Crowfall - Title III Investments: What Are They? - MMORPG.com

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Crowfall - Title III Investments: What Are They? - MMORPG.com

Red Thomas puts on his business hat to explore Title III of the JOBS Act, which now allows investments under a crowdfunding type of platform. Learn what you need to know and whether it’s good for the industry!

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CrazKanuk

Nice write-up Red!! So what you're saying is we should put ALL our money into these, right?

Kidding!!! Wasteland 3 actually had a 3x cap on their fund, I believe. Also, if you hadn't achieved that cap after X amount of time, it simply disappeared. So there are definitely precautions to be taken. That being said, there are plenty of folks who feel like they should be getting paid for their contributions as it is, so this was a nice write-up explaining WHY that's not the case (in legal hokum).

FlyByKnight

Great article. Very informative, thank you for this.

Lunarhound

I've been looking at these since the option became available, and honestly, it sounds like something I'd be into. Whenever I give money to a crowdfunded project, I've never looked at it as anything more than a gift anyway. I put money toward projects that I like and want to see succeed, but I never part with anything more than I'm willing to lose, and promised in-game benefits and such don't typically excite me, so I'm never angry or upset if they don't make it. A bit sad maybe, but that's it. I was thinking of taking a few hundred out of my Christmas bonus this year to throw at a game I like anyway, so maybe I'll give this a shot instead of poking around Kickstarter. I'll view it as a gift, as I always do, but there'll be the added bonus that maybe I'll get it back in a few years.

Red_Thomas

Lunarhound said:

I've been looking at these since the option became available, and honestly, it sounds like something I'd be into. Whenever I give money to a crowdfunded project, I've never looked at it as anything more than a gift anyway. I put money toward projects that I like and want to see succeed, but I never part with anything more than I'm willing to lose, and promised in-game benefits and such don't typically excite me, so I'm never angry or upset if they don't make it. A bit sad maybe, but that's it. I was thinking of taking a few hundred out of my Christmas bonus this year to throw at a game I like anyway, so maybe I'll give this a shot instead of poking around Kickstarter. I'll view it as a gift, as I always do, but there'll be the added bonus that maybe I'll get it back in a few years.

Precisely. If it's something you were going to do anyway, you're getting an opportunity to MAYBE get something back later. It needs to be supporting something you agree with far more than an investment.

Thunder073

@ Red_Thomas this was a very well written and informative article to introduce this topic! I applaud you and MMOPRG.com for writing it up.

As a daily trader and game enthusiast myself (with a financial and business background), I have entertained the idea of throwing 50k-100k on a couple of choice start-ups I've been following over the years. Unfortunately, after delving more into this topic it appears that Dodd-Frank and Reg D have screwed me royally. As it turns out I cannot attest to being a fully accredited investor, therefore I cannot invest. In order to be an angle investor I need to have1 million in investable assets or a joint income with my wife of 300k annually; neither of which I have. I do however have several hundred thousand I day trade with. The irony in all of this is that the SEC doesn't give a hoot if I put 100k on a penny stock but god forbid I shell out 5k on a new private company because that will get me a slap on the wrist. Long story short, without ranting on about my issues with government regulations, do you know any other viable options to angle investing in these companies other than using 3rd party sites like MicroVentures?

PrototypeZX

I'm glad somebody is taking the time out to inform these people TO STOP INSTANTLY DUMPING MONEY INTO EVERY HALF SHIT IDEA.! these developers do not have our best intrest in mind when developing games they are simply looking to get their dream off the ground and turn a profit doing so which is fine in this competetive market but that is no excuse to release shit after shit with little to no innovation not in the mmo genre where you are supposed to create communities, communities revolving around shit are shit, anyways thanks for this article. cheers

Red_Thomas

Thunder073 said:

@ Red_Thomas this was a very well written and informative article to introduce this topic! I applaud you and MMOPRG.com for writing it up.

As a daily trader and game enthusiast myself (with a financial and business background), I have entertained the idea of throwing 50k-100k on a couple of choice start-ups I've been following over the years. Unfortunately, after delving more into this topic it appears that Dodd-Frank and Reg D have screwed me royally. As it turns out I cannot attest to being a fully accredited investor, therefore I cannot invest. In order to be an angle investor I need to have1 million in investable assets or a joint income with my wife of 300k annually; neither of which I have. I do however have several hundred thousand I day trade with. The irony in all of this is that the SEC doesn't give a hoot if I put 100k on a penny stock but god forbid I shell out 5k on a new private company because that will get me a slap on the wrist. Long story short, without ranting on about my issues with government regulations, do you know any other viable options to angle investing in these companies other than using 3rd party sites like MicroVentures?

w/r to Title III, no.  You have to go through an accredited 3rd party.  That said, and you'll want to double-check, I believe the new limits for non-accredited investors is $2k for those who earn up to $100k/yr and 10% of annual income after that.

