Star Citizen ATV, Squadron 42’s projected 2020 beta, and Cloud Imperium’s $46M private investment

    
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This week’s Around the Verse does touch on the 3.4 release of Star Citizen, but the big news is definitely from Squadron 42, which has released its big roadmap as promised. While Roberts says the Star Citizen spinoff game is “definitely on the downhill slope right now” and most of the game’s main features will be finished by the end of 2019, the AI is the major “unknown risk.” Right now the alpha is projected for early 2020 and then beta by Q2 2020.

In Star Citizen business news, it looks like that investment round that’s been kicked around Reddit for the last few weeks is a real thing. As the “investment fact sheet” confirms, the Cloud Imperium conglom raised an additional $46 million from private investment firms (“Clive Calder’s family office and Keith Calder’s Snoot Entertainment”), to bring Cloud Imperium’s total “money valuation” to $496 million. The deal also adds two new board members to the mix, though Chris Roberts “retains full control of the Board and Group.”

“This investment helps secure our independence,” Roberts says. “We may not have the resources that an Activision or EA have to launch one of their tentpole games, but we now control our own destiny in marketing Squadron 42. […] Beyond this, this investment gives Cloud Imperium the ability to take the long view when needed or pursue a business opportunity that we normally could not have. It allows us to grow as a company.”

The accompanying Squadron 42 Road to Release letter further explains that the minority (10%) investment is specifically intended to “fund the upcoming marketing and release needs of Squadron 42.”

In his letter from the chairman out today, Roberts also recaps the year, notes the teams have expanded to 500 people, and includes historical data on the company’s finances through 2017.

“Overall, the accounting demonstrates that the Group is diligently spending the money we are collecting from our backers and customers on the game development and publishing, as set out from the beginning,” says CIG’s CFO. “There is not a direct annual correlation of our spend to our net income. A buffer arose in the early years as we wrestled with the scope of what our customers wanted, and whilst we accelerated early deliveries through third-party contracting, we were cautious with our growth and expenditure until we could better define what was needed. Since the scope of the production has become better understood, we have been able to plan our growth and optimize our areas of expenditure while still evolving based upon our open development ethos. This allows us to focus in on the detailed areas and key technologies and content that we believe will make this ground-breaking production a great success.”

All in all, the 2020 beta plan – and do note that this is not the full release – marks one of many public admissions of delay for the game. Here’s just a brief recap of some of our coverage going back to 2015:

Finally, this just would not be a proper Star Citizen post without a link to the alpha 3.4 list of playable – and buyable – ships.

Source: Fact sheet, ATV, S42. Thanks, Fastcart, paragonlostinspace, Cotic, Emanuel, and woolydub.

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Annoyed badger

oh dear, more delays on SC, and now seeking additional funding from outside sources, from a game that was supposed to be 100% crowdfunded….and has raised so much money in crowdfunding….

Looking very like a 38 studios situation here in the making.

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Skoryy

I read the article and the comments, and somehow the words ’38 Studios’ just keep coming to mind.

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Fervor Bliss

Did they get you to trade
Your heroes for ghosts?
Hot ashes for trees?
Hot air for a cool breeze?
Cold comfort for change?
Did you exchange
A walk on part in the war
For a lead role in a cage?

Alyn
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Alyn

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wayshuba

And… we follow a similar pattern as Digital Anvil. I don’t think this is a scam, never have. But CR’s track record of managing is horrible throughout his entire career and this is going to end up like all his other train wrecks he ran since leaving Origin.

With this outside investment and seeing the roadmap for SQ42, I have a funny feeling this is not going to end well for anyone at this point.

As someone familiar with these think of a “payday” loan investment. CIG is going to need more money from them as it goes, losing more equity position and eventually control.

Maintaining control of the company and board are an illusion. Once you have taken outside investment the whole dynamic changes. You really think these investors care about a latest, greatest, be all, end all space sim? Nope. Now it just became all about getting a return. CIG just setup a direct outcome conflict between it’s new investors and the product backers.

Nope. CR just put his company into a similar position as he did with Digital Anvil and the WC Movie. Just watch how this changes very quickly over 2019.

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Chris Ochs

This private investment just makes no sense. The numbers don’t add up from the perspective of how the hell do they think they will get a return. You don’t invest 1 million to make 2 million in tech, and especially not in games. It’s such high risk the potential needs to be around 20x investment.

