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Would you invest your life savings in a game? Should you be protected if you do? Regulator investigates Slightly Mad Games
Over at Eurogamer, Tristan Donovan has written a marvellous piece on the crowd-funding experience of Slightly Mad Games.
In an nutshell: the company has raised over £2 million from consumers to fund their game. It says this is not an investment. People who put in and contribute time will get a share of profits. The Financial Conduct Authority (formerly the FSA) is investigating and has told Slightly Mad Games to stop taking money from consumers.
There are some terrifying quotes in Eurogamer’s piece. One contributor said “I don’t have a huge amount of assets, but the minute I heard about this I was sold. I do think sometimes it was a bit crazy… But this can’t go wrong, it simply can’t.” On 15 April 2012, WMD forum member Martin Nilsson announced he was putting his family’s £13,000 savings into Project CARS. He added that he hoped to follow that with another £41,000 from reclaimed mortgage overpayments, says Eurogamer.
“I’m comfortable with this despite the lack of approval from my family who do not know much about the situation,” he wrote. “My wife is being supportive but is clearly concerned and my daughter thinks I’m nuts. Losing the money would not put us out on the streets, but it is a big deal for us.”
This is crazy. Making games is risky. Contributing to a game because you think it is a dead cert is even more crazy. This is exactly the reason why the regulator requires financial investments to be regulated, by authorised companies, with a whole bunch of rules.
Slightly Mad Games will have taken legal advice which identified these issues. They will have been confident that they were following the law. Yet the law exists to protect individuals from getting carried away with get-rich-quick schemes which are, in reality, highly risky.
I have no issue with people raising money from crowds to fund the creation of a product. I have no issue with people taking money from sophisticated investors who understand the risk. When you combine the two – passion projects with supposedly rational investment decisions – you are in a world fraught with risk.
I think that crowd-funding with an equity component is dangerous, easy to get wrong and should be regulated. I hope the regulator publishes its findings on Slightly Mad so we all know where we stand.
And in the meantime, I hope the game goes well and all the investors, sorry, participants, get their money back. But to the contributor who said “this can’t go wrong, it simply can’t,” I fear you have rarely been more mistaken.