‘Star Citizen’ Court Case Reveals the Messy Reality of Crowdfunding a $200M Game
Crowdfunding can clearly serve a useful role as part of the modern mix of societal funding sources, but it&#x27;s definitely still more wild west when it comes to uniformity of terms and regulations. It&#x27;s not &quot;investing&quot; in the classic sense but it&#x27;s also certainly not &quot;donating&quot; either, nor is it a preorder. &quot;Backing&quot; involves its own set of concerns and scale and rules should reflect that, and by design it primarily involves members of the general public who are not financially sophisticated. That should have implications vs how traditional investing is managed.<p>I actually think that the single biggest missing piece right now is the lack of a more standardized, orderly and general public friendly equivalent to the bankruptcy process and laws. There should be minimal uniform legal standards for determining when a project has &quot;failed&quot;, both in terms of simply running out of money but also in terms of passing deadlines. For example, project proposers could be required to declare a hard final deadline (they could have other earlier soft deadline projections that&#x27;d be separate) in the initial campaign. If they reached that without completion, backers could then be required to vote on whether to accept an extension. If not, the project would go to the &quot;failed&quot; process. If a majority approved it&#x27;d receive another year or two, at which point another vote would be required (I&#x27;d make a super majority be required after the first one but that&#x27;s an implementation detail that could be debated). The idea would be to price in some level of planning and certainty and also to help ensure, just like the full bankruptcy system, that there are no &quot;zombie corps&quot; hanging around tying up economic assets and that instead things get wrapped up promptly so whatever is left can be redeployed. And project corps should be taking deadline projections seriously, and should need to make a case for significant alteration. Given how passionate and understanding (arguably too much) most backers seem to be about things they believe in I don&#x27;t think that&#x27;s a huge stretch either, but it should still need to happen.<p>If a project ended up in &quot;failed&quot; status (be it fund exhaustion, the creators declaring a failure, or a final deadline extension denial) then backers would automatically be treated as senior creditors with the possibility of non-financial renumeration. Money should be proportionally returned of course, but additionally backers should receive something along the lines of a non-exclusive, perpetual global license to any original IP assets the project generated. Even merely some models or the like could then at least be recycled by backers into something else of some value.<p>When dealing directly with the non-financially sophisticated public being presented with take-it-or-leave-it terms it is not unreasonable to expect higher requirements for ensuring information symmetry and that proposers have performed proper diligence first. Failures are entirely inevitable, but the results don&#x27;t have to linger nor value be quite as tied up as the current state of things. Yes, these requirements might mean that some developers don&#x27;t seek out crowd funding or face increased upfront work, but I think that would be acceptable.<p>----<p>With regards to this case specifically and legally the details are curious, and I wonder if anyone who knows the system well could find the exact ruling on PACER (if small claims proceedings even end up on PACER)? I don&#x27;t think infinite return of backed should be a general requirement, but after reading this and other coverage the specific grounds of the decision are confusing. Retroactive arbitrary application of a TOS change is odd. Like, if the lawyers had said that the TOS changed before (or during) his playing the beta and taking other active involvement, and that he had specifically agreed to an updated TOS at that point in time, I could see the moral argument but that at least would kind of make sense as something that might be straightforward. Updating TOS and requiring agreement for continued use or else refusal and then an argument under the old ones is hardly uncommon either. But the article frames it as a &quot;beta is equivalent to delivery&quot; argument, which more sounds like trying to bamboozle the judge. On the other hand, it&#x27;s clearly though understandably slanted from the perspective of the plaintiff, and while small claims court is explicitly intended to be friendly to the general public with no need for a lawyer it&#x27;s still possible he made some basic but significant blunder due to self-representing.<p>This specific case seems like it touches on a number of broader concerns like the spread of binding arbitration and TOS shenanigans but since it&#x27;s a specific case the specific details matter. I&#x27;m not sure what it broadly means for crowdfunding if anything precisely because crowdfunding is currently such a hodgepodge. And that goes <i>both</i> ways too, I&#x27;ve seen a scary number of project proposers who have no so much as established an LLC to do it through and thus face personal liability issues. That&#x27;s not even counting any amateur projects who did so but then have not done basic accounting and stayed respectful of the corporate veil. A sensible framework could make crowdfunding a lot more sustainable, fair, less prone to abuse, and in turn more efficient for all parties involved.