For those of you outside the crowdfunding bubble, on 25th March 2014, Facebook announced that it had agreed to buy Oculus VR, the company behind the beloved Oculus Rift, for £1.2 billion. Resentment surrounding this announcement spread like wildfire as many of those who had helped fund the Oculus Rift when it was nothing more than a far-off promise on Kickstarter were blind-sided by the transaction.
The Oculus Rift is a new virtual reality (VR) headset designed specifically for video games. With an incredibly wide field of view and high resolution display, the Oculus Rift provides a truly immersive experience and is currently the biggest player in the virtual reality space.
Facebook buys Oculus Rift for $2.44bn
Palmer Luckey, (a VR-enthusiast and founder of Oculus), and his team chose to ask for funding on Kickstarter. Their initial funding goal was $250,000 but they ended up raising $2.44 million due to the positive reaction that ensued. Backers on Kickstarter, however, do not receive equity in the companies, but are generally offered goods (‘rewards’) to encourage them to donate. With Oculus, this included a developer kit if they gave more than $300.
At face-value, the buyout does not seem to be hugely offensive. Yet, news of this decision to sell to Facebook was the catalyst that set off ‘the crowd’. Ultimately, it meant that the dedicated backers were left with nothing more than the rewards, which upset many. In my view, the widespread fury that followed was wrong; they knew exactly what they were doing (and getting in return) when they donated via Kickstarter.
The agenda it seems was to use Kickstarter to gather interest from developers, as well as donations from fans who wanted to help this become a part of gaming’s future. But it left people, such as user Michael Cooper, asking ”What in hell was the point of Kickstarter if you sell out to a giant company like Facebook?”.
The real weight of the argument lies with the Oculus team’s decision to fund on Kickstarter despite there being other funding options available which would have benefited both Oculus VR as well as the investors. If Luckey and his team chose Crowdcube as their platform then the final result would have been much more favourable for everyone involved: ‘involved’ being the key word here. Giving money on Kickstarter gives you no say in a company’s future.
Should Oculus raised via equity rather than reward crowdfunding
A brief look at the possible return figures, if a donator was in fact an investor on Crowdcube, highlight this very point.
The return on investment (ROI) on Oculus Rift if the investors had been through an equity site would have been an estimated 200x ROI. That means that if someone had invested our average investment of £2,800, they would have made £560,000.
If Oculus had chosen Crowdcube as their funding platform, these 9,522 donators would be investors and therefore would have had a share in the profits and reaped the benefits due to their admirable belief in the Rift from the offset.
However, Kickstarter was extremely trendy (and still is) when they opted for this funding choice. The team were probably overwhelmed by the success but should not be vilified for the company’s billion dollar sale to Facebook. The Kickstarter donators were not shareholders and they got their rewards some time ago. I guess the big question now is would Oculus use equity crowdfunding next rather than Kickstarter’s rewards.