Was a New Virtual Reality Rig Funded by Suckers?
The SEC mulls kickbacks for Oculus Kickstarter contributors.
It's hard to look cool while wearing virtual reality goggles. Just ask all those 1990s dreamers who shelled out big bucks for subpar experiences that left them standing alone in the nation's rapidly emptying arcades, waving their arms like dorks.
While the bulky helmets of yore are long gone, the dream did not die. Meet Oculus Rift: a new virtual reality headset that has generated huge buzz in the gaming industry. In 2012, Oculus VR raised $2.4 million on Kickstarter after asking for just $250,000 to help get the headset from drawing board to factory. The head-mounted displays are not yet commercially available, but developers are already hard at work on scenarios in which players can observe the landscape just by turning their heads. And Oculus' potential goes beyond games: The headsets made waves at the annual South by Southwest festival this year when HBO used them to offer tours of the Game of Thrones kingdom Westeros. The goggles also work as 3D media players, and may have applications in medicine and defense as well.
The whole setup had the makings of a classic crowdfunding success story. The folks who ponied up cash were promised swag such as posters and T-shirts, plus first dibs on those early developers' kits. And as with all Kickstarters, the terms of the deal clearly state that donors don't get their money back; the payoff is the warm fuzzy feeling you get from supporting a cool project.
Then, in late March, Facebook bought Oculus for $2 billion, $400 million of which was cash. This may seem like a strange acquisition for Facebook-the technology is hardware, not some app that can be easily incorporated into the social network's current offerings. But Facebook CEO Mark Zuckerberg explained his strategy in a statement: "Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow. Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate."
Online reaction to news of the sale was swift. Some of Oculus Rift's funders felt betrayed. The developer of Minecraft tweeted that he was canceling a deal to bring the game to Oculus Rift because Facebook "creeps [him] out." Reddit was full of rage about the sale. User "g_roller" summed up the community's feelings nicely with a succinct "I wish I never kickstarted you."
At the tech blog ValleyWag, Joel Johnson-who donated $300 to the Oculus VR Kickstarter campaign-provided a more nuanced take. "I, as a consumer, bought into the narrative that underpins almost every Kickstarter project: that without my contribution, something novel would not exist," he wrote. "And while that remains true… Oculus' sale to Facebook also highlights the disparity inherent in the current capitalist and investment structure, where small investors are excluded from returns by regulation, but investors with more capital can quickly extract more capital by pushing a quick expansion into untapped markets, even without proving that those markets actually, truly exist."
And that's the crux of the thing. The way investment regulatory structure is run, small Kickstarter donors are simply not allowed to be offered a piece of a fledgling company in exchange for their early infusion of cash. Johnson's early support of Oculus will not, and currently cannot, pay off like it would for a regulatory-approved investor.
That's a problem supporters of crowdfunding are trying to fix. Some are hoping a massive 585-page set of rules by the Securities and Exchange Commission (SEC) will help. The new rules will allow a company to raise up to $1 million in investment-not just donations-from crowdfunding sources over a one-year period.
Obviously, the SEC wants to attach a few strings. Why else would it take a novel's worth of prose to give companies permission to sell stakes to small donors? An analysis at VentureBeat calculates that the various reporting and compliance requirements that the commission wants could eat up more than one-third of funds raised. Bigger donations mean lower compliance costs, which doesn't exactly encourage upstarts to stick with a model involving hundreds or even thousands of smaller donors.
Those who are frustrated that their early financial support of Oculus won't pay off with a share of Facebook profits are going to instead have to use the developers' kits they paid for to try to make awesome games. We may not know exactly what Facebook has in mind for the revolutionary technology, but who wouldn't want to play a version of FarmVille where you have the sensation of standing in front of a big red barn, begging your virtual friends to help you milk the cows?
