Right off the bat, I’m going to admit that there are more exhaustive resources out there if you are interested in learning more about funding. Not game related resources per se, as collectively we’ve not been the most successful industry at figuring out the “I need money to do this” piece of the puzzle. A few good books should get you started, like Guy Kawasaki’s Art of the Start, or Venture Deals by Brad Feld and Jason Mendelson. In fact stuff written by Feld is always insightful, or follow the posts at TechCrunch and VentureBeat.
Next, realize that the best time to take someone else’s money is never! There are always strings attached (no matter how favorable), and it's ideal not to take it if you don’t absolutely need it. However, note that the next best time to take someone else’s money is when you don’t need it (and thus are less desperate and less likely to accept unfair terms).
That said, let’s dive into to a few core elements that should set you on the right path. The first major factor is determining if you are trying to finance a single project or fund your studio. The sources of money--and how you approach them--are largely separate.
If you are trying to finance a project, you are most likely trading future sales potential (i.e., revenue share) in exchange for getting a fat check today. The vast majority of these project-oriented options are non-dilutive, meaning you do not have to give up any ownership in your company (i.e., shares or equity) for the funds.
However, if you are trying to finance your company, many of the funding options are dilutive in that you are selling shares in exchange for money. Now, the value of those shares is partially based on the future revenue potential of your games, but also factors other assets like key talent, past game IP, internal tech, etc.
How do you know which path to take? If you have a singular focus on the amazing game you absolutely must get made, then you will probably chase down project financing options. If instead you have a vision for the style of company you want to create, and the studio culture you want to build, and the types of projects that fit that vision, you’ll likely chase down company financing options. Let’s look briefly at each path and several options.
Project Funding Options
Many options exist, some more obvious than others. And some depend on where you might live in the world. As noted above, with most of these you are trading your future sales to get money now.
- Day Job / Past Job: Many developers moonlight as, well, developers. Or more likely, they are AAA by day and indie by night. Or, the day job is in an entirely different industry altogether. Point is, the regular paycheck (or past bonus checks, or severance package) is funding current development efforts.
- Credit Cards: Depending on the scale of the project, you can max out your credit card(s). Not advisable if you can help it.
- Friends & Family: Uncle Bert has a lot of money saved up, doesn’t he???
- Patronage: We don’t hear of this Renaissance inspired approach often, but there are a few examples where a wealthy individual funds the work of a preferred game designer. This often is done in the form of a modest stipend to cover living expenses so the designer can focus on their craft (and not waste time with a day job, for example).
- Festivals and Contest Prizes: More and more events are popping up with cash prizes, the IGF being the most well-known festival, perhaps with Create Something Unreal the best known contest. These prizes are usually relatively small, but can certainly help (especially if your credit card is overdue).
- Crowdfunding: With the rise of Kickstarter and Indiegogo, going directly to your fans for funding is ever more viable. Just be sure to manage expectations if your name is not Tim Schafer, and realize that creating a successful campaign and fulfilling all the rewards is a huge time suck. Added benefits of this approach is that the funds are both non-dilutive and you don’t have to share revenue (well except the cost of shipping out a thousand t-shirts). Added bonus: market validation of your IP is built into the process.
- Publishers: The original piggy bank for game developers, and still a viable option to getting your game funded. Your mileage may vary.
- Government Programs: Countries the world over have different programs and incentives to support and foster game development in their region. Contrary to popular belief, very few such programs just hand over a bag of money, as the government is rarely the “first dollar” into a project. Many programs take the form of post-spend tax breaks/refunds, or grant oriented matching funds (e.g., you scrounge up 25% of the budget and proof of a distribution agreement, and they’ll provide the remaining 75% of the budget).
This list is not exhaustive, as other options exist. But some are simply not viable unless you are a much larger or established studio (e.g., film style bonding, line of credit from a bank). Also, it is important to note that even though the emphasis is on funding a specific project, with most of the above options you will still need to have a company in place to receive the funds and/or apply for programs and/or sign contracts.
Company Financing Options
Once we turn to the company oriented options, we really move into the world of venture funding. As noted, the key distinction here is that you are selling shares in your company for funds. This is the world of (mostly) professional investing, and they are primarily interested in seeing you scale your business and hence make them a handsome return in 3-5 years’ time.
Unless you are looking to build a real company with a vision towards growth, it is best you stay away from this path. But, if that doesn’t squash your entrepreneurial spirit, the main options to get started with are:
- Friends, Family, & Fools: Like above, you are tapping rich Uncle Bert for funds, except this time he is getting shares in your company and may want to be invited to board meetings. Okay, so maybe Uncle Bert isn't really a professional investor, but he'll still want equity.
- Incubators/Accelerators: There are a handful of incubators and accelerators that cater specifically to the games industry (e.g., Execution Labs in Canada, GameFounders in Estonia). More traditional programs like Y-Combinator and TechStars have taken on game teams, but it is rare. These programs often exchange a small chunk of funding, mentorship/coaching, and access to key partner contacts in exchange for some equity in your company.
- Angel Investors: Wealthy individuals who invest and like to get their hands dirty. They are often a good source of funds as their terms are more entrepreneur friendly and they often like to help out. But, they are notoriously hard to find and meet with.
- Seed and Early-Stage Venture Capitalists: There are VC firms that specifically target early-stage investments in the hopes that your company will blow up and become the next Twitter or Supercell. They usually take the most equity and often require a board seat, and provide the most pressure to grow your business. They also have the potential to open the most doors and have a big impact on the success of your studio.
There are still other options to explore like growth-stage VCs (only relevant if you are already generating $5 million+ in annual revenue), or fancy approaches like debt financing, mergers/acquisitions, or public offerings. But if you are ready for those advanced options, you wouldn’t be reading this!
Finally, it is important to warn that there is currently a general distaste for games related investments in the venture world. The downward spiral of Zynga and slowdown of M&A activity/IPO's has not helped build confidence within investor communities, who still largely see games as too risky and unpredictable. But trends shift all the time in the VC world, and often very quickly.
Match Your Needs
This was only a brief look at financing options and different aspects to consider. Exploring each option could fill a book of advice and information, so hopefully this is just helpful in opening your eyes to what’s out there and will provide a launching point for your own deeper research. Big picture, the key is to understand what your needs are and what you are willing to give up in exchange for funds. Just grabbing at whatever money you can without thoughtful consideration of the pros and cons will surely end up on the “what went wrong” side of your post-mortem.