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Heading to GDC and hoping to score some funding? Digital Capital's W. Todd Tribell here takes a hard look at the developer/investor relationship, and shares his perspective on what the investor really expects -- from his side of the table.

February 25, 2013

14 Min Read

Author: by W. Todd Tribell

Heading to GDC and hoping to score some funding? Digital Capital's W. Todd Tribell here takes a hard look at the developer/investor relationship, and shares his perspective on what the investor really expects -- from his side of the table.

There's never been a more exciting time in the games industry. Platform proliferation, a broadening gamer demographic and a wealth of ever-changing business models all mean that if you've got a great idea and the smarts to bring it to fruition, then you have a real shot at success.

Except you haven't. If your amazing idea is going to make it to market then chances are that you'll need some financial assistance along the way. You might be lucky enough to have a degree of personal wealth or enough savings to get started, but it's more likely that you'll be like the vast majority of start-up developers -- looking for outside investment.

GDC has always been a great place to meet investors and get that ball rolling, but with the huge variety of funding options you can quickly find yourself overwhelmed with possibilities, not to mention a world of new terminology, and legal regulations, some of which are definitely not developer-centric.

Whether you're looking for a traditional publisher; a round of venture capital; offering equity; or going to the "crowd" via sites like Kickstarter, it's vital that you understand what you're getting into before searching for your ideal investor. Regardless of your choice, this isn't a one-night stand. You definitely should be seeking a long-term relationship.

You can have a falling out with your spouse and get divorced; and when you do it with your investor or your board of directors, it's just as painful. It's so potentially humiliating that after being sacked from Apple, the ensuing public feud nearly crushed the spirit of Steve Jobs, who once considered leaving Silicon Valley. Hopefully, with a few pointers, I can help you prepare to find your ideal investor and maintain a positive and enduring business partnership.

There are essentially three steps to a perfect investment partnership:

  • Bring value to the partnership

  • Find an investor who shares your core values

  • Fulfill your commitment

Don't just bring me flowers!

When approached by someone seeking investment, the first thing I always consider is -- them. So if you're striving to raise capital, the place you need to begin is in front of the mirror.

Investors buy into people; not just products. Successful business has always been about relationships. That's not to say that who you know will ever be more (or less) important than what you know, but it does mean that in order to make a genuine long-term connection with someone, you must first look at yourself.

Being objective about how others see you will bring you strength and understanding when meeting an investor. Essentially, it all comes down to how you come across: as a developer, an innovator, a businessperson, and most importantly -- as a human being! Regardless of your personal style, you must be able to show, in both words and actions, that you're committed, creative, reliable and, above all, passionate about your ideas and business.

Investors want to be partnered with people who are interesting, intellectually stimulating, and excited. If you don't love your idea and can't clearly communicate the value of yourself, your skillset and your idea, then I won't love it either and will quickly pass on the opportunity in search of the next one.

In years past, it was sometimes possible for a passionate and super-driven developer to sell a vision to a publisher, get the gig and leave the rest to them, but those days have gone. Publishing today puts you in competition with more than 1 million apps on Apple's App Store alone. Your product is literally a needle in the proverbial haystack. Publishers are consolidating and bringing more and more of their development in-house - and sadly, many are disappearing altogether.

BUT -- it's not all doom and gloom. The reason that we're seeing such a shift in the traditional publishing model is that the likes of Apple, Google, and Steam have thrown the distribution doors wide open, giving you the ability to reach tens of millions of consumers directly. Of course, that's both a blessing and a curse because while this offers almost limitless possibilities, it also requires a shift in thinking and a solid commitment to learning. With great power, comes great responsibility -- which, by the way, is now yours.

So it's about passion, innovation, excitement and integrity, but it's also about commitment, like any valuable relationship. Are you committed? Not just committed until the next paycheck or until you can get a better contract, but all-in, with no back doors and no way out. Do you understand the things you need to know to navigate the swirling waters of this ever-changing industry? Are you able to demonstrate that as well as creating an incredible product, you also know what you have to do in order to market, promote, develop and iterate? Do you understand, really understand, things like F2P, ARPPU, MAUs and DAUs? These are all questions you should ask yourself before seeking outside investment.

