Page 50 - Trends in Telecommunication Reform 2016

Box 1.14: Key lessons: Star Citizen
• Donation crowdfunding is typically exempt from regulation by financial services
regulators, and can therefore be relatively straightforward to set up and to attract
investors. However, investors should be aware that the lack of financial regulation may
introduce risks, and they should be prepared to undertake their own due diligence to
assess that risk.

• The Star Citizen project was funded using a combination of crowdfunding from a
private platform (Kickstarter) and from the project’s own website – thus reducing fees
paid to the third party platform. This two-pronged approach can lower the costs for
crowdfunding, but the project may lose visibility, particularly if the website is new or not
seeing heavy traffic.

• Donation crowdfunding is more likely to be successful in developed markets where
investors are also potential end users.

This approach proved to be so successful that is not seen by regulators as an investment and is
the developer no longer needed to source exempt from regulation.
funds from private investors. Since October
2012, the company has raised more than USD Case study: Pebble, USA
81 million . The vast majority of that amount
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was crowdfunded from the game’s website. Only Pebble is a company that develops technology
USD 2 million was raised from Kickstarter between for a range of smart watches that allow users
October and November 2012. Overall, the game to access apps using connectivity provided by
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received funds from almost 900 000 people, each a smartphone. For this value proposition to
paying an average of USD 90.
be feasible there must be good-quality data
connectivity.
With this kind of fundraising, the investment risk
is measured by the likelihood that the project will The company is relatively small and lacks the
be completed once the target funding is achieved funds needed for product development. During
and by how much has been invested. For this its most recent fundraising session (April 2015),
project, the investment risk was measured by the Pebble raised more than USD 20 million from more
following:
than 78 000 backers on Kickstarter. Pebble saw
Kickstarter as the easiest and most efficient way
• the low minimum investment required (only to market its latest product to the audience most
USD 90); and
likely to want it. As a result, the company achieved
its fund-raising target within three months.
• the project founder’s strong track record in
developing video games.
The minimum required investment in Pebble was
USD 159, in return for which the investors received
An added benefit for the individual investors a discounted price on a Pebble watch – the higher
was that they could influence how the game was the investment, the lower the price. Backers of the
developed based on how much they invested. In project also received the watch before it was made
addition, investors also had early and free access available to the general public.
to the game, which was due on the market in
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2015 .
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As mentioned in the previous case study, the
intervention of financial services regulators in this
Financial services regulators do not typically type of fund-raising approach is unlikely.
regulate donation crowdfunding. This model
corresponds to something like a charitable
donation or a non-monetary reward. As a result, it

32 Trends in Telecommunication Reform 2016