Take a Pokemon Go-style Augmented Reality (AR) game, add in a private island and a sprinkling of blockchain technology, and what do you get? An ICO that went viral, raising over $11m worth of cryptocurrency. We caught up with Tony Pearce, Co-Founder of the Reality Gaming Group, in early February to get to the bottom of this story.
Reality Gaming Group, have so far made one gaming title – Reality Clash – a free to play AR game that combines AR with First-Person Shooter (FPS) combat. So, what sets this game apart from the thousands of others out there? They were one of the first projects that combined a mobile gaming application with a cryptocurrency marketplace and blockchain technology. With the recent explosion in ICOs, they were also an example in how you can raise a significant amount of funding for a slightly unconventional project.
How did it all begin?
“We had been developing the game for 18 months/ 2 years. When we first started, Augmented Reality was a fairly new concept, Pokemon Go didn’t exist, and it was only just an (augmented!) vision, i.e. looking through your camera and being able to engage in combat with teams of people. We felt like this was a great game idea, and that’s why we wanted to pursue it.”
They had the vision, now they needed financial banking to get this project completed. That, however, was easier said than done. They were trying to pitch an augmented reality game in an environment that was, in all likelihood, not yet ready for AR gameplay.
“We went and pitched to many games companies, and 10/10 said no. For them, augmented reality was too risky- would the customers understand this new concept and adapt to the gameplay? Yes, we had this great idea, fantastic, but we (and any investor) would have had to spend millions just on marketing this idea and explaining to people that this game could be played outside in teams.”
The second issue that Reality Clash faced was that there were no products out there for them to compare to, no benchmarks that had been set already. However, then along came Pokemon Go. In many ways it was a gift for Reality Clash – Pokemon Go was doing their marketing for them- going out and telling the world about the concept of AR gaming and proving it could work. Suddenly, going outside and using your camera in the real world was a thing that people (in their millions) were doing to play the game. Pokemon Go was a massive success, with 50 million downloads in 19 days and making $500m revenue in 4 months. It was clear that the AR game genre was about to take off, and in a big way.
Following that, Tony says “Suddenly, the publishers who had said no previously were all calling us back, but this time we told them ‘no thanks’ and continued working on it ourselves.”
Plus, Tony adds, they now had their benchmarks. “We already knew we had a good game, and now we knew what the addressable market size could be. If Pokemon Go can say, make $500m in four months, Imagine if we could just get to the stage where we are operating at 5% of that total, that would be a great start.”
Thinking outside the box to secure Investment
The guns were ready, the AR gaming concept was developed, and they had a demo. Now they needed to raise enough money to enable them to make a minimum viable product (MVP)- a workable game which you can download and play.
To make this happen, Tony explained, they “were seeking about $1- $1.5 million dollars, that’s how much we needed to get to a MVP stage.” To achieve this funding amount, they would need to secure some Venture Capital (VC). Initially, things were much more promising due to the impact that Pokemon Go had- the investors that they were showing the game to suddenly understood it.
“The issue was, however, that we couldn’t get the guys behind the VCs to commit to us. ‘Launch it first, show some traction and revenue, then come back to us’ the VCs were all saying. This is the bit I hate with development and investment-seeking (Reality Gaming Group is Tony’s fourth start up, so he has been through the VC funding process before and knows the challenges). We spent 3 or 4 months going through this process for Reality Clash, dragging ourselves through the mud for them, but we still couldn’t get a firm commitment. The word Venture should not exist in Venture Capital, 90% of VC’s are totally risk averse and require some traction before they commit to funding.”
When they finally did get a commitment, however, it was from a VC who was demanding a combination of large equity alongside a fairly minimal cash investment. Despite this proposal being a less-than-ideal offer, Tony explains that they felt like they had no choice but to accept “Whilst they were asking for a lot of equity, they were [just about] providing the necessary cash that was needed for us to continue with the project, to pay our developers and finish the game. It was the only way of moving forward that we could see.”
It is at this unsatisfactory juncture that this story takes an interesting twist. Enter Millie Baring (of Barings Bank/Baring family). By a chance meeting, Tony got talking to Millie over a drink, and discovered that she (via her family) owned an island called Lambay, just off the coast of Dublin, Ireland. Well known to locals, this island had been privately owned by the Baring family since 1904, and is accessible by invitation only. As it happened, she was looking at different ways to monetize the island.
