Investing on Fig. Insight from a Veteran Investor

I was the 1147th backer of Obsidian’s latest and greatest crowdfunding campaign for Pillars of Eternity II: Deadfire. I love RPGs. So, of course, I love Obsidian, back to the days of Knights of the Old Republic 2 and Neverwinter Nights 2. Their recent game, Pillars of Eternity, was an inspired original IP, and so I was all in on the sequel from the start. The crowdfunding campaign was brought to us by Fig and came with a $5 coupon – which was put to good use!

What’s Fig, you ask? It’s a “new Kickstarter” – with a twist that marries gamers’ love of supporting their favorite game developers with gamers’ love of investing money in their favorite game development.

Wait… What?

“Community Powered Publishing”?

Fig’s website tells us it’s “community-powered publishing”. The goal? To bring together gamers, investors, developers, and publishing prowess. Everyone gets thrown into a pot and out comes a great game for gamers to enjoy, developed with adequate funding, and profit for those investors who chose to make a direct investment.

It’s an idea that intrigues. I had read through the Fig investment information when the Wasteland 3 crowdfunding campaign (also on Fig) rolled out. I like games. I like making money. Pair the two together? It’s perfect, right?

Right?

A Critical Look

This article is a critical look at investment opportunities provided by Fig.

The goal here is not to discredit Fig and their investment structure (although if reports of poor investment returns surface that will change). This article is to educate investors and to be a source that looks at the investment information from the side of the investor. I hope Fig does well, and it’s great that developers can use this additional source of funds to retain more control over their IP’s and bring better games to market. But on the investing side, there is no track record, and the information available is not sufficient to make an informed investment decision. In this new world of crowdinvesting where you can invest as little as $1000 in alternative investments, a caution flag is waved for investors who are eager to support developers and the games they know and love.

Many investments require a leap of faith at some point. But if you are considering investing through Fig, do yourself a favor and get the facts before you jump and keep in mind: investing should be a dispassionate endeavor. Attachments to investments and decisions based on factors that don’t have any influence on potential returns is dangerous. Did you like Pillars of Eternity? Do you admire Obsidian? These are irrelevant to your investment decision. Bury your feelings deep down, they do you credit but could be made to serve the Emperor a poor decision.

The Important Questions

This following exchange served as motivation to put better information about Fig and Fig investments into the community. Two potential investors asking questions (containing eight specific questions) and a statement by one of them of a likely 13% return (which is not accurate – more on that in a bit).

This was the first week of the Pillars of Eternity II campaign, and as of writing this article 2 weeks later the only response to these inquiries is from Feargus Urquhart (CEO of Obsidian), answering 1 of the 8 questions:

These are good questions, and they deserve a response. The fact that the developer is hesitant to speak regarding the specifics of the investment that will be partially funding his game could be a concern. We can overlook this to some extent – there might be reasons why Feargus cannot more fully answer the questions. His focus is on the development side, and he is in the middle of a crowdfunding campaign. He’s probably very busy. He does state during the campaign that he is trying to keep his activities as a developer separate from the fundraising activities of Fig. So let’s cut him some slack.  But… speaking of Fis, where *is* Fig in all of this? This is the time to demonstrate that Fig is responsive to investors, cares about answering their questions, is transparent, etc. The crowdfunding and crowdinvesting campaigns are hosted on the Fig site! To my knowledge, there has not been one post on the comment section of Fig’s campaign page for Pillars of Eternity II from Fig directly, and there have been many investment related questions. This is a Red Flag – more so because investments are via Fig for specific games, not in Obsidian or the game directly. For the most part, investors are directed to the Fig investment page by Obsidian developers, and this investment page is a cause for concern.

The Pitch

Let’s look into the investment information provided by Fig for Pillars of Eternity II. Fig will sell Game Shares for specific games to investors, for the purposes of funding the development of those specific games. Said funds would be directed to the game developer, and in return, the developer will commit a % of the revenue (after sales platform costs) for the game back to Fig, which Fig will then direct to the investor.

Let’s have a look at the numbers, then. If $1 million is raised, Fig will get 7.14% of the revenue (1,000,000/14,000,000). If $2 million is raised, Fig will get 14.29% of the revenue (2,000,000/14,000,000). Twice as much, but there are twice as many shares. After Fig is returned 113% of the money invested, the revenue share will halve.

