A guide to financing options for indie developers

There has never been a better time to be an independent game developer. Several factors, including the proliferation of digital distribution platforms, a heightened interest in less mainstream games and the availability of technology that allows smaller teams to develop hit games at low cost, have contributed to making game development a much more accessible endeavour than before, when retailers acted as gatekeepers and the costs involved in developing, publishing, and distributing a video game were out of range for all but a few large publishers.

Having a myriad of small creative teams engaged in crafting original gaming experiences should be cause for excitement for everyone that loves video games, and our industry is far the richer for it. That said, as more independent development studios arise and set down the path of making games, many of them are left wondering how they can finance their adventure, and in particular how to pay living wages to a team experienced enough to do justice to their vision, not to mention how to have resources to eventually launch, promote, and support their game.

Finding a fit

When evaluating financing options, the first important question that needs to be answered is what the overall goal is and, in particular, if the team is looking to build a great game or a business. While both are challenging and worthy pursuits, most financing options will not be available without demonstrable intention and means to reach commercial success and build a successful business over time, as obtaining a return on the capital deployed is the principal goal of any professional investor.

If untold riches aren’t the goal, the best (and often only) option is bootstrapping, provided that ambitions are realistic and that the game’s scope allows for it. The technology and tools required to develop a game have become cheaper by an order of magnitude in the last few years, and direct-to-consumer distribution channels such as Steam have expanded the range of available games way beyond triple-A, empowering smaller, independently-minded teams to release a range of interesting (and sometimes wildly successful) games without needing massive financial backing. If you don’t want to deal with investors’ expectations and would rather have total control over your destiny, bootstrapping is the way to go, and the fact that doing so has become a viable option is a very positive development for the industry.

If, however, your ambition is to create a blockbuster or even to build the next Supercell, you’ll probably require additional funds to pay living wages to a larger team of experienced developers, as well as having to deal with the costs associated with launching and marketing your games. Fortunately, provided you can show demonstrable proof that you have what it takes to succeed (and it will be very hard to obtain financing without some sort of playable prototype, unless your track record is absolutely stellar), there are many avenues you can pursue.

Strings attached

The option that most game companies tend to consider, to attract professional investors such as VCs or angels is, in my opinion, also the most problematic. First of all, investing in games is not a particularly good fit for the VC model, mostly because games are a hit-driven business, and identifying future hits requires specialized knowledge that most VCs lack. Moreover, even when possessing such specialized knowledge, there are so many factors at play in a game’s success that it’s impossible to make reliable predictions.

As such, investing in games is best approached as a portfolio business, and the only VC firms that are likely to see a positive return are those that make their primary focus of it and spread risk across a large number of investments, as well as having partners with a strong gaming industry background available to select and mentor the teams they back. Also, getting investment from a venture fund comes with its own set of trade-offs, most notably equity dilution and surrendering some governance control including, most often, at least a board seat. Most importantly, by welcoming venture investors in your company, you accept that you will be required to provide an attractive return on investment to them in a reasonable timeframe through a corporate liquidity event such as the sale of your company or a public offering, and that such goal will impact every decision that will be made with respect to the company’s business. Ensuring that any investor you bring on board shares your values and goals for the company is extremely important in any case, but even more so when dealing with professional venture investors.

The other issue with VCs is that they’re very picky and, knowing that games are a tough business to invest in, they tend to shy away from any opportunity that doesn’t involve an extremely experienced team that has been responsible for blockbuster successes in the past, or a company that already has significant traction in terms of user base and revenue. This is particularly true of VC firms that were burned by investing in the social gaming “gold rush”.

