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March 15 2012

Developer Week in Review: When game development met Kickstarter

Happy day after Pi Day, everyone (except all you Tau fanatics ...). If you happen to live in Louisville, drop by the FedEx facility there and say "hi" to my new iPad. It's been sitting there since last Friday, waiting for the magic hour to take the final leg of its voyage so all of them arrive on the same day (unless you happen to live in Vietnam, evidently ...). My upgraded Apple TV unit is allegedly arriving today, a day early. That's me, single-handedly helping to drive Apple's stock price over $700.

Disintermediation, thy name is Kickstarter

Double Fine Adventure Kickstarter campaign

Kickstarter has gained a reputation for letting small ventures crowdsource their funding, providing an alternative to venture and bank investments for new products and projects. But with a few notable exceptions, it's been fairly small-scale stuff, typically between $10,000 and $100,000 of total funding.

Meanwhile, independent game designers have been hampered by the large costs associated with creating products that can compete with the big players such as EA. With costs for even a relatively simple game running into the millions, there was no practical way to fund great ideas without giving up artistic control to the megacorps.

Now, several game developers have decided that game funding and Kickstarter are two great tastes that taste great together. Crowdfunding for small software projects is old hat for Kickstarter, but the scale that it is now being taken to is rather breathtaking.

It started with the folks over at "Double Fine Adventure" (which includes the talent behind the well-known "Monkey Island" series of games), who set up a Kickstarter project with a $400,000 goal. That money was intended to fund development of a new point-and-click adventure game. To say that it was successful is truly an understatement: The project ended up with $3.3 million dollars in funding.

Brian Fargo, who was executive producer for the hit games "Wasteland" and "Fallout," evidently liked what he saw. He's following the same model for "Wasteland 2." It's already blown past the stated goal of $900,000 (it was just over a million dollars pledged when I wrote this). With 32 days to go in the pledge period, it's almost certain that they will even exceed the $1.5-million-dollar level that will let them create both a Windows and OS X version.

This disintermediated payment model is very exciting, both for software developers who might have a big idea that needs big funds, and potentially for many other areas of creative endeavor. Your favorite show just got canceled? Fund it yourselves! In the mean time, hopefully we'll see more exciting independent games find the budgets they need to become reality.

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And speaking of crowdsourcing

This week marks the end of an era, as Encyclopedia Britannica announced that they will no longer issue a print version of their product (digital products will continue). For people of my age, Britannica was the go-to source when grinding out those high school term papers (along with another dinosaur, the Reader's Guide to Periodical Literature).

What did in the EB was, of course, Wikipedia. For all its warts, there was just no way that a massive tome (both physically and financially) was going to survive in the long term, when a much more up-to-date and comprehensive source was available for free. The Britannica's 120,000 articles just couldn't compete with Wikipedia's nearly three million, especially when the cutting-edge articles in the 2010 EB edition covered such breaking news as the Human Genome Project (completed in, wait for it, 2003).

Purists will bemoan the death of an authoritative, expert-edited research source, but the reality is that expert-curated sources (such as journals) are proving to be as subject to bias and error as crowdsourced ones. I hear horror stories from my wife about how hard it is to get a journal article accepted if it goes against the conventional wisdom, especially since the people reviewing the articles are usually the ones who have the most to lose if it turns out they were wrong. Crowdsourced reference material can suffer from the opposite problem, letting fringe theories creep in around the edges, of course.

In the end, what won the war for Wikipedia (apart from price and convenience) is the sheer volume of information available. Sure, a complete list of the characters appearing in "Firefly" may not end up being crucial to your kid's next senior essay, but life is more than just papers. Wikipedia rules because it has the meaty articles, but also the ones you need on a day-to-day basis.

