One of the things I took on when I started looking seriously at turning Perfect Minute Games into my full-time gig was an accelerator on-ramp program run by Genesis here in St. John’s.
VCs != Games
The program, which is called Evolution, is not new to me. I completed it a while back, along with another Genesis course, when I was focused on earlier iterations of PMG and some other ideas. Both courses were, at the time, aimed squarely at preparing pitch decks to present to VCs.
I had a problem with this approach in my previous encounters. VCs – particularly those in my neck of the woods – don’t really get into games all that much.
VCs like to bet on companies that will scale massively, for one thing. They make a lot of bets and pray one of them will grow their investment by 10x or better, paying for a whole cohort of failures. Game development doesn’t really scale like that, barring a few mega-dev/publishers (Zynga/Tencent, EA, a few other outliers).
They also like to bet on the company, not the project. Games are usually funded per-project, which is the way most creative work is funded. Ask any experienced grant writer how many times they’ve written a project proposal versus a company proposal, and you’re pretty likely to get a much bigger number for the former than the latter.
VCs also want company equity, and the number of game studios that actually develop a stock that’s worth owning is vanishingly small. Not to mention company equity usually means board seats, and hence some level of executive influence or even outright control. Very few VCs are equipped to exert non-destructive influence over a company making games, and that’s assuming they’re not the type of VC that will strip-mine the company for valuable IP and dump the carcass in an alley.
Now, Jason Della Rocca and Keith Katz did (do?) run a gamedev incubator of sorts , and there are a few other accelerator programs around the world that focus on game developers, but even there, the numbers are small, and the model is murky at best.
Seed Funding and Games
I recently decided to withdraw from the Evolution program. I realized that the problems I’d encountered in my previous run-through were still there, and that I was stressing myself out trying to balance the time demanded by the program – which are MUCH heavier than they were the last time around – against the time required to actually work on things that apply to a game development business.
It doesn’t help, of course, that every investor I’ve ever talked to about games has, to put it politely, laughed me out of their office. There is an overwhelming negative signal from such folks towards game developers trying to establish a studio. One of the problems with the Evolution program is how focused it is on exciting these folks, who are all but openly hostile to the business segment I’m in.
So how do we fund startup studios? There’s certainly lots of advice on the subject.
- “Don’t quit your day job” is offered as a very literal prescription from all corners. This is, of course, good advice for individuals, but an astonishingly bad foundation for business development.
- The omnipresent “Friends and Family Round” is commonly suggested. I sometimes wonder if this round works if and only if you come from a wealthy social background; certainly I know of very few people with friends or family who would invest more than a pittance into their business.
- Folks outside of Canada often look at the CMF with envy, since it provides at least some kind of ab initio on-ramp for the budding developer. But even on a (bargain-basement-priced) $100,000 development budget, CMF still insists you come up with $25,000, and that’s not nothing.
I don’t want to suggest these problems are unique to game developers. But I do think they’re more imposing for us, as a rule. There are far fewer resources suited to the challenges of our business. Even those challenges that are otherwise generic – think building a working business model, analyzing market trends, making revenue predictions, establishing business relationships, and so on – don’t map cleanly to their game development incarnations.
Meanwhile, the dominant “traditional” modes of game funding – publishers and hardware incentive programs – fall outside the expertise of most business development resources. Even those resources focused on the tech sector as a whole don’t know enough about the game business to be helpful. They don’t adjust well to a business that operates, as mentioned previously, much more akin to arts funding.
There are resources that can help, though. The IGDA exists, for one, and there are mentors out there who will, for a reasonable fee, offer their hard-earned insights. There are half a dozen commercial market analytics services that can offer insight into how games make money. Some of them aren’t even crushingly expensive!
But it’s been my experience, thus far, that the average founder in this business is going to need to pick up bizdev in a hurry. So let’s talk about what to look for.
- Obviously, if you’re in Canada, look at the CMF programs. There are people who will laugh at this option or tell you this will cripple you, and hey, maybe they’re right. But these programs are incredibly generous when set next to the average investor or publisher contract.
- Look at your local business development options, particularly those more suited to brick and mortar. There are things you won’t necessarily know about – cheap accountants and lawyers, subsidized business consultants, business plan writing courses – that will help you develop as a business executive, and saving time, especially in the early stages, is critical, because you need all the time you can harness to develop a product.
- If you have access to low-interest credit products, you can self-fund. It’s a bad option, but you’ll get some return on it, maybe, someday. Think about how to bake that investment into your company, though. Get advice on the best approach.
- You can also sometimes access business funding programs by backing the debt with a personal guarantee. This is a bad option, too, because even if you incorporate you’re liable for these debts – but the interest rates may be low enough to make it better than other debt-funded options.
- Look for programs from large-scale business development agencies. They won’t all directly provide money with which you can pay yourself – the latter, in particular, is a rare beast indeed – but they can often provide other means to that end. Hiring a junior under a recent grad incentive may allow you to take on extra work, or get a product to market faster, or have a resource for a set of tasks you would otherwise need to handle yourself – marketing, hiring, design, the list is endless
- Build small games in quick succession, and get them out there. This serves many purposes, but for now let’s focus on two key ones:
- It provides some kind of revenue stream that can feed into the general operating coffers
- It provides proof of “traction”, which is a term business development folks like to use when they don’t want to say Show Me The Money, Jerry. Traction is essentially how you prove you know what you’re doing. And when it comes to traction, there’s just no substitute for products that are already earning revenue.
- Approach publishers early and often. There are a number of resources to help with this, including a big list maintained by the some of the folks behind the Indie Game Business channel, and a much smaller but more curated list from Beamable. There are also specialists out there in the world who offer their expertise in this area as a paid service, and there are lots of networking events that will accelerate the process (again, for. a fee).
- Look at companies servicing game developers like Beamable and Xsolla, as well as more general-purpose startup folks like F6S.
- Get whatever data you can from market insight services like VGInsights and data.ai. Some market insight services offer a very affordable price to indies, though these tend to also be limited in ways that can be quite inconvenient. Nonetheless, they’re sufficient to get started on building a business plan.
- You may be able to avail of specialty funding. Check out the city, state, and federal organizations for arts and technology. Look for project development grants, digital media tax credits, innovation funding, and SRED-like programs, just for a start. These aren’t just for the specialists! Ideally, games are such a tight mix of innovative technology and art that funding opportunities can be found on all sides. Of course, the cold truth is that many programs – foolishly, in my admittedly biased opinion – on both sides exclude games
I’m sure there are many, many other tools out there I’m missing, and I’d love to hear what you’re using. My goal isn’t to provide infallible expertise so much as it is to provide a starting point for someone who might find themself in my shoes. It can be grueling, and if you’re a dev as well as a bizdev, the time and effort required can leave you feeling stretched and exhausted.
But if we’re going to do this for a living, it’s critical work. I wish you luck.
Featured Image
“Bangkok Road Confusion” by hc.saustrup is licensed under CC BY-NC-ND 2.0.