SeedInvest tells Shroud of the Avatar investors that Portalarium eluded its accountability efforts


Shroud of the Avatar has been a black mark on the MMORPG genre, Kickstarted MMOs, and genre founding father Richard Garriott for years, and the story has only gotten more weird and frustrating over time for folks who haven’t completely tuned out of the plot. Allow us to tune you back in for today’s news, which is that SeedInvest has now thrown in the towel on the company too.

Gamers will recall that Garriott, Starr Long, and studio Portalarium Kickstarted Shroud of the Avatar all the way back in 2013 as a spiritual successor for Ultima Online, Garriott’s original MMORPG, to which EA still holds all the rights. SOTA’s development was unusual, to say the least, punctuated by bizarre crowdfunding stunts, like the time globe-trotting multimillionaire Garriott sold his hair and blood to fund the game. In 2017, the company added to its nearly $2M Kickstarter haul with frequent telethons seeking donations from gamers as well as an almost $800K equity crowdfunding investment round through SeedInvest; at the time of that seed round, Portalarium claimed a valuation of $25M with $11M in crowdfunds.

But concerns mounted after the game’s second launch in 2018, which was followed by layoffs, a free-to-play shift, and promises from Garriott that the game would run forever. Gamers criticized the studio for excessive crowdfunding and massive $6999 packages targeting whales. The playerbase on Steam and off Steam fell from small to tiny (Steam is around 100 peak players nowadays). Kickstarter rewards were delayed by years. Richard Garriott stepped down and said the CEO role had been dissolved. Then there was the weird obfuscation over who exactly was running the company when the new CEO denied knowing he’d been made CEO and argued he hadn’t signed the legal documents with his signature on them. Portalarium shuttered its physical office in March 2019, a full year before COVID. And at the end of 2019, Portalarium abruptly folded and transferred the game to a new studio, Catnip Games, led by Portalarium’s former lead developer, Chris Spears.

In the aftermath, Portalarium and Catnip reps stonewalled and insulted press publicly and privately, and it became even more difficult to get any solid information about the company’s unmet obligations. Indeed, just two months ago, we publicly called on Richard Garriott, who still occasionally participates in promoting the game, to own up to what had happened. The general assumption in the remaining SOTA community for the last few years was that Garriott had simply passed along the game to a newly created company for next to nothing in order to make a clean exit from any financial entanglements as the game’s fortunes continued to decline.

But the company did have legal obligations to its investors that were not obviated by its corporate sleight-of-hand. While Kickstarter is essentially a donation platform and there is little recourse for those donors if a game company fails to keep its promises, that is not the case with SeedInvest. SeedInvest is an equity crowdfunding platform; though it has “crowdfunding” in the game, equity crowdfunding is very much a real investment, one that allows small-scale investors in a door normally closed to them. Consequently, Portalarium had obligations to its SeedInvest backers; specifically, it was required to file annual reports with the SEC to provide transparency to investors. It failed to do so in 2019 and 2020, meaning it had withheld legally required information covering most of 2018 and 2019 until the company was dissolved. In fact, Portalarium appears to have deleted parts of its documentation on the SeedInvest website.

Through it all, SeedInvest has been largely silent, doing little to help investors as we understand it, but this week, SeedInvest surprised pretty much everyone by breaking its public silence and issuing a letter to investors on its platform who put money into Portalarium’s equity crowdfunding round.

“[T]o the best of our knowledge, Portalarium has ceased operations and has failed to provide a formal dissolution statement despite attempts by our team to secure one on your behalf,” SeedInvest told backers, appearing to suggest that investors may still have a glimmer of hope for a legal recourse.

“While we provide shareholder reporting services on behalf of our portfolio companies, it is ultimately the companies’ responsibilities to draft any such updates. Unfortunately, after raising on SeedInvest, Portlarium failed to provide subsequent investor updates despite repeated attempts to secure them. We understand that it is frustrating as an investor when companies fail to provide regular business updates. We have been informed that per the terms of an asset acquisition there is a chance Portalarium investors may be entitled to an earn out based on future performance, and as such the legal entity you invested in has yet to be formally dissolved. The terms of this earn out have not been made known to us. However, given the length of time that has passed, and lack of any material update, it appears that any potential distribution is unlikely to occur.”

There’s little in the letter that investors didn’t already know, but it’s vindication to see SeedInvest finally admit that it’s had no more luck than anyone else holding Portalarium and its leadership accountable. At this stage, it’s going to take some determined investors and their attorneys to pursue it – which may not even be worth the time and money to do. Which we suppose is precisely what Portalarium was banking on all along.

Source: Emails, Reddit. With gratitude to our multiple tipsters, and to all the other gamers who like us refused to let this go.
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