The share percentage makes sense. 10% is about right for a seed round. And since crowd funding doesn’t dilute anything this is in an odd way very much like a seed round.

But man SC will have to basically deliver Wow level success for investors to see a good return. It’s not like this is the first case of stupid money and tech startups. But given who is involved in this, I don’t know I just keep thinking something fishy is going on. And I’m generally much more inclined to assume stupid.

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wayshuba

The numbers, from an investment perspective, do add up (and the valuation really gives it away) but I am almost reluctant to say how for fear of being flamed to death.

Suffice it to say think of it this way:

Previous Backers – Make investment to get a product
Outside Investors – Invest to make more money

Those two views are in direct conflict with one another at this point. Bear this in mind for the future. The investors do not care if a ground breaking product is delivered, or even if a product is delivered at all. They only care about a return on their capital. The play here to achieve that is NOT in releasing a final product.

I can see exactly where a potential great return on that investment is here. I can also see that if it is delivered on, there are going to be A LOT of very upset backers.

How this will end up is that you will have backers that wanted SQ42 and the Persistent Universe but they are going to get Freelancer as delivered to market.

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Tee Parsley

The kicker in the conversation could be Amazon. They want tentpole items for their streaming and server businesses. They may already be invested in CIG. Since their goals are different from just making money on the game itself, Star Citizen could be very attractive.

I’ve always thought that a replay of Freelancer/Digital Anvil was the likeliest course; and probably best for the game really.

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Matthew Ward

Frankly I’m amazed it’s taken this long.. Crowfall did crowdfunding at the same time as raising capital from private equity.

I just wish gamers had the wherewithal to see where they fit in this rather disgusting mechanism.

They provide risk free capital receiving nothing in return other that a goodwill gesture of a product that doesn’t exist and has no promise of ever existing.
Private equity have assurances of return and they hedge that shit entirely.
In the case of the company going belly up, they will be first in line for a refund shortly after the relevant government tax authorities.

Gamers? Not even in the equation.

Stop giving these fucking charlatans money. You are not helping games development, you are setting it back.

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Cosmic Cleric

Stop giving these fucking charlatans money. You are not helping games development, you are setting it back.

These days, I don’t think giving money to publishers is helping moving games development forward either. /shrug

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Matthew Ward

Yes, I fear you are correct

cmdr_cotic
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cmdr_cotic

Makes you wonder what will happen next, will they start seeking out more investors and if so, what will that do for the direction/polish (lol) of the game.

By the time Squadron 42 is released, assuming they can hit a deadline, the total cost is going to be knocking on $300 million and they’ve still got years of work ahead of them to deliver the fantasy that Chris dreamed up.

Completely out of all proportion.

deekay_000
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Patreon Donor
deekay_000

there will almost certainly be more investors before too too long.

not just for sq42 but also for sc pu. that being said, people have been saying this for years. meanwhile dumbass down there acting like he’s some kind of prophet genius. lol

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wayshuba

Keep – sell the company – on your list of options for the near future.

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dsmart

I remember when they were claiming to have played all the SQ42 missions. The roadmap basically says they were lying – this whole time.

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Joe Blobers

DS basically you served your usual twisted vision of “whatever CR di is Evil”. Nothing new. Next :)

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dsmart

Never change Joe – never change.

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GoJammit

I know I’m gonna hate myself for this, but for once, I agree with you. I remember YEARS ago they said they had playtested all of the missions.

Godnaz
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Godnaz

Im not fanatic, also not a cynic but man… some people need to think about what just took place before they comment. $46m investment on a legally declared $211m funded project with a total asset value of nearly $500m.

The numbers are in the binding report, which they cannot lie on. I’m not saying they have a game yet but cmon, dude. If you think it’s a scam, or investment scheme at this point you are either nescient to what’s going on or just begrudging because of your own personal bias.

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Sean Barfoot

Agreed. I’ve never bought the idea it’s a scam or anything. Just don’t think it’s been very well, or ethically managed.

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dsmart

It’s a scam. All of it. Having money and/or investors, doesn’t make it anything less.

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Joe Blobers

… But DS is it anything more? :)

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Bruno Brito

Oh, this will be good.

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wayshuba

It’s neither a scam nor an investment scheme.

But the primary goal is no longer to deliver a product.

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DoomSayer

Why do you think their goal is to not deliver a product?