You'll need to "get" concepts like player acquisition and retention, and know how you'll monetize your game if you want to convince me that you have a potentially lucrative proposition. Investors are not patrons and they're not investing to just get their money back or to break even. They are investing in this business to really score big and want to see their investment coming back every quarter, or even every month.

Additionally, do you have what it takes to see this through as a leadership asset to the project? Do you know what you don't know? Do you have the wherewithal to realize where your shortcomings lie and have a plan to address them? Are you capable of identifying your own weaknesses and finding an expert in that particular field to strengthen your team? Do you have a sense of where you, your idea and your business are heading? In short -- are you a leader or a follower?

If you want an investor to trust you, and believe me you do, then you'd better be a leader and you better be prepared to demonstrate that to me. Not just at the pitch, not just when we sign the deal, but all day every day from here on. Be under no illusion that all of these skills aren't mission critical because they are. The bottom line is: YOU are the single biggest mitigator of risk for your project.

So don't just bring me flowers on the first date -- I want to know who you are on the inside and what you'll be bringing long-term to our relationship. Show me what you're made of and that you've got what it takes to survive and thrive in this new digital landscape.

Would like to meet...

Like the courtship stage of any relationship, both sides will be trying to work out what the other has to offer. It's as important for you to choose your investor as it is for your investor to choose you; it has to be mutual. Everyone's priorities are different -- so make sure you are clear about what you want and need. If choosing wisely, you'll find an investment partner that genuinely shares your values and can "complete" you.

As there are many different funding opportunities, it's imperative for you to spend a fair amount of time researching different types of investors. Don't rule anything out before you've done this, because you might surprise yourself. Whether you look at angel or institutional investors, publishers, incubators, private equity, grants, subsidies or crowdfunding, every option has its pros and cons and there isn't a single one-size-fits-all solution.

Think of it as preparing a personal listing for a dating agency -- you wouldn't say "I want love, commitment and support but I don't care who it comes from." Instead, you'd narrow it down to personality types, common interests, similar expectations, and so on. The same is true here.

If you're happy to hand your idea over to someone more experienced and utilize their resources, then you can lower the risk of not publishing your game by courting one of the bigger publishers -- even in this tough climate; although you should expect much lower royalties. If you desire a more hands-on approach and want to retain much greater creative control, then direct funding would probably be the better way for you.

So, you're creative and have fresh ideas. Investors seem more attractive because you could retain a bigger slice of the profits, all without being under the publisher's thumb. Sounds perfect, right? Let me stop you there. Don't be under any illusion that this is an easy option. Today's investors require savvy business partners, not savant artists. No investor is giving you anything. They're financing your dream with the clear expectation of a solid return on that investment; so you'd better be prepared to do everything you can to make that a reality.

You're going to need to understand and deliver all those dull "business" things that perhaps you thought weren't part of your job. If you want me committed to you, then you'll need to show me business plans, balance sheets, SWOT analyses, and marketing plans.

Like it or not, I'm afraid you're going to have to jump through the hoops of doing things "the old fashioned way": working hard. So run your numbers then run them again. Be able to defend and justify them and never, ever say "I guarantee you this will make money" -- no one can ever make that promise; but they can show me that they understand what it takes and that they've got a detailed plan to achieve it.

Now there'll be some of you out there thinking "Ah, but if I go for crowdfunding instead, then I can get all the money I need without having to worry about being accountable." Personally, I don't agree. Never think that crowdfunding is an easy route, either. It may be the big funding trend of the last year, but running a successful crowd-funding campaign is something that takes a huge amount of planning, effort and time if you want it to be successful.

Also, make sure you realize that getting your financing this way doesn't mean you have fewer people to report to -- it means you'll have more; potentially tens of thousands more, having invested only a few dollars each -- and at the very least, they've entered a moral contract with you, the developer.

