In the weeks since The Oculus Rift announced that they had sold to Facebook for $2 billion, there has been an obscene amount of public outcry. Backers who helped the project raise $2.4 mm on Kickstarter have no began stating they wished they hadn’t supported to project if they knew it would “sell out.” Bloggers and journalists have continued to suggest that Facebook will kill the virtual reality project, further perpetuating the belief by some that crowdfunding is untrustworthy.
The reality of the situation is that the sale to Facebook is a great thing for crowdfunding. Its great for backers, it’s great for both rewards based platforms, and it’s potentially very great for Title III platforms. Here’s 3 reasons why the sale to Facebook is a positive step for crowdfunding.
1. If you really believe in the project, Facebook’s deep pockets will make it happen
Many backers are upset that in the sale to Facebook because they believed Oculus Rift was leading the charge into the virtual reality revolution. Hardcore gamers to comfort in believing that this was finally the time in which virtual reality would lead the charge into a new frontier of gaming. Unfortunately, they believe the sale to one of the most successful internet companies in the world is a detriment to the VR platform.
Jordan Orelli, a developer based in New York commented to The Verge, “”What made Oculus so great was that it was a DIY project by a kid in his garage that was so good that it gave John Carmack pause,” referring to the legendary Doom creator who resigned at id software to work on Oculus full time.
“What has Facebook done for gaming? Nothing,” Orelli says. “If it was Valve that had bought Oculus, I would have peed my pants uncontrollably. Apple, Google, Sony, Nintendo, fuck, even Microsoft would have all been better than Facebook.”
This is the problem. Yes, maybe the match made in heaven would not have been to Facebook, but do you seriously think Facebook has ZERO chance of helping to build Oculus according to the dream that all it’s backers had? Facebook might not have the public opinion on their side (even though 1 billion people continue to use their platform) but a true backer of the project wants to see the project come to life. The amount of money that Facebook can contribute to the continued development of the project is overwhelming. Money isn’t the answer in every case, but it sure as shit helps.
2. Oculus Rift will be the poster boy for Title III Investment Crowdfunding
Later this year, investment (equity) crowdfunding will become legal under Title III of the JOBS Act. Many people who backed the Oculus Rift project have now stated that they wished they had invested in the project as opposed to back it. Hindsight is always 20-20 I suppose. Kendall Almerico reported yesterday on CrowdfundInsider;
Let’s assume Oculus would have actually jumped through all of those hoops, rather than just saying “Hey, let’s do a Kickstarter project where we don’t have any of those disclosure requirements, no due diligence, and we are not capped at $1 million.” If Oculus had offered, say, 10% equity in their company for $1,000,000 through an equity funding portal to the crowd in $1,000 shares, that would have meant 1,000 lucky people could have invested in the company. Assuming no dilution occurred, and making a whole lot of other assumptions that have no reasonable basis in fact, those investors would have shared 10% of the Facebook money or $200 million. Roughly translated under this fanciful scenario, a $1,000 investment would have been worth $200,000 in the Facebook buyout.
Yes this should be the poster boy for Title III crowdfunding but let’s all make sure we understand that Oculus Rift is an anomaly. There will crowdfunded projects that have exits in this short of time, but not to this magnitude. On the other hand, there will be exits of this magnitude, but not in the short timespan Oculus experienced. However, the market should see many smaller (but still sizable) investment opportunities and exits in the future. He expects this Oculus Rift sale to have a positive effect on investment crowdfunding as long as project creators don’t have unfair
I spoke with DJ Paul, Chairman of CFIRA, who told me he expects Oculus Rift to have a positive impact on investment crowdfunding. However, it comes down to what kind of hurdles the SEC will place in front of projects looking to raise capital under Title III of the JOBS Act. If the SEC pus to many restrictions on entrepreneurs, they might take their chances on the reward based platforms.
3. Oculus Rift proves the crowdfunding system works
The system works. Take a second to let that sink in. Despite all the frauds, and reports that crowdfunding still has a long way to come, they system is cruising along just fine. Oculus Rift raised a seed round via amazing backers on Kickstarter, proved their worth and raised a round via Venture Capital, and finally sold to Facebook. Not a bad lifecycle for 18 months.
Once Title III goes into effect later this year, we can start to see even more people turning to crowdfunding as a reason to invest, and start new projects. Crowdfunding will only continue to deliver great projects and strong communities behind these projects looking to cross the chasm into the mainstream markets.
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