Crypto fail: Kickstarter fury as NZ firm raises $1m, game fails to appear

Tauranga game developer Phat Loot has received a barrage of angry comments from backers of its Kickstarter campaign after co-founder Joshua Grant said its title, Untamed Isles would miss its October release date.

Development of
the game was on an indefinite hiatus. Some 70 staff working on the title had been reduced to a “skeleton crew”. A cash burn rate of $88,000 per week had nearly exhausted funds.

Grant said the aim was still to ultimately release Untamed Isles, even though he could not give a timeline, and did not detail any new source of funding to get it over the line.

“I know a lot of you are mad and a lot of you won’t believe me,” he said on a livestreamed update to his Kickstarter backers, who had invested up to $12,000 each.

“But I hope a lot of you who know my intent, and know my history in business. This is my dream. This does mean everything to me.”

Crypto backlash

Problems occurred in July after a key US gaming community influencer accused Phat Loot of not being upfront about NFT trading and cryptocurrency elements of the game, and withdrew his previously glowing endorsement, which triggered gaming channels and influencers to cancel coverage. A pre-sales campaign tanked badly, with just 50 sales.

In comments published on Kickstarter, some angry backers have accused Phat Loot of gambling with investor funds by using some of the money raised to speculate in cryptocurrency. One called it “pretty shady”. Others said they felt ripped off and would complain to Kickstarter.

However, a venture capital investor who backed Phat Loot – and continued to have faith in the Untamed Isles – told the Herald, “From our perspective and to our knowledge, having invested in the studio late last year, no Kickstarter or investment funds for Untamed Isles were spent on crypto investing. Everything went on studio developers/infrastructure to build the game.”

And Grant said in written responses to questions from the Herald, “No funds have been invested in cryptocurrency or assets from the Kickstarter or investors capital”.

The co-founder added, “Unfortunately the crypto market crash meant that some web3 investors that were lined up earlier this year couldn’t proceed with an investment,” Grant said.

It proving hard to get pre-launch traction given the “current negative mainstream sentiment for web3-associated games.” (Web3, uses the blockchain, a technology associated with cryptocurrencies.”

Grant added, “We are currently working with shareholders and investors at action plans and options to get the game back into development ASAP.”

He said the sale of his company BinderPOS (an online marketplace for trading cards) to a US firm would help to raise new funds – but that the unspecified amount of money would not be available for a year.

Raising $840,994 from 3052 backers

The saga began in August last year, when Phat Loot launched a campaign on crowdfunding platform Kickstarter for Untamed Isles. It received $840,994 from 3052 backers by the time the campaign closed the following month (well above its minimum target of $200,000, but shy of its stretch target of $1.2 million).

Untamed Isles is – or will be, if ever released – a Pokemon-style online multi-player game where players “tame, train and breed monsters for battle in a fantasy island environment”.

As the Herald reported in January this year. “Grant is looking to ride the crypto craze. A twist is promised on the exploding ‘Play2Earn’ genre – associated with bitcoin mining – where players can earn in-game rewards that can be converted to real-world cryptocurrency.” In-game items would be represented as NFTs.

After several delays, Untamed Isles was due to be released on October 9.

But in an August 12 Twitch livestream, Grant told his Kickstarter backers that development had been put on an indefinite hold.

“We leaned into the crypto market and expanded rapidly off the back of the positive interest. When the crash came, we ended up heavily exposed with too short of a runway. The game remains game-first, crypto-second in design, but crypto funds have become, and remain, essential in getting us to the release.”

Grant continued, “We had a working demo that we were really pleased with and playing internally on a small scale.

“We had enough money to get through to our October 6 launch. However, during the time we began marketing efforts on our pre-sales, we had goals and targets. We really wanted to sell 2000 to 3000 copies during our pre-sale just to top up the numbers and give us enough runway post-launch to keep going,” Grant said.

“And then obviously our Steam sales and our revenue to be turned on so we could keep the servers up and keep customer support and keep our developers fixing the game and adding features, because we were going to be launching an early access game, there were going to be bugs. Within a few months we would be running out of money.”

The firm would have gone into receivership, which would have meant losing its intellectual property.

Even if sales from the October 6 launch on global gaming platform Steam generated a lot of sales, Phat Loot faced the problem that Steam does not handover revenue until 60 days after a sale.

“We were all teed up to go at RazorCon [a gaming event]. It was going to be huge,” Grant said.

But then trouble hit on July 22 as MMOByte, a YouTube gaming influencer with 360,000 followers, withdrew an endorsement he had given just the day before (“the Pokemon competitor we’ve been waiting for”) because he had realised it had crypto and NFT elements.

“In the end, the game is going to be completely ruined by play-to-earn,” MMObyte said. He said, “It genuinely looks good but all of that is thrown to the wind because at the end of the day they will prioritise crypto.”

He said he had to scroll 60 per cent through Phat Loot’s pitch to find references to crypto, and said that to not put that at the top of the Kickstarter campaign was “disingenuous”.

Grant said the MMOByte comments caused other media to pull out.

“We ran through a bit of distress there. Our pre-sales… I can be really honest with you guys. We did 50 pre-sales.”

Grant said he still hoped to release Untamed Isles once the crypto market improved – although he said releasing it without any crypto elements was also a possibility.

The founder said he had sold one of his other companies, which could help finance the completion of Untamed Isles, but that the money would not come through for another year.

In July this year, US company TCGplayer bought Grant’s companies ChannelFireball and BinderPOS – both online marketplaces for trading card games. No sale price was disclosed.

Grant said on the Twitch stream that Untamed Isles development had been burning through $88,000 a week before the “hiatus”.

Refunds?

He said the 50 people who bought Untamed Isles in the pre-sale would be refunded, but indicated that the 3052 Kickstarters would not get their money back as it was still a live campaign, with a possibility the game would eventually be released.

As well as the Kickstarter campaign and money from equity investors, “My business partner [David Logan] and I have also injected more of our personal money. We also raised a lot of money in crypto,” Grant said.

He said development would continue on two “smaller titles”, which his company wants to release “as soon as possible… First and foremost being Crypty Crawler, which we are aiming for a late-August release.”

Grant did not immediately respond to Herald questions on the total amount of money raised, how many staff remained, any crypto investments, and other points.

POSTSCRIPT: Crowdfunding can succeed

NZ’s Financial Markets Authority has cautioned Kiwi investors to carefully consider an investment via a crowdfunding platform like Kickstarter, simply because the nature of early stage companies.

“Companies raising money via crowdfunding websites are often new or growing businesses. They may not have a track record to help you decide if they are likely to succeed. Some of these companies may fail. Think carefully about how much you can afford to lose before you invest,” the watchdog said.

Another point worth noting: The FMA (and other NZ regulators) only have the power to police NZ-based platforms (the popular Kickstarter is based in the US).

West Auckland’s Grindiing Gear Games, which now generates more than $100 million in revenue per year through its multi-player game Path of Exile, received its first funding through a 2012 Kickstarter campaign that raised US$200,000 – then a follow-up crowdfunding effort in 2013 that raised US$2.5m as early buyers were happy to investment more for the game to be expanded.