The Bishop and the Butterfly: Murder, Politics, and the End of the Jazz Age
    Michael Maiello's picture

    Crowdrobbing

    By Michael Maiello on Wed, 03/26/2014 - 3:19pm | Politics

    Today, Mark Zuckerberg took some of the money raised in Facebook's IPO and used it to buy the immersive experience of Oculus, something of an iPad that you jam onto your face so that you can wander around in your own personal Holodeck.  That's right, I'm old and this technology scares me. What's next, laser swords?

    Actually, the technology doesn't scare me.  Might even be fun to use.  Also, if Zuckerberg wants to explore the possibility that the next generation of social will also be virtual reality, I'm not going to waste too much energy second guessing him.  Let him try.  He knows the risks and he's got the soft cushion of other people's money to break his fall if he's wrong.

    But Barry Ritholtz brings up a great point about Kickstarter, crowdfunding and the JOBS act that made this possible -- it's a scam:

    "What did the KickStarter funders of Oculus get? Note I use "funder" and not "investor," because investors have a potential for an investment return. These funders, who backed the company three months after the JOBS Act passed, did not. As the Journal noted, they were promised “a sincere thank you from the Oculus team.” And, for $25, a T-shirt. For $300, the dangle of “an early developer kit” including a prototype headset. Total money raised: $2.4 million from 9,500 contributors.

    Talking people out of $2.4 million dollars in exchange for zero percent equity is a perfectly legal scam. Then selling the company for $2 billion dollars is simply how this particular crowdfunding works."

    This reminds me a lot of The Huffington Post, which I still will not stoop to link to or click upon, the news service that Arianna Huffington built on the backs of thousands of unpaid contributors who you have never heard of who gave her content in the hope that they would get noticed.  Huffington aggregated all of that traffic and sold the company to AOL for $400 million.  The contributors got the nothing they were promised.  Most people shrugged, "If you don't like it, don't work for free and for the promise of nothing."

    In the case of Oculus, most people will say, "If you don't like the founders using $2.4 million for your money to turn themselves into billionaires then don't write $25 checks for t-shirts."  Okay, okay.  Like Barry, I get that argument.

    Now, Barry says we should have laws, like we did before the JOBS Act, to protect people from their own stupidity:

    "My regulatory philosophy is simple: You humans need protection from yourselves, especially when money is involved (and the SEC agrees). Sure, you can operate heavy machinery and do complex verb conjugations, but when it comes to understanding anything involving capital, you are often no better than a 2-year-old. And that is before the red fog of greed begins to cloud your minds.

    In the case of Oculus, where you weren’t even promised equity, you simply revealed yourself as clueless naifs. What did you really expect to happen when you sell Democracy to the highest bidder?"

    I'd love to believe in a democratizing aspect of Kickstarter where people who have not breached the walls of capital can go to get funding for their artistic projects and the like.  But even in that regard it's the celebrities (Spike Lee, Amanda Palmer) who seem to get all of the attention or the already successful cult hits from pop culture (Veronica Mars) that get all of the attention.  I admit, when Ed Norton announced a crowdsourced fundraiser for Phillip Seymour Hoffman's theater company I couldn't help but think, "Can't Ed just write them a check and encourage normal folk to contribute to theater companies that don't have celebrity members, dead or alive?"

    It seems like crowdsourcing, through either monetary donations or free labor, has become a way to mint unbeholden billionaires or for the masses to get together to support its needy celebrities.  This is not what we need.

    Topics: 
    Politics

    Comments

    Maybe Zuckerberg just wanted to own a real face book company. ;D

    An attendee tries out an Oculus Rift headset while playing a shooter game at the Consumer Electronics Show in January.

    What's Oculus VR, and why did Facebook pay $2B for it? - CNN.com

     

    I like Barry Ritholtz and he is absolutely right about how little people know about capital. That is probably because so few of us have enough to do anything capitalistic with it so we just spend it on a gazillion little diversions like Facebook and Twitter and Netflix that end up enriching people like Zuckerberg and companies like Disney. We also spend big, big bucks for educations that teach us nothing financially useful. So what. At least the Kickstarter money circulates in the general economy (GDP) more than money that is siphoned out  into IPOs that just inflate stock and bond markets even more than they already are. Since Barry is and investment advisor it is natural that he would see Kickstarter as a scam. It is just as natural for others to see it first as a fun diversion and/or a way to help others live their dreams. If they end up learning some hard real life lessons in capitalism from it, it will be money well spent -- just like those microloans to third world entrepreneurs that were so trendy a few years ago.