Tony then suggested the idea of running networking/discussion events on this island, a members-only club made up of like-minded thinkers. He would do this by utilising his contacts from the Centurion members club, a networking event that he co-founded. They then set up 12 co-founder members and set about refurbishing the living quarters and castle (one of the main features of the island). The plan was to have one weekend per month, taking it in turns to organise. The first weekend event was going to be in May 2017 – the question remained that ‘what was the event going to be?’.
At this point Millie suggested to Tony that she thought this first event should focus on the topic of Blockchain, an emerging and news-worthy technology at the time. Her sister’s husband , George Mcdonaugh, was himself heavily involved with cryptocurrencies as the CEO of Kryptonite 1, a publicly listed investment company focussed on the blockchain ecosystem, and would therefore be able to bring a lot of major players that weekend.
Tony was initially reluctant, as he felt like he didn’t know anything about this area . What he didn’t know at that point was that the current creme de la creme of the cryptocurrency/blockchain industry were attending this weekend. One of them, for example, happened to be one of the co-founders of the Ethereum network. Whilst he was at this networking weekend, he got talking to George, telling him about all the difficulties he was facing with dealing with the VCs.
“So, then George says to me- ‘what about launching an ICO?’ I said that I didn’t even know what an ICO was! He made the case to me that an ICO would be the perfect fit for Reality Clash because the game that I had been developing had a custom, virtual game currency ready to go, so I was halfway there already.” Using an ICO, he could sell his currency/coins at a discount to investors to help fund the game.
After that conversation, Tony went home, ripped up the VC term sheet that they had been given and spent all his time working on drawing up a White Paper. The new aim was for completion in late September, with a Pre-Sale in August. Tony had come a long way already, considering at the start of May he didn’t even know what an ICO was!
The idea was that they would have two different coins- a Silver coin that you could buy from the App store (for $1), and a Reality Clash Gold coin (RCC) that was only offered to investors in the ICO. Each coin allowed you to purchase different weapons. The Gold coin, however, allowed you to purchase weapons which could then be traded via exchanges using blockchain technology. This, in Tony’s view, was the killer application; you could become a virtual arms dealer and make money!
By choosing this route, they would be one of the very first games on the market that would actually allow their players to make real-world money from the game. More importantly, the in-game community was also on-board with all of this.
Launching one of the first Gaming ICOs
When it came to the ICO itself, they were initially only looking to raise the $1-$1.5 million that would be needed to get their game to the MVP stage. In the end, however, they ended up being able to generate 9k Ethereum via the ICO- which translates to about $11 million (although that has dropped off a little lately!).
This was achieved mainly thanks to their incredible social media growth, achieving 40k likes on Facebook in two weeks and adding 10k followers a week on Twitter during the ICO itself. “People were asking ‘when is it starting’, so we were generating a lot of buzz, both via word of mouth and advertising. When we launched our servers collapsed. We were down for an hour due to the sheer amount of traffic, because people were trying to get online, worried that the presale might sell out.”
All this success was achieved despite Tony and his team, being, as he told us, a ‘novice to all of this’. “There was no rulebook, no guide for us- all we had to help us were white papers from some of the previous ICOs- and they themselves were pretty sketchy. When we did this there was nothing- none of the rules and regulations that have been introduced more recently.”
This was illustrated by the fact that, during the ICO, they didn’t have to go through the KYC processes that are now industry standard. For instance, Tony told us that “I don’t know who any of my investors are, we just used a smart contract [Regardless of how much they had invested].” He reflected that the landscape is much different these days “That is not the same situation now, with regulations requiring that KYC should be done on anyone investing over $15k; things like requiring email address, passport photos etc.”
Having prepared reams upon reams of business plans and growth forecasts for the VCs, he was then surprised when his new investors didn’t ask to see them. So did these ‘investors’ really understand what they were getting themselves into? Tony did not see this as a particular problem, viewing them as “people who liked the idea of the game, the quality of the team involved and also saw the utility and the growth potential of our coins and the game”.
So who were these people? Tony believes that “roughly 20% are gamers and 80% investors”. This concept of gamers being involved with the investment process- outside of pure Crowdfunding- is something that definitely sets the Reality Clash ICO apart from what had come before.
One particular quirk of the ICO funding process, is that it accelerates the timescales involved. In April/May Tony was meeting people at the Lambay networking event, the white paper was done by June, then the team worked on the marketing, before the pre-sale in August. He says he found this difference, when compared to the VC process, very refreshing; “Brilliant- I loved every minute of it.”
Game made, ICO done, everything perfect…right?
