Gaming Industry Taps Equity Crowdfunding

A new equity crowdfunding platform called Fig is making waves with its unique investment offerings.

On Fig, investors can back the development of video games. In return, they’re rewarded with shares of sales revenue.

The company posted this handy infographic to show how the process works.

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Let’s look at one of its recent campaigns to get a better understanding of how it works.

Game studio inXile just raised a very impressive $2.5 million on Fig to develop a new game called Wasteland 3.

Wasteland 3 is a follow-up to its successful game Wasteland 2, which did $12 million in total sales.

The “Wasteland” series of games is set in a post-apocalyptic world. The first title debuted in 1998, and the developers have built up a loyal following since.

ei_wasteland-3

How Much Could You Make Backing Wasteland 3?

Note: This deal is not live yet, as the companies are awaiting SEC approval. Investors can only pledge at this point.

Here’s how the revenue share works for this particular deal.

From Wasteland 3‘s investment page on Fig:

  • Fig will receive 31% of sales receipts until Fig receives 1.36X the amount provided to the developer to develop the game; and thereafter
  • Fig will receive 10% of sales receipts until revenue sharing with Fig drops below $10,000 per month for three consecutive months.

Fig then shares 30% of the revenue it receives with investors in the deal.

Based on estimates on Wasteland 3‘s profile, investors could see (roughly) a 1.2X to 1.8X return. Of course, there’s a chance of outlier outcomes on both sides. There are certainly risks to an investment like this, but I’m very intrigued by the concept.

While overall I think this is a beautiful model, I do worry a bit that investors in the deal only get 30% of Fig’s cut of the revenue.

However, I suspect Fig’s administrative costs are high on these first few deals. It’s possible that the revenue share arrangements will evolve over time. (Then again, there appears to be sufficient investor demand currently.)

Backers also have the option of receiving unique Wasteland 3 game rewards. Special characters, early access before the game launches, limited-edition items, etc.

Revolutionizing Game Development

This is one of the most interesting applications of ECF that we’ve seen to date.

Video games are perfect for this type of revenue-share deal for the following reasons:

  • Video game makers have loyal fans who will invest and act as grassroots marketers.
  • Fans/players get to decide which games get funded.
  • Investors could see 2X returns or more.
  • Independent video game and app sales are booming.

This is yet another fascinating development in the emergence of equity crowdfunding. New capital allocation models are being born right before our eyes. This stuff doesn’t happen every day.

I’ll keep readers updated on Fig’s progress. We’re keeping a close eye on niche areas of ECF, such as video games, real estate and even movies. I suspect they’ll be a big part of the industry going forward.

Have a great weekend,

Adam Sharp
Founder, Early Investing