     


    by EmmaZahn on Wed, 03/26/2014 - 7:23pm

    The weak link in Barry's and Michael's argument is that no one thinks they are going to get a payback for their money other than the bonus gifts that are offered.

    Or do they?

    It would be a scam if they were promised, or lead to believe, they were going to get something they never get.

    But that's not the case, as far as I can see.


    by Anonymous PS (not verified) on Wed, 03/26/2014 - 7:29pm

    Off-topic and not to pick on you per se, but it's amazed me how much in the last year I see the word "led" spelled "lead". I know it's a homonym, but somehow it feels like there's a heavy shift going on with this word - that in 20 years, it will be the accepted spelling. Oh well, languages shift. [yes, it can be a simple typo, but I see it in say NY Times pieces where they once had real editors]


    by PeraclesPlease on Wed, 03/26/2014 - 8:07pm

    Thanks, it was a mistake.

    Maybe because of "read" and "read."

    Of course, there is a different word "red," which would be a problem if that became the past tense of to read.

    I think I'm becoming more and more illiterate. For example, I now have to think about "past" vs "passed."


    by Peter Schwartz on Thu, 03/27/2014 - 8:05am

    Ain't the English language grand?


    by Verified Atheist on Thu, 03/27/2014 - 8:48am

    I would have said the same thing but now I buy Ritholtz's distinction which is that you're describing fraud (a promise not delivered and likely never intended to be fulfilled).  A scam, by this meaning, is likely entirely legal.  It's a bad deal that people enter into willingly and with their eyes seemingly open. $10 for a gallon of milk?  What a scam!


    by Michael Maiello on Wed, 03/26/2014 - 10:10pm

    But just to play the devil's advocate...

    They do have their eyes open. The purpose for the money is clearly laid out. For example, I helped fund an extra-large press run for a new novel by a friend. She promised me a few of her hand-written notes on one of her characters. I gave her $50, and she gave me the notes.

    I'm not sure the milk analogy works here. I wasn't buying her notes, and I have no idea what they'd be worth. She gave them to me as a "thank you" premium. So in traditional fundraising, the premiums never equal the value of the monetary gifts. There would be no point in that.

    Now, if it turns out that my friend all along had the money to do this extra-large press run, but just didn't want to spend her own money--especially when she could get others to spend theirs---then that would be highly unethical. I hope that wasn't the case with my friend, and I think she did put in her own money for the originally planned run.

    One other thing to note here and using this same example...

    Let's say my friend could've funded the press run by putting up some money herself and asking a few of her friends to chip in. Since she has a relatively small number of family members and friends, each person would have to chip in quite a bit (for them) to reach the goal. By casting her net more widely, she only needs each person to chip in a little bit.

    I dunno. She did have a $900 funding level, so maybe my thinking here isn't valid.

     


    by Peter Schwartz on Thu, 03/27/2014 - 8:52am

    Did she fuck you?  I mean, besides the notes...


    by jollyroger on Thu, 03/27/2014 - 7:44pm

    Those microloans were also problematic.  Many of the issuing banks, who had support from big investment banks, were basically loan sharks.


    by Michael Maiello on Wed, 03/26/2014 - 10:07pm

    Many of the issuing banks, who had support from big investment banks, were basically loan sharks.

    Support from Bill Clinton, too, at least some tv ads. And of course loan sharks would have been drawn to such fertile feeding grounds.

    Tough lessons in finance but it seems each generation has to learn things for themselves.

     

     


    by EmmaZahn on Wed, 03/26/2014 - 10:43pm

    I've contributed a little bit to small projects, to people who can't get money any other way. Often they were friends.

    But I have to agree with you, Michael.

    There's Trouble In River City.


    by Anonymous PS (not verified) on Wed, 03/26/2014 - 7:26pm

    I had to drop someone from my Facebook page because she set up a crowdsourcing fundraiser for her cat's surgery.  It went on and on, one surgery after another, and is probably still going on.   Any worthwhile cause has to compete with this kind of stuff, and that's not fair to those who really could use a helping hand.