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wayshuba

No. Because all one has to do is look at CRs history over more than two decades. This man does this for one reason – to make himself money.

The better course of action at this point to make himself money is to sell the company in 2019.

Now that he has taken in PE, his first and main goal is to produce that exit event. The best way to do that is to sell the company.

In other words, he sells, he and the investors make a ton of money, and the buying company is then responsible to all those backers he raised money from. All upside for CR and exactly what I would do if I were in his shoes.

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Isey

Exactly.

I wonder how much of the money raised to date was spent on marketing, to raise more money, to market more, to raise more money.. wait, spend some on developing a game?

I hope this works and can’t wait to play the core game in 2030. (Which will be rebranded as a battle royale…)

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Sean Barfoot

It’s nice to have confirmation of
what many have suspected. Selling ships and land claims, ATVs and tanks and all that jazz was never about “making the game better” or to build up healthy reserves, or to add post-release content, or any number of things backers have been arguing.

They’ve been doing it to keep the lights on.

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Joe Blobers

quote: “ They’ve been doing it to keep the lights on

That one is Gold. Thanks really.
At least Sean we have confirmation that your understanding of Crowdfunding, game development, hiring versus $ resource is missing in your resume… badly :)

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Sean Barfoot

Joe, if your goalposts move anymore you’ll be playing a different sport.

This is sure as shit not what CIG have been saying for years, and most of the backers I’ve ever spoken to, including you. If you want to pretend nothing has changed that’s fine. But you couldn’t be more wrong, and I wouldn’t expect you to understand that.

I’ve long been arguing the sales practices were to keep the lights on, and backers were arguing till they were blue in the face that the game would come out if funding stopped tomorrow. We now know this isn’t true. Which certainly explains a lot of their deeply unpopular behaviour.

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Kickstarter Donor
NecroFox4

I’m not sure what you read, but this is hardly confirmation of selling ships to keep the lights on.

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Sean Barfoot

Their financials.

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Mr.McSleaz

Financials are Facts and FanBois are Allergic to any Facts that go against their narrative.

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dsmart

LOL!! You didn’t read the financial statements did you? That’s OK, I have broken it all down for people like you. Hint: it’s bad.

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Joe Blobers

DS it is bad.. sure we do not expect anything else from you… but the real question: “collapse in… ?” lol

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Kickstarter Donor
NecroFox4

Derek, we’ve been reading your ravings on CIG for ages. Everybody knows you’re just jealous that they’re making the game you wanted Line of Defense to be. Stop acting like you have some kind of smoking gun. You don’t. If you spent 1/100th the time and energy you spend trashing CIG on developing your games, you might actually make one that doesn’t suck.

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Joe Blobers

Sean you break opened door. Everybody know that if you stop delivering electricity, your PC don’t boot up.
This recent Letter prove that it was managed precisely as expected: “project follow and adapt to cash”. You and we have no idea of the Finance, or potential others investors. CR did all the time and that’s why he is paid for as well.

Clearly CR know what he is doing.:
– We are at a year and half of Beta. In itself it is a major win.
– Company valuation = 460M$. Another major win to secure the project.

During all that time CR did had the Financial graphs in front of him. He knew and we know now that the project was secured as it just can’t collapse.

The last move (10% vs 46M$) to integrate private known investors is great. Secure last remaining quarters whatever would be pledges level, provide larger marketing campaign and not let any investors with a publishers label get in . This is brilliant.

There is only one game “expert” on the planet still shooting scam… and this one is a proven incompetent in its own business.

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Sean Barfoot

But what if there are delays again? What if their burn rate increases? What if ships sales drop off? What if they bang their head against another technical hurdle for six months? What do these investors want in return?

It sounds pretty precarious to me. Especially given CIG’s more or less guarantee of delays, and experience telling us they usually mean by years not months.

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Joe Blobers

Question of delay is not if but when and on what part of the game for how long. Fact is that they do have strong pipelines, a talented team and vision where they are going to. Delivering a roadmap is an indication they feel comfortable to do so.

A good example is SC Roadmap. They pushed some contents, added others, but each quarters there are more in, for SQ42 and SC.
CR and others directors are not stupid new comer discovering the hard life of business. Perfect example are those 46M$.
If they shoot mid 2020 that means target is at worst end of 2020.

In short about the “what if”, CIG do have the right individual able to handle them and they do…

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wayshuba

You keep thinking in product like a backer.