You might feel your commitment to them only stretches as far as the free T-shirt or art book they've "pledged" for, but if you want to make the most of the loyal community you've worked hard to build, you need to deliver more. Communicate with them regularly, update them on your progress, show them the cool features that make your game amazing, and reassure them that what they've backed is going to come out on time and to the standards you've promised.

For me, the jury's still out on whether crowdsourcing is going to be a viable long-term source of financing. I believe that it's only a matter of time before a high profile funding success fails to deliver on its promise. What happens then, and under the direction of which regulatory agency, is anyone's guess. Therefore, I caution you not to enter this arena lightly. Like accepting investment from any other source, with crowdfunding, you need to deliver what you promise.

Ultimately, the choice of funding is yours -- so carefully weigh your options and what is truly important to you. The bottom line, in every sense, depends on you seeking and courting the most compatible investor so put the work in, go the extra mile and you'll hugely increase your chances of meeting "the one."

For better or worse

Congratulations! You've met your perfect investment partner. You've both engaged one another and even though it may not be 'til death do us part, you should both strive to make sure that it's for richer and not for poorer!

Any successful relationship, whether business or personal, is always worth more than the sum of its parts. Once you've made that commitment to your partner, then it's in both your interests to become stronger and build your future together. So, in order to fulfill your obligations, you must ensure that you understand where your own responsibilities lie. Openly communicate with your investor so that both sides understand the other's expectations; and then live up to your end of that contract.

As I hinted before, you are going to have to take on new roles in order to retain a larger piece of your pie. In addition to the bigger-picture business planning and marketing strategies, you'll also have to make sure you don't miss all the smaller scale frontline tasks that happen "magically" when working under the wings of a traditional publisher.

Don't forget details like registering trademarks, securing website domains and social media profiles, setting up community forums, and moderation, public relations, and much more. All these things take time and you should never assume that you'll be able to "do it on the fly."

Plan your business -- and then execute that plan. If you're thinking that "jumping through these hoops" isn't your job because you're the developer, then think again. You can't take it for granted that your investor will "handle" these things for you; it's not his job.

Perhaps the biggest commitment you've made is to deliver on your creative promises. Don't think that having a personal relationship with an investor will mean they'll cut you some slack if you miss an occasional milestone. If anything, hardcore investors can be even less forgiving than your average publisher.

...and you've created a contingency plan for when things go wrong, right? With the best intentions in the world, there'll always be curveballs thrown at you, so make sure you have contingencies in place and come to me with solutions instead of problems. Even the strongest partnerships have rough patches but when they arise, communication with your partner will dictate whether or not you are able to save, or be forced to terminate, your relationship.

Imagine you've had a major technical problem and you're going to miss your milestone. The investor might be sympathetic, but he won't necessarily be interested in the details, or in hearing excuses. As far as he's concerned, he delivered on his promise but now his money is being tied up or, even worse, diluted. So what do you do?

First and foremost -- you be honest! You bring your investor up to speed and you do it without delay. You don't hide, you don't blame anyone else, and you don't whine about how terrible everything is. You come to them prepared and you explain how you're going to correct the problem and get everything back on track. And then you do just that! Your investor may be annoyed, but they'll respect your integrity and you won't jeopardize their trust in you. I can't stress this enough.

Even if things go smoothly during development you'll still need to be constantly aware of what's happening in the broader business environment. You must be able to adapt your plan on the fly and never get caught out by an "unexpected" OS update, a new platform or business model. Anticipate the trends and use them as opportunities to make your product better. I want to see you being proactive and taking the time to understand what I, as an investor, need to know.

As in any relationship, it won't always be smooth sailing, but if you remain faithful and committed then, in return, you'll have the unconditional support of your investor; as well as having gained a powerful ally who potentially could have an interest to become a more permanent part of your future. While investment never comes easy, the potential benefits of choosing the right partner can more than make up for that effort.

Remember: A good investor can't ignore genius -- and neither will they reject something of immense value!

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