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November 04 2011

Four short links: 4 November 2011

  1. Beethoven's Open Repository of Research (RocketHub) -- open repository funded in a Kickstarter-type way. First crowdfunding project I've given $$$ to.
  2. KeepOff (GitHub) -- open source project built around hacking KeepOn Interactive Dancing Robots. (via Chris Spurgeon)
  3. Steve Jobs One-on-One (ComputerWorld) -- interesting glimpse of the man himself in an oral history project recording made during the NeXT years. I don't need a computer to get a kid interested in that, to spend a week playing with gravity and trying to understand that and come up with reasons why. But you do need a person. You need a person. Especially with computers the way they are now. Computers are very reactive but they're not proactive; they are not agents, if you will. They are very reactive. What children need is something more proactive. They need a guide. They don't need an assistant.
  4. Bluetooth Violin Bow -- this is awesome in so many directions. Sensors EVERYWHERE! I wonder what hackable uses it has ...

September 09 2011

Crowdfunding gets traction in D.C.

In May, I wrote here about efforts I've been involved with advocating a "crowdfunding exemption." As part of the American Jobs Act introduced by President Obama last night, the White House announced that it will work with the SEC on implementing something along these lines. Here's how the White House Office of Science and Technology explains it on their website:

As part of the President’s Startup America initiative, the Administration will work to unlock this capital through smart regulatory changes that are consistent with investor protection. This means reducing the disproportionately high costs that smaller companies face when going public, as well as raising the cap on “mini” public offerings (Regulation A) from $5 million to $50 million. It also means responsibly allowing startups to raise money through “crowdfunding” - gathering many small-dollar investments that add up to as much as $1 million. Right now, entrepreneurs like these bakers and these gadget-makers are already using crowdfunding platforms to raise hundreds of thousands of dollars in pure donations - imagine the possibilities if these small-dollar donors became investors with a stake in the venture.

Hear, hear! In a conference call with the press immediately after Obama's address, U.S. Chief Technology Officer Aneesh Chopra and Office of Science and Technology Policy Deputy Director Tom Kalil explained that they advocate an exemption, or at least a streamlined and less-expensive registration process, for public securities offerings of $1 million or less, with individual investment capped at $10K. They also said that they believe the SEC has the authority to make this regulatory change, no legislation required.

Elsewhere in DC, the House Committee on Oversight and Government Reform has just scheduled a hearing entitled "Crowdfunding: Connecting Investors and Job Creators" for next Thursday, Sept. 15. It isn't on their public calendar yet, but letters were sent on Wednesday to the people testifying. Among them (and my source on this) is Sherwood "Woodie" Neiss, whose Startup Exemption campaign has led the way on this issue.

Careful readers might note that Obama is a Democrat, while the chair of Oversight, Darrell Issa, is a Republican who is known to have no love for Obama. But hey, uniting diverse interests to a common cause is what crowdfunding is all about!

Of course, I'm thrilled about all of this. I would now bet that crowdfunded investing will become legal here in some form, hopefully fairly soon — and that when it does, we'll see a surge of grassroots entrepreneurship, innovation, local investing, and economic vitality.

For more, read my blog at crowdfundinglaw.com.

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June 02 2011

Open Question: Would you fund your favorite author?

questionmarkPublishers can start preparing for some new competition — from readers. A new crowdfunded service called Unbound launched at this year's Hay Festival. The platform, which sounds similar to Kickstarter, allows readers to fund the books they want to read. A post at the Guardian describes how it works:

The Unbound.co.uk publishing platform ... allows writers to pitch ideas online directly to readers who, if they are interested, pledge financial support. Once enough money has been raised, the author will write the book, with supporters receiving anything from an ebook to a limited first edition and lunch with the author, depending on their level of investment.

And Unbound didn't launch with unknown self-publishing authors — Terry Jones is on board, as are Tibor Fischer and Gavin Pretor-Pinney.

This raises the question: Would you fund your favorite author?

Please share your thoughts in the comments.

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May 06 2011

Improving the landscape for organic startups

Next Tuesday, May 10, entrepreneur Sherwood Neiss will be testifying before U.S. Congressman Darrell Issa and the House Committee on Oversight and Government Reform to advocate a regulatory change that I have been working to support: a small offering exemption, aka "crowdfunding exemption." It's a simple change that the SEC has the authority to make, and which I believe would spur grassroots innovation and empowerment the way the NSF's revision of the internet backbone's Acceptable Use Policy did back in the early 1990s. (Remember that one?)