PE Investors do not think that way. They think about return on their capital – period. They could care less about the game.

There are only two ways they are going to get that return – one is risky and one is much more likely. The likely one, and the smarter play, would be for CIG to NOT deliver a product as structured.

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wayshuba

Sorry Joe, the facts are going against CR knows what he doing.

With the amount of money he has raised some form of product should have been delivered by now. With this investment, he now has the distinction of the largest funded non-product ever in the game industry.

Someone who actually knows what they are doing would have delivered a product on 1/3-1/4 the amount CR has raised, and most likely a year or two ago.

It is also obvious you do not understand private equity investment. Those investors do not CARE about a product. In addition, do you know how impossible it is to raise money for “marketing purposes”? That is a burn rate that few outside investors will take on.

End of the day – those investors want a return – period. And the investment play here is NOT in delivering a product through CIG.

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Kickstarter Donor
Dividion

You keep saying the investors would benefit more if CIG did NOT deliver a product. If you don’t mind, I’d like you to walk me through your logic. How does that benefit them?

If CR sold the company for $500M and they got their 10% back, they’d barely make a profit. With the staff as large as it is, CIG doesn’t make enough on ship sales to break even, so that doesn’t generate any profit either.

But when CIG releases SQ42 (Chapter 1), then later Chapters 2 and 3, plus the PU, they should have enough revenue streams that make them profitable, especially if they continue with concept sales. In that event, the investors not only get their money back, but they’ll also turn a profit… finally… though it’ll probably be another decade before that happens.

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wayshuba

Sure, this will be a bit long but I will do my best to keep it as concise as possible.

While the investors have only 10% of the company that does not mean they are only entitled to 10% of the money in a sale. It is highly unlikely, with the amount of money involved that they took a straight 10% common share allocation. While the exact terms of the CIG deal are unknown, we can base it on what are usual terms for PE investors in a deal like this and those would be a preferred position with a 1x-1.5x liquidation preference. For sake of this example, I will use a preferred 1x liquidation terms. Keep in mind when it comes to private equity (PE) profit means absolutely nothing.

PE investors care about two things when you take their money – what is the most likely return and what is the exit strategy (i.e., the point where they get there money). That means two things – either selling the company or going public.

What this means is that if CR sells the company preferred investors are entitled to money before anyone else and a 1x liquidation term means they get their money back first.

So if CR were to sell the company for $150 million to a large publisher, the investors would first be entitled to $46m of it (1x liquidation), then they would get 10% of the remainder – so $10.4m – before anyone else does. If there is debt on the company, it would be paid AFTER the preferred investor gets their money out of CRs proceeds. This means the investors would get $56.4m on the sale. CR also mentioned he owned 75% of the company, so he would walk away with $78m in his own pocket.

Based on the roadmap and financials, CIG is burning $12m/quarter and this amount basically means the investment gives them a one year runway. The roadmap has made it clear they will not have a final product for sale until sometime, at best, in Q3 or Q4 of 2020. Which means they cannot have a revenue stream until that time. The goodwill of backers is NOT a revenue stream. Furthermore, CR must see that that source is starting to decline otherwise he never would have went for outside PE.

So, let’s say SQ42 finally does release in Q3 2020. How much revenue does anyone really think they are going to make? Most of that product is owed to backers as debt (i.e., has already been paid for) so now it is a matter of how many you will sell to non-backers. How many copies does one realistically think they will sell of SQ42? Maybe 1m-2m more? So maybe another $75m-$100m. But what if the backers represent 90% of the buyers and you release to only another $20m in sales. That would smash the value of the company.

This is why right now in 2019 CR will get the highest value for the company – before releasing a product – and from a business perspective why it is best to sell the company to a large publisher. If he does, his investors make a return, he becomes uber-wealthy, and a big publisher with deep pockets then has the responsibility to deliver to backers. If he releases and it bombs, all of that goes away. From CRs perspective, it is financially smarter to unload this turkey BEFORE releasing a product.

Hope that clears things up.

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Kickstarter Donor
Dividion

Thanks. That definitely helps. I don’t think (or hope) that’s how it’s going to play out. I do think SQ42 will release Q3 or Q4 in 2020 and have some good holiday sales, and hopefully that enables them to hit their next goal, and then the next, eventually reaching profitability. Anything can happen though, so I guess we’ll just need to keep our popcorn ready.