After completing the financing via the ICO, a company then has to set up an exchange to take the money from their company wallet (e.g. Ethereum) and then change it into Euros, before depositing it into a bank account. UK Banks were a no-go for Reality Clash in terms of opening any account post-ICO “we can’t lie to them about how we raised the money and had to be upfront about our usage of cryptocurrency. But UK banks simply don’t know what to do about this kind of funding yet. They blame it on money laundering and lack of KYC, but deep down it’s because they are shit scared of Crypto and their own futures”.
This then seemingly left them with the only option of paying people straight from the exchange, rather than being able to convert it into fiat. “We then approached a Bank and Lawyer in Gibraltar, who were happy to accept ICO funding as long as we came and presented to them.” There was a snag, however, as they were “charging 30,000€ just to open a bank account- we told them to get lost – 30k! Instead we ended up using a Slovakian bank, brilliant, really good, charging both a monthly fee and currency conversion fees, but much less than the Gibraltan one and, most importantly, now we had a bank account.”
They also have had to ride out the occasional negative publicity that cryptocurrencies have received as a whole. For instance, China have repeatedly attempted to introduce measures to attempt to put a stop to crypto trading and usage. “The China ban on ICOs affected us a bit. People suddenly were asking questions about this- things like ‘are ICOs now illegal?’ ‘Should we doing this?’ So yeah that set us back a bit.”
A further, and potentially much more damaging challenge, came in the form of fraudulent activity and attempted theft from their ICO. “When we launched our ICO, if you searched Reality Cash on Google there was a fake Reality Clash advert (that the fraudsters had paid for) that would send you to an almost perfectly cloned Reality Clash website, that was run by them, not us. We lost $200k-ish to these scam guys, just whilst we were sleeping. We had to close our slack channel and change all of our social channels and addresses, as people were always trying to scam us and impersonate us.”
What’s the future looking like?
Post the ICO, investors, keen to start seeing some return on their investment, then began to ask why the Gold RCCs hadn’t yet been listed on any large exchange. “Yeah, they were bugging us about the exchanges. We weren’t going to do this before the game released, the whole point was that this coin had a utility, a purpose. Therefore, we would only put it onto an exchange when the game goes live- this was stated in the white paper. These investors were looking to flip immediately, but that wasn’t what we were about.”
So what were they doing with all of this money in the meantime? “Firstly, we took out the costs involved of developing the game etc. and paid all of the people involved, before leaving the the rest in Ethereum.” It’s not all about the money, however, Tony told us: “Firstly, it’s all about the game, we are also building an AR platform and our own trading platform. Reality Clash just happens to be the first game that uses this (location based AR and trading) platform.”
He has some grand designs too, for developing this concept: “There is also lots of room for expansion, and doing some interesting things with this platform/concept. In particular, we are looking to use the AR technology to partner with retailers and brands. For example you can designate real-world shops as in-game ‘safe zones’, driving traffic to their store (Game, for example). We can track each user via our geo mapping technology, and then the store will pay us for this extra traffic. It’s basically advertising without being too obtrusive. We can also sell weapons made by ourselves or others. All these things keep the basic game free whilst funding our development.”
So their future looks rosy, what about for ICOs?
ICOs are hot property right now, and this has inevitably led to a massive rise in their number. Not all ICOs are created equal, however. Recently, there have been some ICOs, set up by people who are using coins with questionable value, just in order to raise some quick, easy money. Tony reiterates for us that the main selling point of his game was “that the coin has a specific utility, it is backed by a solid team with plenty of experience, and also matched with an exciting platform. Investors now need to be more savvy, considering how many ICOs are now out there.”
And indeed, the landscape is now much different. Take exchanges, for example. When the Reality Clash team had to go through this process, opening the exchange took them 9-10 days. Now, according to Tony, “I hear exchanges like Kraken are now saying 3-4 months. It’s like opening a bank account but worse [due to the extensive KYC required]. This makes it much more difficult now to change up your money- you want to get your money out before the value of it potentially drops.”
These measures, and extra regulation, will increase monitoring of cryptocurrency accounts as well as supervision of foreign currency flows in overseas ICOs. Some overseas traders of foreign ICOs may be banned from doing business in China. These are steps toward ending all cryptocurrency trading in China entirely, strengthening measures that Reality Clash have already had to deal with.
Reality Clash is a great example of an innovative business model being able to thrive outside of the traditional circles of investment, and a rare merger of multiple emerging technologies. In the current climate, however, there are questions about how a similar company could both stand out, and thrive within the increased regulatory frameworks. Still, who knows what exciting new businesses future ICOs may finance?