3 Important Risks to Consider When Investing With Fig
When it comes to investing in video games with Fig there’s plenty of reason for excitement. After all, Fig offers a unique platform by which people can easily invest in new video games and profit from the revenue they generate.
Investing with Fig is not just about dedicating funds to a game’s development for a cool shirt and copy of the game like past crowdfunding options for video games. It’s about supporting a game’s development and profiting once it’s released. Fig allows gamers to become actual investors in the games the love.
But with this exciting opportunity comes numerous risks. Many of the risks associated with investing in video games through Fig are also similar to the broader issues that impact other equity crowdfunding movements. However, there are some unique risks to the video game space that prospective investors should consider. This is especially true given that we live in a world where video game developers (even the big boys) constantly over promise and under deliver.
Here are three potential risks you need to consider before investing in a video game through Fig:
- Development Stagnation
- Unrealistic Sales Viability
- Devastating Community Controversies
Let’s dive deeper into why you should consider each of these before taking a bet on a promising new indie game.
Games Can Get Stuck In Never-Ending Development Cycles
Initially, the advent of early access in gaming was an exciting opportunity. It allowed gamers to get their hands on video games months (even years) before the intended release. However, as time went on, this opportunity has turned into a sad cliche, where many promising games are never actually finished or take much longer to complete. The early access model usually lets developers give fans a taste of what’s to come through a few levels, but sometimes nothing else ever happens.
Although not every game on Fig ends up being an “early access” title, the underlying issue still looms over the video game industry as a whole: development cycles can endure for much longer than expected. Consider, for example, Duke Nukem Forever. This game ended up taking “forever” — 15 years — to finish.
As with other crowd-funded investment opportunities, what all of this boils down to is the cold hard fact that whatever game you invest in might not actually make it to the publication stage (the point from which you actually have a chance to profit). The challenges are oftentimes even more significant for indie developers — those of which Fig supports.
Take it from me as someone who’s working with a small team on making its first video game: While indie development benefits from greater creative freedom, it sometimes suffers from the potential risks associated with less directorial structure that’s often mandated by large corporate systems. Although the teams producing games on Fig tend to be larger than the three-man team I’m working with, such risks still permeate. This also ties into the need for proper funding, where the longer a game’s development goes on, the longer certain contractors might be needed.
This doesn’t even factor in the potential impact of the novel coronavirus on development cycles. If some developers lack the remote capability to get the work done, you might expect significant delays to a game’s launch.
To mitigate the threat from this risk, before investing in video games on Fig, pay attention the intended release date. Note the progress updates and detail with which the developer lays out its development goals. Also conduct your own research outside of the write-up on Fig to determine if there’s a less appealing outlook on how the game is coming along. Consider whether it’s intended for early access too.
Finally, observe whether the developer acknowledges how the global pandemic has impacted development. No mention of it all could be a red flag. If it has had no impact, developers should still bring this to prospective investors’ attention.
Even with all of these things in place, never view a release objective as a guarantee. You definitely don’t want to lay down thousands of dollars on a “forever” game that disappoints if and when it finally comes out.
Don’t Set Unrealistic Expectations for Sales Potential
While you might hop onto Fig’s website and notice a game that you love and want to support, before you decide to be an investor in it, consider if there’s actually room to profit.
To say there’s no room to make money in the indie gaming world would be a lie; however, not all video game genres are created equal in terms of popularity and much of the stories behind indie development itself aren’t as glamorous or fruitful as you might think.
Before investing in a game, analyze all of the elements associated with the genre it falls under and how it compares to other games within the same space. If it’s an online game, analyze the strength of similar games’ audiences and communities. Recognize any other business models built into the game (like a loot box system for recurring revenue). Also remember that some genres — like first-person-shooter games — tend to be among the most popular, while others, like the real-time strategy (RTS) genre are sadly no longer as prominent as before.
On the other side of the coin, popularity can also indicate saturation.
To mitigate this risk, assess how much the game manages to separate itself from others within the genre it belongs to. (Note: This should be an easy task for any gamer who is familiar with the genre, but much less easy for someone who is not familiar with video games.) Usually a mix of familiarity and variation is key to a solid release; though some successful games manage to truly break conventions. With all of the investments on Fig, remember that indie games do not usually get the same level of publicity as AAA titles.
Also keep in mind that the deals Fig makes with developers vary from game to game. Accordingly, the percentage of profit Fig makes from the revenues of the game may vary or have a limited duration. Under some deals it might be possible that Fig wouldn’t be privy to income generated from microtransactions or console sales of the game.
Essentially, the old thought on investing in stocks also applies to investing in video games — don’t invest any money you aren’t willing to lose and, generally speaking, don’t invest in anything you don’t understand.
Always Anticipate Potential Community Backlash
With this next point we’re reaching the true nitty-gritty of potential risks to consider when investing with Fig. That is, suffering the potential ire of the video game community. While this might seem to imply an unreasonable degree of caution, the potential consequences of controversy can be much more devastating for indie games than mainstream games as they rely more on word of mouth to generate hype than games made by big-time developers.
And for those who are less familiar with the video game community, it’s rife with drama and controversy. Something as simple as an off-handed comment from a developer on Twitter could lead to intense community backlash and tank a game’s progress or momentum in the process. Gamers are quick to take out their torches and pitchforks, ready to destroy anything they deem unjust to their tight-nit community. They also place this hyper-sensitive scrutiny on games’ gameplay mechanics, with a large group of gamers deriding “pay to win” combat systems.
What all of this means is that if you want to truly feel secure in your video game investment do your due diligence and identify potential areas where the game could suffer from community backlash, either by unsavory social media commentary or unsavory gameplay mechanics.
Look at the list of developers behind the game and try to determine their approach to social media. If it’s more personal than professional, consider that a potential red flag, especially if the content consists of political commentary.
When it comes to gameplay mechanics, don’t trust the widespread acceptance of any gameplay system whereby gamers might ultimately feel duped or think they have to pay extra to experience the game the way it’s “truly meant to be played.”
The Bottom Line on Investing In Video Games With Fig
All of this requires digging deeper into things than you might have ever done before, but we’re not talking about simply backing a game ahead of time for a cool coffee mug and copy of the game at launch — when we’re investing with Fig, we’re talking about making money from a game’s continued success on the market. As such, it’s vital to be aware of any looming threats that might diminish a game’s likelihood of success.
I’ve detailed three potential threats that are unique to the video game world, but as most gamers are aware, there are even more complexities attached to each of these risks. This is merely a cautionary foundation for which you might base your own analysis of a game’s viability as an investment.
Robert Waldo has been a web editor for InvestorPlace.com since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.