There is a standing presumption when one backs a Kickstarter project: you may lose your money. But there’s a new—or at least now proven—angle to consider, in light of Facebook’s acquisition of the virtual reality company Oculus: people may use your money to make a lot more money without ever properly starting a successful company in the first place.
When you contribute money to help get a company off the ground, you don’t expect them to sell out for $2 billion before they even manage to release the first version of their product. A lot of people are furious at Oculus VR for selling to Facebook, and understandably so – many of them contributed hundreds or thousands of dollars to support an independent, groundbreaking startup with a great vision and the chance to create a new paradigm for interactive entertainment, communication, and who knows what else. Instead, Oculus used that money to make itself an appealing acquisition for a company that will use its technology for its own purposes (hint: Facebook makes a lot of money off of ads). For people who had been dreaming of the amazing potential of VR, I’m sure it is frustrating to see a massive company snatch up that potential in utero.
Interesting to compare the indignation from Oculus VR backers to the exhilaration from Veronica Mars backers. The dynamic is similar – dedicated resources from a well-heeled corporate patron (Facebook and Warner Brothers, respectively) ensures a much wider distribution and a higher-quality product, while diluting the relationship with the most loyal supporters. But in the case of Veronica Mars, getting Warner Brothers on board seemed mostly to vindicate its Kickstarter backers’ faith (even though the studio had refused to commit itself for years, until the Kickstarter ensured that its modest investment came with no risk). There was some grumbling, but the prospect of sequels (or a new season of the TV show) would surely be seen as a major victory, even though it would return the property (and any associated profits) to its corporate parents, not to the loyal fans who resuscitated it from obsolescence. Maybe this is because Veronica Mars fans already cared about the franchise well before the Kickstarter; they see the movie itself, not its commercial success, as the reward for their support.
With Oculus VR, much of the above applies. Part of the reason people backed them was because the big players (e.g., Microsoft, Sony, Nintendo) didn’t seem to be interested in virtual reality hardware. To get that hardware in people’s hands, someone other than the establishment would need to make it happen. So Oculus got to work, and made enough of a case that thousands of people put their money into it, in part to get rewards like prototypes, development kits, etc., but in part to send a clear signal that there was consumer interest (and money!) in VR. Backing Oculus was a bet by contributors that this technology had a future, and in the end that bet seems to have paid off in a big way; but for Oculus VR and its VC investors – not for most of its earlier investors, left with nothing but a convenient place to scream into the void.
Now, with that said, the Oculus acquisition in some ways demonstrates just how successful the Kickstarter campaign was. In the year and a half since Oculus raised $2,437,429, industry legends joined the company, Sony announced its competing project, indie favorite game company Valve signed on to support Oculus and compete with it, among plenty of other indications that this technology is legit. That’s what Oculus backers were hoping for when they contributed, isn’t it? Whether it’s ultimately Oculus/Facebook or someone else, there’s too much momentum and too much investment for VR to disappear now. And it’s all because of the 9,500 people who put up their money to make it happen.
I don’t blame anyone for having a bad taste in their mouth, though. When you back a small, independent company’s Kickstarter to support their innovative ideas, you’re not doing it because you hope your contribution will help them get acquired. You’re buying into a story, one where your money keeps the lights on, so they don’t need to get acquired.
Ultimately, Joel Johnson is right – in some cases, Kickstarter may be the spark that lets small players get their businesses going, but for companies like Oculus VR, it’s an opportunity to get the little people to fund your project (and pay your salary) until you have something good enough for a “real” investor to find interesting. That’s a great deal for Oculus, and a great deal for VCs, but it’s not so great for Kickstarter backers.