As a $1000 shareholder, you will get the same return in both scenarios (assuming the same dividend from Fig).

The problem? We are given no indication where the $14 million number comes from. Is this the budget for the game? That is an assumption that would be logical, as a 10% funding from FIG would result in a 10% revenue share, but it is not known at this time.

The Graph

Investors love graphs. So does marketing. This graph is what happens when the marketing wins. On first glance, this looks wonderful, and, of course, this is purposeful. Your breakeven, in this case, is at 593,221 units sold. At 670,000 units sold, you have made 13%, and there is Pillars of Eternity sitting with almost 900,000 units sold. This is what Mygaffer is referring to in the comments mentioned above when stating “it looks like you would at least get a 13% return on your investment”. Mygaffer missed the statement above the chart that throws everything into doubt:

The graph line on that wonderful graph shows a dividend payout of 100%. You will NOT get that. The 100% is reduced by expenses.

The minimum rate Fig will pay out is 70% (although if you look at their offering for Wasteland 3, they have an out to pay no dividend at all if things go poorly – we will get into this more in PART II of the article). We can only assume the actual rate of the payout will be somewhere between the two extremes. To break-even at 70% dividend rate requires 1,024,584 units to be sold. This is more than Pillars of Eternity and significantly more than Wasteland 2. To be fair to Fig, they have stated that they intend to pay more than 70%. Why wouldn’t they post the potential 70% payout on the chart? Answer: to get your investment dollars – it’s tough not to be cynical here.

Let’s look at the other information on the graph.

Fig uses an estimated sale price of $23.60 for Pillars of Eternity II. This number is beyond analysis. We are given no comparison for the comparative games regarding lifetime net sales price; we are only given launch prices.  It’s not very useful.

Next, we must assume Fig is using lifetime sales for their other game comparisons; however, our investment sales will NOT be lifetime sales. The sales that will be removed from our pool are:

• Pillars of Eternity crowdfunding campaign sales (this has been asked about numerous times and has never been addressed. We can assume the units sold in the crowdfunding campaign will not return funds to investors. This is at least 24,000 units at the time of writing – and almost certainly more as each backer can receive more than one unit).
• Early Access sales (we must allow for the possibility that in the same vein as the crowdfunding campaign, they are pre-release sales and may not qualify, depending on the offering). It’s likely that if the game ever went to early access (and there is no indication this is on the table) that investors would receive the revenue share, but it’s not 100% clear.
• Post investment period sales (at some point, which is usually driven by sales under a certain number, the investors will no longer be entitled to returns – this is not even brought up, but will almost assuredly be in the offering. For Wasteland 3, as an example, once returns to investors fall below $1000 for three consecutive months, the investment returns are cut off).
• Console sales (relevant due to the fact that Divinity: Original Sin, one of the comparison games, had console sales and this investment specifically excludes any console sales)

Back to the wonderful graph: in summary, our return line WILL be lower.  Breakeven WILL need more sales. The comparison unit sales are not a fair comparison and the lifetime net sales price has no comparable or justification.

Additional Notes

Before writing this article, I have tried different means to convey the doubts above. I even did a Reddit post on the matter. You can read it here. I called the graph “shady”. “Shady” raised some hackles (Fig did respond on Reddit). I don’t think it was an unfair label. The graph is unfair. If that offends Fig, they should make graphs that present the deal in a fair manner. As a veteran of the alternative investment market in Canada and having worked with investors, I know that this graph is the number one thing many investors will consider when looking at this investment. Investors don’t want the rosy picture, they want the realistic picture, or better yet the worst case, realistic and best case pictures all in one.

Conclusion

We’ve gone through much of the information posted during the campaign, but there are a number of other interesting items and concerning facts.  Though this concludes PART I of our look at Fig, in PART II we will get into: investment structure, conflicts of interest, and potential returns. We dig into past offerings, company structure, and analyze the information we have.

If anyone has had actual experience, good or bad, investing in Fig, please let me know in the comments.

Opinions expressed by StartingThingsUp.com contributors are their own.