Though, I don't think you should do it in onesy-twosey type projects.  Again, I'm new to these sorts of investments, so I'm not an expert by a long ways.  Friends who are far more acquainted have told me you should shoot for at least 15 at a time, and more is better.  The vast majority will go bust, and that's why you look for opportunities that should net +40% per year return or better (knowing you're probably looking at 5-10 years before you get it out, also).  The few survivors cover the many failures to launch.

TO ME, the advantage of these Title III investments isn't that you have a chance to play with money.  It's more that it's an opportunity to support local industry in a way you couldn't before.  That microbrew down the road really making some good stuff?  Get them to put some equity up and try getting nationally distributed, and you can buy in to show support.  Or in my case, there are a number of tech startups in the area that I think have a good idea.  I'd like to help these young folks get a shot at being the next Elastic or Docker, and Title III is a way for others in the community to do the same.

But, maybe that's naive.  

Burntvet

These are typically a very bad investment for "qualified" investors, because to become a qualified or "accredited" investor, you typically need a 6 figure investment nut to start with and there are MUCH better things to do than shovel it at some "hope and prayer" video game.

The company I work for has researched dozens of Title III offerings for our clients over the years (not for video games) and every single one was rated negatively after the research.

Why?

Because usually if a business idea is sound, a "producer" can get a conventional business loan/line of credit or solicit and get normal equity investors. From someone, from somewhere.

If the idea is not sound, producers have to seek "alternate" financing, which includes these things.

I would be shocked if more than 1 in 10 actually paid off the investors, amongst the deals we looked at, the number was not even that high in the end.

This is just another legal way for non-credit worthy "companies" to suck big investment dollars out of a new bunch of wealthy suckers.

makevali

I believe it is taking millions to create an "arena " game disguised as sandbox MMO. Waste of resources in my opinion and will be the biggest disappointment when launched.

Red_Thomas

Burntvet said:

These are typically a very bad investment for "qualified" investors, because to become a qualified or "accredited" investor, you typically need a 6 figure investment nut to start with and there are MUCH better things to do than shovel it at some "hope and prayer" video game.

The company I work for has researched dozens of Title III offerings for our clients over the years (not for video games) and every single one was rated negatively after the research.

Why?

Because usually if a business idea is sound, a "producer" can get a conventional business loan/line of credit or solicit and get normal equity investors. From someone, from somewhere.

If the idea is not sound, producers have to seek "alternate" financing, which includes these things.

I would be shocked if more than 1 in 10 actually paid off the investors, amongst the deals we looked at, the number was not even that high in the end.

This is just another legal way for non-credit worthy "companies" to suck big investment dollars out of a new bunch of wealthy suckers.

I'm really confused by your post.   They're not credit worthy by virtue of being a startup.  That's rather the point, and yeah.   The vast majority of them fail, which is why you should invest in a larger portfolio and not in a single startup.

It's not a scheme.   That's how venture capitalism works.   I've yet to meet anyone serious about these sorts of investments who expected half to succeed. 

I don't want to encourage folks to treat this like it's day trading, but it's not some great scam...

Burntvet

Red_Thomas said:

Burntvet said:

These are typically a very bad investment for "qualified" investors, because to become a qualified or "accredited" investor, you typically need a 6 figure investment nut to start with and there are MUCH better things to do than shovel it at some "hope and prayer" video game.

The company I work for has researched dozens of Title III offerings for our clients over the years (not for video games) and every single one was rated negatively after the research.

Why?

Because usually if a business idea is sound, a "producer" can get a conventional business loan/line of credit or solicit and get normal equity investors. From someone, from somewhere.

If the idea is not sound, producers have to seek "alternate" financing, which includes these things.

I would be shocked if more than 1 in 10 actually paid off the investors, amongst the deals we looked at, the number was not even that high in the end.

This is just another legal way for non-credit worthy "companies" to suck big investment dollars out of a new bunch of wealthy suckers.