The background (which I didn't know until fairly recently), is that any investment where the return does not depend on the investor's active, day-to-day involvement is considered a security. And securities, no matter how small, are either regulated by the SEC or state securities departments. There are no de minimis exceptions; shares in a lemonade stand would require registration, which I'm told costs $50,000-$100,000 or more (federal) or $20,000-$50,000 (state), mostly legal fees. For VC-free startups based on people doing things that they care about, these costs are prohibitive.

There are exemptions from registration, but never for investments that are described on the open web, like the donation pitches that have made sites like Kickstarter and IndieGoGo such fonts of creativity — this is prohibited as "general solicitation." Investments offered privately to friends and family can be exempt, but with strict limits on the numbers of "unaccredited" investors (non-millionaires) allowed in, like a maximum of 35.

These laws were enacted to protect unsophisticated investors from fraud, but they also prevent people from investing in small businesses in their own neighborhoods, or garage ventures launched out of communities of interest that they belong to — despite the likelihood that their personal ties to such investments gives them a better basis for evaluating risk (and contributing to success) than some mass of SEC filings cooked up in an office somewhere. And so, in the name of investor protection, the investments industry currently has a monopoly on all the invested assets of the non-millionaire public. People can't invest in the people they know from their own communities; they can only entrust their money to the choices contained in a managed menu of exclusively non-local, large-scale investment products.

As an alternative, the Sustainable Economies Law Center (SELC) in Oakland (for whom I volunteer) petitioned the SEC last year for a new exemption to cover investment offerings where individual investments are capped at $100 and the total amount is less than $100,000. The SEC posted it to their website last July 1 as File No. 4-605 (PDF). Check it out! It's a great document, written to be understandable by laypeople, and I think everyone involved is proud of how it turned out. The funding for the legal work behind the petition was itself raised through crowdfunding.

As hoped, the proposal has been bouncing around and gaining support from Republicans and Democrats alike. The SEC's comments page for the petition (which you can add to by emailing rule-comments@sec.gov and putting "4-605" in the Subject line) contains more comments than any other petition listed, all of them positive (as of this writing). Last November, when I and some other supporters of the petition attended the SEC's Small Business Forum to promote the idea, the SEC seemed interested.

Since then, Rep. Darrell Issa wrote a letter to SEC chair Mary Schapiro asking about easing regulations for crowdfunded investments, and Schapiro wrote back (PDF) to say they were evaluating the issue, citing 4-605 and our visit (see footnotes 77 and 78 in the document). Meanwhile, Florida entrepreneur Sherwood Neiss also met with the SEC to promote the idea, and published a less restrictive proposal for a small offering exemption (which also cites 4-605) at his website StartupExemption.

Neiss has also done a wonderful job of spearheading and publicizing this issue. Understanding the power of celebrity, he encouraged Whoopi Goldberg to tweet her support for his exemption proposal. The Wall Street Journal blog covered Goldberg's tweet on March 23. This reified the issue among financial journalists, who have since reported on it in Bloomberg, The Fiscal Times, The Washington Times, and POLITICO Pro. (Before Goldberg's endorsement, only the Boise Weekly had covered the idea.)

Now Neiss is scheduled to testify before Issa's committee next Tuesday, May 10th, and everyone I've been working with on this who knows is thrilled. I've read an early draft of his planned testimony, and it's terrific — a great argument with great supporting facts for a revolutionary new idea. I was excited just reading it, and in an idle moment afterwards I caught myself humming "Marching to Pretoria."

This past Monday, I called C-SPAN's main number (202-737-3220) to suggest that they cover Issa's hearing and Neiss' testimony. The receptionist told me to call back on Monday, May 9th because they don't decide what to cover until the day before. When I asked her if there was any other way to suggest coverage, she asked me what hearing I was interested in, and told me that she would pass my suggestion on to the editors. Fingers crossed!



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