Funding for Indies?

[NothingLikeit]

Or the game development field in general.

My question is two fold. Has anyone attempted to get funding from Venture Capitalists or Angels for thier game development companies?

I ask because I've been reading a lot about funding for conventional companies. I think it's just as feasible for game companies to get funding for an existing game company or start up. Especially because every other Gamasutra headline mentions start ups and existing companies getting millions in funding.

So the second part of my question is where are these companies going? Are there different investors for game developers? If anyone has any insight on what these investors want it would be greatly appreciated.

[svero]

Well one possible source of funding for indies is bigger publishers. If you have a really exciting prototype you could show it around to companies like playfirst, oberon, iwin, real etc... and someone might agree to fund you. Helps to have a track record of success or at least a number of finished games etc.. but it's possible.

[zoombapup]

The problem with VC's is that:

a) They want a quick turnaround on thier investment
b) They want a considerable profit too
c) They dont understand games
d) They are VERY picky about ensuring the first three happen

So VC's are unlikely to invest in anything but a "sure thing" which in this industry is almost unheard of. The big VC funding has gone to people who have already delivered significant profits before so theyre going for a sure thing as much as they can.

For instance, I'm pretty sure a VC would fund Will Wright. But any of us?? nope.

[Pyabo]

I know Real will advance royalties on a promising title, or work out some other funding option. You've got to get to a good prototype stage though... no one (VC or otherwise) is going to give you money for a business plan with the word "game" on it... unless maybe it also says "alternative energy."

Hmmmmm... that gives me an idea. :)

[NothingLikeit]

Paybo: Great point. Ever since Valusoft (THQ Valubrand now I think) told me that they only accepted full games from "untested" developers back in 2002, I've been operating under that assumption ever since.

It's cool to know that Real may advance money to a promising prototype. I fear that's more rare these days than ever.

zoombapup: I guess the biggest question is how much is a huge profit to them?

I would say any developer could get money out of a VC providing they have the right vision for thier company.

For examples If I can figure out a way to make my casual fps action games a potential high growth market, I would consider courting VCs.

[MrQ]

I looked at the angel investment road and decided it's simply not worth it.
For a few reasons:

Alot of companies have gone under because thier profits or funding got pulled on them by investors. They can be very picky and like Zooma said, they generally don't understand.
They take a huge whack of profits which will leave you asking for another hand-out, it becomes a vicious cycle and even harder to make it on your own.

[Greg Squire]

I think the question is fundamentally flawed. If you accept funds from investors, then are you truely still "indie" or "independent"? (as there are nearly always strings attached to the money)

[Snooker]

I know Real will advance royalties on a promising title, or work out some other funding option. You've got to get to a good prototype stage though...
Mostly true. We do offer advances on published games, but these deals are aimed at studios who have demonstrated the ability to develop games that match well with our audience. Just tempering expectations - if you hit us up with a design doc as a first time dev, chances are good that we're not going to give you gobs of money upfront! We want to see that you can execute and execute well. :)

[svero]

I think the question is fundamentally flawed. If you accept funds from investors, then are you truely still "indie" or "independent"? (as there are nearly always strings attached to the money)

Yep! As soon as you take cash you lose some measure of your independence. If you were a really well known artist you might be able to work out a deal where you get no interference from the investor but generally speaking your funder is someone who's going to be a partner on some level. Sometimes though, that can be a good thing. Don't forget they also want to see your game succeed for their own selfish reasons. So in some cases they can help you take the game further than you would have on your own. It's a question of having the "right" partner and a shared vision.

[Chris Evans]

Don't forget there's always the option of getting a bank loan. If you have a little bit of equity, there's numerous places where you can apply for business loans, lines of credits, and etc.

Obviously the amount of equity you have and your credit rating will determine how much you can get and at what interest rate. Also if you can't pay back the loan you may lose whatever equity you had.

The upside is, unlike investors, the bank will not meddle in your business decisions. They won't pester you constantly to start showing some profit. They don't own your business. As long as you make your payments on time, they don't care what you do.

Depending how big your loan is, paying off your debt completely may take awhile and the interest could add up. But again unlike investors, you can pay it back at your own pace (as long as you meet the minimum) and you don't have to worry about the rug being pulled from under you.

[Oaf]

I'd advise to go the bank loan route rather than VC. Courting VCs is a full time job in itself, and you'll probably pay as much money as you originally needed to fund your game to the lawyers drawing up the investment contract.

You'll find that getting a personal loan is a heck of a lot easier than getting a business one - unless it's secured on your house.

