Industry experts offer advice on navigating the tricky world of games investment.
Access to finance is a leading obstacle to success for many UK game developers. In 2018, a survey by trade association TIGA found that 38% of UK developers said limited access to investment opportunities was holding back their business. With this in mind, it’s all the more important that developers looking for investment opportunities properly equip themselves to make the most of the available opportunities.
Whether it’s angel investors, venture capital, publishers, crowdfunding, or even government support, there is a plethora of options when looking for funding and finance for your game. But knowing which avenue to take and how to navigate the opportunities and pitfalls is an essential part of the modern games business, especially for developers looking to remain independent.
“It's difficult to say what the best funding option is for each project, but there are several factors a project should consider – including what is being offered, what is being asked, and the values they may share with the investor,” says Corina Diaz, head of communications for Wings Fund, an independent investment group geared towards supporting game projects from women and marginalised genders.
“Some funding is awarded as a grant or non-repayable contribution, while others involve giving up a portion of project control or profit. At Wings we fund games for a share of the profit, and we make sure to leave the complete ownership in the hands of the team. We encourage self-publishing, as we value the team ownership and vision on the whole of the game business, from creation to publishing.”
Ultimately, when deciding which funding avenue to pursue, you need to look around for the option that best suits your needs. As Ella Romanos, COO of Fundamentally Games, explains: “Find the ones that are right for you, that share your vision and that are run by people who you want to work with.”
Given how many funding options are available, it’s important to consider what works for you and your team, says Romanos, “taking into consideration your current situation and aspirations,” but also what funding you may want to raise in future. This is especially important, she adds, because the “type of funding you raise now, may affect what you can raise later.”
As she explains, giving up too much equity early on can dilute the business, giving you less to bargain with in later funding rounds. Additionally, if you relinquish control of your IP, this will affect how other investors perceive the value of your business, and what rights you give to investors in one round could be viewed negatively by potential future investors.
There is a lot to consider when working with investors, and different investors have different priorities.
How to secure investment
Venture capital firms, for example, are typically looking for rapid growth for a profitable exit later down the line. As a result, live-service games -- especially from mobile developers -- are popular among VC investors, as they can continue to grow an audience for years after initial release.
Whether its venture capital, an angel investor, or a more bespoke operation like Wings, these investors are typically looking for the same set of criteria in any project. While Wings is highly focused on supporting projects with a diverse team, a solid prototype is still an essential part of the pitch for finance. Investors are looking for teams they are confident in, and projects they know have clear potential. As a result, there’s a lot to consider if you’re hoping to attract the attention of an investor.
“Having your game pitch, as well as your financing needs, well prepared is always the best way to engage with a funding source or investor,” says Diaz. “In general, it is best to seek funding once you're confident you know what you want to achieve, and what you require financially to get there.”
Developing a polished vertical slice serves as a proof of concept for your game, and allows potential investors or publishers to get a sense of how their money will be spent. As Steve Escalante, founder of publisher Versus Evil, explains: “It starts with the game and the team. It's difficult, in today’s competitive environment, to sign a game at the concept level or without a true vertical slice.
“The reality is that there are many games that we can play and make sure they have found the fun, which is the most difficult thing for a game developer to do,” he says. “Engaging us with a playable game allows us to see the fun. A nice pitch deck allows us to see the vision and future, and then we can focus on the team.
“Team make-up is important. In today’s world we are very open to distributed teams, using contractors, co-development, etc. It’s certainly part of the COVID world today but was already a reality for indies around the world. However, it must be said, and I have said this before, we need to like each other. Making games is hard and there are many passionate people on both sides of the development pipeline which can create tough, passionate conversations. So long as we have respect and like each other, you can get through all those things.”
Partnering with a publisher
Of all the available options, working with a publisher is perhaps the most traditional, and can provide a host of benefits that other funding streams cannot. For developers considering a publishing deal, Escalante emphasises that IP and publishing rights are two different things. A publishing deal can include the rights to your IP, but he questions whether that’s necessary.
“Versus Evil wants our partners to retain those rights in order to put their heart and soul in it,” he says. “If they do? Everyone wins. There is a lot of consolidation going on right now which is mainly focused on IP and development talent; it’s not about being the publisher, it’s about the whole thing. Would Versus Evil benefit from acquiring IP rights? Yes. Is that necessarily to the benefit of the developer? No.”
It’s important to recognise, he adds, that every publisher “has their limits of what they are willing to fund” and “the more you ask, the more they may want.” This could be IP rights, but it could also be studio ownership. Either way, Escalante says that unless you’re getting something extra in such a deal, “I am not sure that is a fair arrangement.”