Power of peers

If, however, your team hasn’t been responsible for a multi-billion dollar franchise or you don’t have the most downloaded game in the App Store, an alternative to VC financing might be incubator and accelerator programs that specialize in games. Those programs usually target teams that have some relevant experience and an early stage concept or prototype for a game, and offer a modest amount of financing, as well as mentoring by industry professionals and a range of services such as free office space. Being able to work amongst peers and receive constant feedback from peers are some of the benefits of those programs, as well as the increased industry visibility granted by the most reputable ones. The drawback to these programs is that usually they require an equity participation that’s outsized compared to their financial contribution, which can weigh down the company in terms of future capital raises.

Take it to the fans

Talking about different funding models, I’d be remiss if I didn’t mention Kickstarter and other crowdfunding platforms, which have exploded in popularity in the last couple of years, driven by a slew of very high-profile projects that have succeeded in raising several millions of dollars from eager fans. Can your team do the same? Depends: have you been responsible, in the ‘80s or in the ‘90s, for a much beloved game, nostalgia for which you can exploit to get your new game funded? No? Then I’m sorry, but Kickstarter riches are forbidden to you. Well, that’s not necessarily true, but what’s true is that you will need a very compelling pitch that resonates with your audience, tangible proof of your ability to deliver on your promise and most likely someone with the marketing chops required to drive a successful Kickstarter campaign, which can easily be a full-time job.

“Publishers”

Game developers in need of funding can also look for a “publisher” – a term that used to refer to a company that provided funding, marketing, and distribution services for games developed by thirdparties. In today’s world of digital distribution, however, this term has been adopted by a wide range of players, many with models that provide little more than cross-promotion services. There are a few key aspects that developers should be on the lookout for when selecting a publisher. First, are they actually willing to fund independent game productions at an early stage (presumably the reason why you are reading this article)? Most are not, focusing on games that are at a later stage of development and only need marketing and promotional support.

Second, it’s important to make sure that the publisher’s contribution is commensurate to how much financial upside is being relinquished, and to avoid situations where they can claim a slice of your business without being instrumental to the games developed by you, since internally-developed games will always have the upper hand due to the success of your game or absorbing any real risk.

Then, especially in this day and age where content creators have more ways to reach players directly, developers should avoid giving up creative control of their intellectual property, and be very skeptical about any deal structure that would result in them doing so. Finally, it’s important for a publisher not to be conflicted between promoting its own games and bottom-line implications of not having to split revenue with thirdparties. In general, companies that are mostly or, even better, solely focused on thirdparty games are better partners than companies that are primarily developers, and for which publishing is a side business.

Partners

All of the dramatic changes that are reshaping the video game industry have made traditional publishers less central to the ecosystem and in some way tarnished the very concept of “publisher.” The impact, however, goes beyond semantics to signify a shift in the balance of power between content creation and content distribution: while entrenched publishers used to be the dominant force when physical distribution and closed platforms ruled the industry, that advantage has been significantly dissolved by the ascent of digital platforms, tilting the balance in favor of content creators.

In response to this shift, we’re witnessing the rise of a new breed of partners that, in order to appeal to successful independent developers, needs to provide not only the funding to get their games made, but also a full suite of value-added services, ranging from marketing and product management, to back-end technology and analytics, to global expansion of brands across all media. All of which are most effectively provided at a scale that is out of reach for most independent game developers. One of the advantages of this type of partner is that it acts more like a facilitator of self-publishing than a publisher itself, enabling independent developers to retain creative control of their IP, while shouldering most or all of the financial risk in exchange for a stake in the franchise’s upside.

Conclusion

There are many ways of getting a game financed (or not!). All of those have their pros and cons and any of them can be the right choice for a specific company, depending on the company’s goals and product aspirations, and on market conditions.

When seeking outside financing, make sure you understand what your goals are, and what the consequences of entering into different kinds of financial relationships can be. In game financing, like in most things, there isn’t a one-size-fits-all solution.

Giordano is VP of product management and revenue at Tilting Point, a partner for independent development studios. Giordano works with the company’s partners to build and release a portfolio of mobile games, and was previously executive producer of the Bejeweled franchise, manager of PopCap’s mobile gaming business and its operations in Asia Pacific.

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