Will Facebook’s Oculus Acquisition Damage Contributor Trust in Kickstarter?
News of Facebook’s (NASDAQ:FB) acquisition of (initially) Kickstarter-funded Oculus VR spread faster than a meme of a cat in a necktie. Sentiment about the sale across the Internet was decidedly mixed, with many original backers upset in light of their contributions to the project’s value that went beyond financial funding. While Oculus fulfilled its contractual obligations to the virtual reality gaming platform’s original funders, acquisitions such as these raise questions for potential future contributors who may no longer trust Kickstarter’s goodwill sentiment and could interpret that the popular crowdfunding platform will be used solely to vie for larger investors.
Kickstarter, which surpassed the $1 billion pledge mark this month, is clear about the financial stake contributors have in Oculus as well as any of the other 139,000 projects the platform hosts: none. This move away from traditional VC funding is one of the benefits for project creators. They are able to maintain complete control over their work with the assurance that contributors have no equity in their project’s possible future successes or are owed anything more than rewards based on contribution level if a project is fully funded. Contributors have historically felt that they were donating to worthy projects that might not have otherwise gotten noticed, making funding, as Kickstarter says, “more democratic.”
The Oculus deal is unique from other successfully crowdfunded projects, including those that were also later acquired, such as last year’s Logitech purchase of TT Design Labs. Its market value is somewhat based on the work of the campaign’s contributors, which led some to feel as if Oculus was partially a community or grassroots project. The level of participation lent itself to a deeper investment of effort that went beyond the financial contribution. As developers created games for the platform, it furthered the company’s popularity and profitability. When the acquisition was made public, many contributors felt left in the dark and also left wondering if Oculus’s $2 billion price tag would have been as high had their games not been a factor.
Trust issues and controversies have surrounded Kickstarter campaigns almost as far back as when the site was founded, in 2009, and its accountability page states that it reviews projects only to ensure they meet the site’s basic guidelines; Kickstarter does not vouch for a creator’s ability to complete a project nor provide refunds. Last June, it suspended the funding for scam projects Kobe beef jerky and a lucid dreaming machine shortly before the campaigns ended and stopped the funds being delivered to the projects’ creators.
There are also a number of projects that have been successfully funded but contributors were never rewarded, from custom lock picking kits to HD video recording glasses to biometrically secured digital wallets. Sometimes projects are successfully funded but project creators don’t follow through for other reasons. While the above campaigns highlight some of the disadvantages backers have faced, once they financially contribute, there have been no other instances of projects comparable to Oculus and its acquisition both in the size of the deal and level of contributor involvement in the project’s success.
Only time will tell how Facebook’s newest acquisition will affect the future of crowdfunding or if this backlash will end up stifling innovation and erode trust in Kickstarter’s mission, potentially turning its mom-and-pop ideology into a no-strings financing platform. Given the amount of attention Tuesday’s deal brought, though, there will certainly be pause in the future before someone clicks “Back This Project” as more contributors are educated on the fine print.