I'm really confused by your post.   They're not credit worthy by virtue of being a startup.  That's rather the point, and yeah.   The vast majority of them fail, which is why you should invest in a larger portfolio and not in a single startup.

It's not a scheme.   That's how venture capitalism works.   I've yet to meet anyone serious about these sorts of investments who expected half to succeed. 

I don't want to encourage folks to treat this like it's day trading, but it's not some great scam...

Not necessarily, no... a start-up is not automatically disqualified from conventional financing and conventional VC channels.

I have personally sat in on a number of pitch meetings where start-up investment funds/partnerships were funded right out of the gate.. why?

Known experts/execs in their field, solid business plan based on a good idea, collateral and use of partners' own money as part of the financing: all contribute to getting the deal done through a bank or investment fund.

At it covered everything: from buying a basket of franchise restaurants in a given area, to rehabing a specialty steel mill, to an overseas micro-lending bank, to starting any number of commodity or equity investment funds based on an idea. Those are just examples of things that "passed the BS test".

Outside of that, you have people that try to sell "less good" ideas through Title III that don't make the cut.

If the idea was good enough, it would not have to try to crowdfund is the point.

As it is, the government tries to limit the downside for investors that do not know any better by creating the "qualified investor" category, so that even if they are idiots, they can afford the bath they are probably going to take.

But people that do actual inventing and financial research for a living avoid direct Title III investments like the plague (although they might buy into a VC firm, which is entirely different).

Red_Thomas

Burntvet said:

Not necessarily, no... a start-up is not automatically disqualified from conventional financing and conventional VC channels.

I have personally sat in on a number of pitch meetings where start-up investment funds/partnerships were funded right out of the gate.. why?

Known experts/execs in their field, solid business plan based on a good idea, collateral and use of partners' own money as part of the financing: all contribute to getting the deal done through a bank or investment fund.

At it covered everything: from buying a basket of franchise restaurants in a given area, to rehabing a specialty steel mill, to an overseas micro-lending bank, to starting any number of commodity or equity investment funds based on an idea. Those are just examples of things that "passed the BS test".

Outside of that, you have people that try to sell "less good" ideas through Title III that don't make the cut.

If the idea was good enough, it would not have to try to crowdfund is the point.

As it is, the government tries to limit the downside for investors that do not know any better by creating the "qualified investor" category, so that even if they are idiots, they can afford the bath they are probably going to take.

But people that do actual inventing and financial research for a living avoid direct Title III investments like the plague (although they might buy into a VC firm, which is entirely different).

Sure, sometimes companies start that can qualify for traditional funding, but that's not really a startup, or at least not in the tech space.

I'm absolutely not trying to be belligerent or minimize you, man.  I think you're missing a huge piece here, though.

Companies like Facebook, Youtube, Twitter...   These companies wouldn't exist if it weren't incubators like Y Combinator matching ideas with VCs and angel investors.  Those are just big names in a massive list of great ideas started by people, often with little or no business experience, and who would have never been able to get a conventional loan.

In San Antonio for instance, I sit on several committees working to help veterans from the intel and cyber sectors incubate ideas into products.  Some of the folks sitting with me are execs at massive banks, and these guys still aren't getting loans.  In tech, ideas far outpace traditional lending.  That's why VCs exist.  Pick a new tech idea that didn't start from a massive company and it's either open source or a startup that never even saw the inside of a bank.

And in the game industry?  Unless you're some massive studio with a valuable IP, you're not getting a traditional loan.  I can't think of a game I've covered that wasn't either backed by a large publisher or didn't get off the ground through VC raises.  At least, not prior to crowdfunding.

Obviously, these are massively dangerous investments and I'm not sure if I'm 100% okay with opening them up outside sophisticated investment circles.  I completely agree there's massive room for folks to get hurt here, and that's one of my big concerns about it.  I don't object to any of those points.  My objection is to your line in the sand on the BS test.  For restaurants and more traditional ideas like that, no problem.  For cyber and tech, though?  The best ideas are coming from high schoolers and kids in college.  That's not going to fit your mold.  ...I guess that's a wall of text to say I disagree with one minor point of what you said.  lol

Again, do agree that Title III is prime ground for bogus ideas and that extra attention is warranted.  On the other hand, it's an opportunity for accredited investors to spread thin money in areas while being a little more diversified, and I think it's a good way for tribes of people to back things they support.  It is dangerous, but I think it's a bit extreme to suggest anyone doing it is looking to pull one over on folks.