    I've always thought the celebrity fundraisers were nothing more than publicity ploys.  Any one of them could solve the problem in a minute just by pulling out the checkbook.

    How many times have big tech companies announced that they've spent millions or even billions to buy some obscure company, and that's the end of it?  Are they buying up their competition or are they showing how much muscle they have? 

    We're talking billions on speculation, yet we have millions of people groveling for $31 in weekly food stamps.  It's a topsy-turvy world.


    by Ramona on Wed, 03/26/2014 - 7:55pm

    I'm so torn about things like that.  I get it, some people love their pets and they really can't afford five figure surgery bills to keep them alive but the emotional pull makes it feel like something they should be able to rally a community around.  So... they do.  And, it sometimes works.  Uncomfortable questions about whether or not the organizer or the supporters are doing more for a cat than they would for many people are left politely to the side.  But the emotions behind all of this remain undeniably real.  Plus, as Emma alluded in her response, none of us like to be lectured about our frivolities, whether they are kickstarter pledges or fancy meals or old books.  It gets pretty hairy...


    by Michael Maiello on Wed, 03/26/2014 - 10:17pm

    I could not help but think of the fans of the short-lived tv series Firefly who managed to get a commercially successful concluding movie, Serenity, pre-Kickstarter. They made a documentary, Done the Impossible, about how they did it then followed that with a special fan-made, not-for-profit, unofficial sequel, Browncoats: Redemption. The even managed to collect pledges of $1 million dollars to buy the rights to the Firefly series but the creators did not want to sell.

    Imagine what they have done with Kickstarter.

     


    by EmmaZahn on Wed, 03/26/2014 - 10:59pm

    It's been interesting tossing this around in my head. There's a lot of psychology involved here, and not just when they pull on your heart strings.

    But here's where I went first...

    Imagine telling your father you have this great idea for making money, lots of money, so that you can buy a car and go on vacation.

    Dad: "What's your idea, son?"

    Me: "I'm going to go around and ask people to give me money so I can buy a car."

    Dad: "That's it?"

    Me: "Well, yeah. Of course, I'm going to explain how much fun I'm going to have on my trip?"

    Dad: "Well, what are they going to get by giving you money?"

    Me: "Well, I'll write them a letter and show them pictures when I get home."

    Dad: "But son, people aren't going to just give you money without getting anything in return. That's not the way the world works. Why not a paper route?"

    Me: "But they are going to give me money because they know I'm going to have so much fun with my car on my vacation!"

    And so on. And, in a way, this is the appeal. People want the warm or exciting feeling they get from saving a cat's life or playing a role in the launch of history-changing technology.

    As a copywriter, it's sort of amazing to see this working. I break my nuts trying to sell people things that do deliver benefits. And it's hard work. I really need to study how it works-:) In some ways, people would rather give than buy.

    Some of the projects are basically charity appeals, e.g., money for operations.

    I could justify this approach if the asker had no other way to fund his project. If the banks or VC people won't talk to him. If it's just too out there or speculative.

    However...

    If this becomes just a cheap and fast way to get capital the asker could have gotten some other way, then it's a problem. Then it really is a scam. And the givers have no way of knowing if the project is real, if the askers are capable, and so on.

    (In fact, since there are no rules here (AFAIK) about disclosures, the givers know nothing except what they read online. A project could be ENTIRELY made up, and I'm not sure there is any legal recourse if that turns out to be the case.)

    I'm sure all those givers to Oculus are having a thought or two along the lines of: "Let's see. I gave these guys $1,000. They became billionaires. All I got was this T-shirt. What's wrong with this picture?"

    To your point about Ed Norton, why didn't Zuckerberg provide the seed capital for proof of concept? No only are the Oculites profiting immensely from the generosity of X thousands of ordinary people, but Zuckerberg, in effect, got them to put in all the riskiest, "first tranche" money for free. No debt. No diluted shares to share.

    The only other saving grace I can think of...and it's no saving grace, really...is that if you can get 100,000 people to part with their hard-earned cash to fund a space-age device, then the serious money people can assume there might be a real market for this kind of device once it's produced. But then, that's all the more reason for these early funders chumps to get something back.

