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As was recently found, stormgate is planning on raising funds on startengine. From what I've seen of startengine, it appears to be a relatively new company that offers a chance for ordinary people to become angel investors or shareholders in startups that are not yet currently traded publicly. This is interesting because normally, this kind of risky investment would only have been available to VC firms and other high net worth individuals in the past, but startengine seems to allow the relatively low net worth individuals (200k salary or 1 mil net worth is low in this world) to invest in these types of startups.
From my quick scan of startengine, it does not appear that being on startengine itself is necessarily cause for alarm. On the front page, airtable, a well known and highly valued tech company that has the typical exponential growth curve that VCs and angels love, is also on startengine raising funds. I doubt airtable is in danger anytime of going under, given its popularity and usage, and also its high valuation.
Now, what does this mean for stormgate? Well, according to Gerald, it seems like these extra funds from startengine would be primarily used for marketing to expand reach. This is indeed outside the scope of the original development, since in their own words, they had basically no marketing budget and they wanted to spend all of their money on developing the game. So in this case, the money they hope to raise here is with the hope of expanding their reach and growing the game more (not in terms of scope, but in terms of users). This fits the general pattern of tech startups in general which prioritize growth for many years without turning a profit, continuously going through multiple rounds of series funding. Generally speaking, such startups will burn through their cash, and then have another round of funding to raise more, and as long as they're growing sufficiently fast enough, investors don't care much whether or not they're profitable or making money.
The macroeconomic climate in the US is currently not kind to such tech startups. 3 years ago when frost giant had first started, it was extremely favorable to the sort of business frost giant was doing. Interest rates were near zero, there was a pandemic so gaming was booming, and everybody worked remote so office rent depreciated. Now, the macroeconomic climate has shifted quite unfavorably, with record high interest rates, gaming layoffs, etc. Investors do care more about short term profitability than before because of the current very high interest rates.
Why does frost giant not look for a traditional publisher? My guess here is that while they could, publishers would have certain expectations of return that frost giant probably would not be able to meet. Publishers would only publish if they have a certain expectation of return on investment, and the return should be sooner rather than later. If those expectations are not met, they would have a lot of power to cut off funding and support for the game. On the other hand, the world of VCs and angels operate quite differently. They essentially give money to a company with the full knowledge that almost all the time, they will not see any return on their investment for at least many years. Furthermore, typically, angels will invest in return for a certain stake in the company, which is just like a shareholder in a public company, but will exert less operational control than shareholders would in a public company. The money they give is for equity in the company, but is generally more hands off than shareholder money in public companies. This would theoretically and hopefully give frost giant the freedom to make the best game possible, especially if RTS fans are the ones investing. The upside of this form of angel investing is that you will get a lot more shares and equity than you would if the company were being traded publicly. The downside is of course that it's much, much riskier, and the extra equity you're getting is the discount you get for willingly taking on that risk premium.
But one thing to remember is that buying equity in a nonpublic company is inherently very risky. This is a highly illiquid asset class with no guarantees of return. There was a study done some time ago comparing the types of investments VCs would do, and they showed how on average, it underperformed the SP500. It's in some sort of way a form of high stakes gambling, where most of the time the money you invest disappear, but every once in a while you find a unicorn startup that manages to literally return 100x or 1000x of your money. This is why traditionally these forms of investing are limited to big whales with tons of money, so that the little guys don't get burned losing all their money investing in these risky asset classes.
On the other hand, this does not mean stormgate itself will do poorly. Equity investing in private companies is risky not just because the product might fail, but for many other reasons completely unrelated to the product itself. Because you will make money only if the company either gets acquired, the company goes public, or somebody else wants to buy the shares off you, this means that the company could be doing well, but growing slowly enough that the money you have invested is locked there for many many years. Furthermore, even if the product is good, there are a variety of reasons that the company itself might underperform, stemming from bad management, insufficient marketing, misunderstanding the market, changes in broader macroeconomic environment / politics / regulation / etc., scandals, etc. This risk is far lower in public companies because you can always sell your shares to market makers like citadel who by law must buy all shares, so you can always cash out if things go south. This is not true in private companies because there is no obligation by law for the shares to be liquid.
Disclaimer: I am not a finance professional, just an ordinary guy who wants stormgate to succeed. Do not take this post as financial advice. All investments carry risk. Invest at your own risk.
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