Finding a publisher is one thing, but making sure that the arrangement is fair and suits the needs for your studio, is something else entirely. Escalante notes that a good or bad deal is “really in the eye of the beholder.” Either way, he offers some critical points that you’ll need a clear understanding of when brokering a deal:
- What expenses will be recouped
- How the money will be spent
- What the QA, localisation and porting costs are, and who will be responsible for them
- Well thought-out launch plans with clear milestones
- Simple and understandable terms of revenue share
- Key platforms and post-launch plans
The dangers of a bad deal
Wings Fund’s Corina Diaz expands on how to avoid a bad funding deal, clarifying that the most important part is ensuring the deal aligns with your team’s vision, and will support the success of the project.
“Money alone can't solve all problems, and a good deal may provide more than cash flow,” she says. “However, being able to complete a project and get it to market may not be the only goals for the team. Multi-platform release, profit margins, leveraging success for another project, or having the means to hire new talent into your studio could all be factors to consider when looking at a publishing deal and whether it will support your vision.
“There is also sometimes a lack of clarity on what the investor or publisher is going to offer in addition to the actual funding. We encourage developers to ask for details on all the services: what do they really cover, how much investment does that represent, and what is really going to be done, before they accept a deal.”
Kickstarter & Crowdfunding
Of all the funding options though, crowdsourcing arguably provides the most creative freedom and autonomy for your studio. While an investor or publisher is seeking some sort of return on their investment, crowdfunding backers want primarily one thing in exchange for their support: your finished game.
That’s not to say crowdfunding your game is a guaranteed path to acquiring funding, however. Although the nature of the relationship between your studio and its backers is a fundamentally different one than you might have with a publisher, it’s still important to remember that the community can make or break your campaign.
As Anya Combs, director of games outreach for Kickstarter, notes: “Some of the main pitfalls [of crowdfunding] include not building a community before coming to Kickstarter. We see first-time creators generally are able to rely on ~35% of their pledges coming in through Kickstarter, meaning they are responsible for bringing in ~65% of their pledges through a community they are able to build. Community building is exceptionally important, so don’t forget to spend at least three to six months building that community before you come to Kickstarter.
“On the flip side, there are so many opportunities in running a Kickstarter project. I like to remind creators that running a Kickstarter is more than just simply running a crowdfunding campaign. Once you launch a project, you’re part of a massive creator community, which is unlike any other community as it’s specifically tied to crowdfunding, meaning you’re able to relate to any successes or failures any other creator experiences in the space. People who also launch Kickstarter projects are granted a unique access to their backers and community growth. You have people that will follow you and support you for the entirety of your career.”
“We at Kickstarter fully believe creators should have as much creative autonomy over their projects and ideas as possible,” she says. “We don’t discourage alternative funding sources like publishers, loans, angel investing, etc., but if you want to keep full creative independence over your idea and your vision, Kickstarter is a great option.”
Of course, even the most successful Kickstarter campaigns can often benefit from additional funding streams, and it’s up to you to decide whether crowdfunding is the right choice, or whether you need the additional support provided by many publishers.
“It’s not uncommon for creators to have multiple sources of funding, Kickstarter being one piece of the financial pie. It’s also possible the Kickstarter campaign funds the entire project. The cool opportunity here being Kickstarter can be partially or fully funding your creative endeavor.”
For developers considering a Kickstarter campaign, Combs offers this guidance: grow your community, show gameplay, and be honest. Additionally, Kickstarter recognises that crowdfunding campaigns can be “complicated and nuanced,” which is why the platform provides “individual attention to anyone who reaches out to us.”
Finally, another option to consider are government grants or support, such as Video Game Tax Relief (VGTR) in the UK. The scheme allows game developers to claim 80% of total core expenditure or the amount of core expenditure on goods or services that are provided from the EEA. In order to be eligible, your game must pass a culture test and be certified as British by the British Film Institute.
As Romanos explains, there are two simple steps to follow if you’re seeking Video Game Tax Relief: firstly, you need to get a VGTR certificate from the British Film Institute to confirm that your project qualifies; and secondly, you need to submit your claim, usually along with your end of year accounts. Romanos also suggests working with an accountant that has experience with VGTR when making a claim.
There is a lot to consider when looking to fund your game, which can create a lot of additional questions and concerns. But it’s important to focus your efforts, but also diversify, as Versus Evil’s Steve Escalante explains.
“I think putting all your eggs in one basket is not a good idea,” he says. “However, I want to caution teams on stretching themselves and their deal terms too far. Some deals have come across our table where they have already given an investor, government agency, etc. 50% of the revenue for financing.
“If we then come in with financing, the revenue ‘pie’ then gets divided up even more. The concern from our side is to make sure the team is able to survive on royalties, but even more importantly the team can push ahead with their next development project. If they are left with just a little royalty share because they have divided it up then they might not be able to keep the team in place.
“If they are able to diversify their funding through grants, publisher funding, and crowdfunding, a more distributed approach could allow them to benefit from their future success.”
Diaz echoes this, adding that applying for investment is a time consuming endeavour in itself, and “shouldn’t be done casually if you hope to present the best pitch for each funding source.” Instead of treating it like a numbers game, applying to every available opportunity, narrow your efforts and “seek out funding sources that align with [your] needs and vision.”