    At a minimum, they should get a device, updates, and support forever--in kind benefits--should the device ever get produced. And instead of saving someone else's cat, why not rescue one yourself? It's every cat for himself, I say!

     


    by Peter Schwartz on Thu, 03/27/2014 - 8:39am

    Regarding Kickstarter's accountability, here's what they have to say. As you can see, there isn't much accountability, but there is some. (Very little, one might argue.)

    I've supported a friend's kickstarter to get an album produced, and it's actually led to great things for this guy, but I went into it knowing that I was just helping him out and not expecting anything in return.


    by Verified Atheist on Thu, 03/27/2014 - 8:53am

    Peter has made a similar point.  And, for the most part, this is fine.  Help a friend with an album or a book.  "Great things," might mean some monetary reward for the artist or some level of fame but it is likely not going to lead to the Oculus story or to the Huffington Post story where a company is sold for the equivalent of the GDP of a small city.

    Maybe the answer is that when something like Oculus happens with donated money or HuffPo happens with donated content it's on the founders to go back and make things right.


    by Michael Maiello on Thu, 03/27/2014 - 9:13am

    In this case, you're right that "great things" doesn't mean a level of fame where you've probably heard of this guy. However, he did get invited to do a couple of performances for the troops in Afghanistan and has a couple of interesting stories to tell about his time there.

    As for your second paragraph, I think that's about right. It would seem ethical, but not legally necessary, for them to show an appropriate level of gratitude to those who made their success possible.


    by Verified Atheist on Thu, 03/27/2014 - 9:19am

    Sorry, Verified... didn't mean to inadvertently make light of your friend's accomplishments.  I shouldn't have said "great things" so much as "great, spendable wealth."  Just seems to me that if a bunch of strangers funded my rise to fortune that I'd want to let them share in it in a tangible and fair way.


    by Michael Maiello on Thu, 03/27/2014 - 2:07pm

    Not even a free album?


    by Peter Schwartz on Thu, 03/27/2014 - 9:13am

    I did get a free album, as well as a shout out in the album liner notes, but that falls into the $10 gallon of milk that Maiello referenced. (Of course, if he ever does make it truly big, that might be worth more than what I paid to support him.)


    by Verified Atheist on Thu, 03/27/2014 - 9:16am

    A couple of questions:

    How do we know the Oculus people will not pay back their Kickstarter contributors someway? Maybe they are decent people who will do right by their early friends. Why all the hate being dumped on them without knowing?

    Have you seen how many other Oculus-based Kickstarters there already are? Both content and derivatives. No wonder Zuckerberg bought it.

     


    by EmmaZahn on Thu, 03/27/2014 - 10:07am

    Some way...

    Over the rainbow...way up high...

    Or, to quote a jazz standard...

    It don't mean a thing if ain't done with pen.

    Or, to quote a song Ramona might like...

    Don't talk of payback...show me!

    Yes, we don't know (and I'm not sure it's hate...seems strong to me), but you seem to be exchanging your Green Eyeshade for Rose-Colored Glasses...which is cool, but should be noted...if it's not down in writing ahead of time, there's no obligation. And where there's no obligation, there's almost always no action.

    That said...

    If the Kickstarter folks were smart, they'd note this potential defect in their model and make changes to prolong its life. At a certain point, folks might...might get tired of getting zero return on their money.


    by Anonymous PS (not verified) on Thu, 03/27/2014 - 11:34am

    How can Kickstarter change their model without having to comply with a bunch of Blue Skys and spend a fortune publishing Red Herrings or register as a investment company?. They would have to sell out to Goldman or JPMorgan.

    It is a trend. It will pass, probably faster now than if the Oculus/Facebook deal had not happened.

    News search Oculus+Kickstarter

     


    by EmmaZahn on Thu, 03/27/2014 - 12:20pm

    Build in some requirement--or strong encouragement--that getters "give back" to the givers. More than token premiums.


    by Peter Schwartz on Thu, 03/27/2014 - 2:49pm

    Whoa, journalism check. Ritholz's explosion of condescension is fun to read, but he just dismissed 9,500 people as ignorant fools without apparently asking a single one what they expected for their contributions or how they feel about the Facebook acquisition.

