to make a point, say, about usability, you would likely
be more persuasive if you were clear and direct about the argument you are
advancing. Perhaps you could reference some research or other facts that
supported this line of thinking.

As it stands now, your comments might give the impression that you were
startled by colors used on a website and that this has driven you into a
snarky, sarcastic rage. Regardless, it is not immediately clear how you
intended these comments to be useful to the community.

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iamgopal
Even Microsoft Windows Vista was successful.

(I have absolutely nothing against penny arcade, just against the selection of
foreground and background color. What it has to do with how successful penny
arcade is?)

Mine was not constructive criticism. It was pure criticism. Mine was strong
opinion that I hold ( so it do not need any research or facts.) that texts on
web should have better readability which can in some part be achieved using
better contrast.

IMHO opinions are useful to community.

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

~~~
sliverstorm
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.

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teamonkey
Getting page hits is their business model.