    Here's an article that took the job more seriously: http://www.bizjournals.com/newyork/news/2014/03/26/oculus-critics-flock-to-kickstarter.html.

    The comments suggest that many of the Oculus funders understood that they would receive nothing for their investment. They are angry but not because they didn't get payback. They're angry because Oculus sold out.

    "I backed this concept in the hopes they'd make something wonderful," said one. "Sadly all they did was make them selves wonderfully rich."

    So sure, maybe the funders were naive but not in the way Ritholz suggests.


    by Michael Wolraich on Thu, 03/27/2014 - 11:02am

    I don't think Ritholtz misunderstands these people at all.  He assumes that they knew what they weren't going to get (an investment return of any kind).  He's just saying that it's stupid to give people money on those terms if those people are just going to turn around and sell the whole enterprise to Facebook.  VCs get paid.  Ritholtz would like these people not to do the same work for free, even if they know they're doing it.


    by Michael Maiello on Thu, 03/27/2014 - 2:09pm

    "...when it comes to understanding anything involving capital, you are often no better than a 2-year-old."

    The funders did not misunderstand capital. Financially, they made a shrewd choice. Unlike so many other ventures, Oculus did not fail. What they miscalculated was human nature. And I say miscalculated because even though Oculus's sell-out is hardly surprising, it was not a given. Not every entrepreneur sells out to facebook, especially if they're not venture-funded.


    by Michael Wolraich on Thu, 03/27/2014 - 4:57pm

    Ritholtz was making that statement about investors in general and he's likely right.  You're right that the Oculus problem is not going to come up very often.  But, in this case, the Kickstarter people really missed out because nobody else would have funded something like this in exchange for a t-shirt.


    by Michael Maiello on Thu, 03/27/2014 - 5:48pm

    Arguably, but the thrust of the message was those funders were fools and dupes. If I were one of them, I'd kickstart Rithotz's patronizing ass (rhetorically, of course).

    In any case, I expect that starry-eyed tech-lovers will think twice before investing in another Oculus. Unfortunately, I don't know what Kickstarter can do about it. Prohibit entrepreneurs from selling out? I'm not sure such a contract would hold up in court.


    by Michael Wolraich on Thu, 03/27/2014 - 6:06pm

    I really think the only workable solution would be an ethical one -- if you use Kickstarter and you make a fortune, you should use some of that money to retroactively reward your enablers.


    by Michael Maiello on Fri, 03/28/2014 - 12:25pm

    All I got for beta testing pcs and software starting with an Apple II and Dell's 8088 and, of course, Microsoft's DOS was old before my time. No t-shirts.

     


    by EmmaZahn on Thu, 03/27/2014 - 6:59pm

    Shucking public with lies, T-shirts or fraudulent scams is a constitutionally protected right and tradition in America. We do not have, and do not strive for, a 'Nanny' government for the common man. Of course, if Wall Street charlatans need a few trillion to stave off financial collapse it's a different story.

    WC Fields summarized this in his 1930's movie 'Never Give a Sucker an Even Break'. The JOBS Act was apparently conceived with that framing in mind.


    by NCD on Thu, 03/27/2014 - 12:55pm

    Just got an email from Matt Miller, the "centrist" pundit running for Henry Waxman's Congressional seat.  It ends:

    "(Remember, you’re supporting ideas and solutions that can work for all of us, not just funding me)."

    This is why I'm more likely to fund a Kickstarter for any one of you (I would actually do that) than I ever am to donate to a political campaign ever.


    by Michael Maiello on Thu, 03/27/2014 - 2:10pm

    Funny you should mention...I'm thinking of taking out Letters of Marque and Reprisal from the government of Ukraine, who are prepared to legitimate the taking as prizes any Russian tankers found on the Black Sea....all I need is a little capital for the sails...I already own the flag, as you know...


    by jollyroger on Thu, 03/27/2014 - 7:51pm

    Let's have a drink to discuss this unique opportunity!

    Hey, why did I wake up on a boat?


    by Michael Maiello on Fri, 03/28/2014 - 12:28pm

    And the people all said "Sit down!...."  (No, the people all said, "Aaarrgh..!")


    by jollyroger on Fri, 03/28/2014 - 12:43pm

    Me timbers are positively shivering.


    by Michael Maiello on Fri, 03/28/2014 - 2:32pm