[zoombapup]

In terms of VC funding, the figures I've heard is in the region of 150-200% over 3 years. Typically they would have to have a pre-defined exit strategy that saw them making a huge profit. Certainly within 5 years, usually a lot quicker.

VC's also like to invest in the millions, rather than low figures. Its just the nature of the beast, huge risk huge reward ventures basically. Plus of course they require a controlling position on the board and can quite easily take over the whole board if things arent going to plan (I've seen that happen before).

Seriously, VC's are nightmarish. Angel investors are a better bet, but still are in the same position. Think of it this way, if YOU had a million quid and a random person came to you to throw half of it thier way, what would YOU do?

[Indiepath]

Don't forget that whilst VC may well want large amounts of equity they generally have a lot of experience to bring to the table. So you are getting a cash lump sum, and experienced business partner and someone who want's your business to succeed as much as you do (and maybe more). Also bear in mind that VC won't touch you if they don't think you personally can pull it off.

[zoombapup]

Whilst they may have experience, they might also just have experience of plowing through hopeful startups trying to milk them for the initial rush of profits.

I guess I'm just wary of businessmen bearing gifts. Like a trojan horse, it feels that you have to have your eyes and ears open and never accept anyone on face value.

These guys are generally rich because they are shrewd businessmen, which often means they arent averse to terms which arent in the favour of the business long term.

Its a dragons den thing, weigh up what someone can bring versus what they expect, if the deals right make it, if not, dont.

[Oaf]

Yes, let me echo Phil's wariness about VCs, as someone who's had a growing profitable business ruined by one....

[NothingLikeit]

Whilst they may have experience, they might also just have experience of plowing through hopeful startups trying to milk them for the initial rush of profits.

I guess I'm just wary of businessmen bearing gifts. Like a trojan horse, it feels that you have to have your eyes and ears open and never accept anyone on face value.

These guys are generally rich because they are shrewd businessmen, which often means they arent averse to terms which arent in the favour of the business long term.

Its a dragons den thing, weigh up what someone can bring versus what they expect, if the deals right make it, if not, dont.

Zoombapup: You are definitely voicing a very real concern about VCs. The caveats you and others described are the same concerns voiced by other business people; even those outside of the game industry.

I am very protective of my business. It's my baby right now as far as I'm concerned. I would have to protect its interests as well as the interests of my employees. To that end I wouldn't work with a VC if i felt it would be a drain on my company.

I like the benefit of the VC, experience, money, and a dedicated partner. I just have to find a way to limit the negatives.

If I feel like I'd lack the level of control I wouldn't take a VCs money. The other rub is of course deciding if I need that much money to start with.

[cliffski]

If a company has had enough prior success to interest a VC, then they should invest the profits from those earlier successes themselves, and not need the VC. Valve are a perfect example of this, they invested half life's profit into half life 2. Getting those initial profits is the hard bit.

I don't have much spare cash to invest, but if I did, I've always agreed with what I heard Duncan Bannatyne (Dragons Den) say once which is basically:

"Have you taken out a second mortgage to finance your business? Because if you aren't prepared to bet your house on it, and it's your idea, why would you expect me to bet my money on it?"

If I really needed money to make a game, I'd remortgage my house, or get a bank loan. The last thing I'd do would be to take money from a VC or a publisher. I'm a firm believer in making games cheaply though :D

[lennard]

I'm definitely in the stubborn, my way or the highway I'll fund it myself camp.

That said, none of us are running hugely profitable companies - that would include Cliffski from the #'s I have seen - and companies like Apple would not have happened without a bunch of seed money. That said, if you are making a game company a) I don't know why a VC would be interested - the only path to making gazillions is when the studio gets sold (I know trot out the WOW #'s but they have been a long time coming and have had a heck of a track record every step of the way) and b) I left my last paying gig when the money came in and started to take over, it's just no fun when you are being told how to do the job you do.

[Pyabo]

If a company has had enough prior success to interest a VC, then they should invest the profits from those earlier successes themselves, and not need the VC. Valve are a perfect example of this

I don't think Valve is a "perfect" example... they were started with money Gabe Newell made at Microsoft.

Better examples are Epic and 3DRealms, both of which started as Shareware developers and grew their companies into multi-million dollar businesses. Jill of the Jungle, anyone? :)

[Pyabo]

Another opportunity for *small* business loans: Prosper (http://www.prosper.com)

It's like peer-to-peer banking. A pretty groovy idea. If you have excellent credit and are only looking to borrow less than $25K, chances are very good you can get it here. The loans are spread out among many members who bid on the right to loan you money (if they like your risk).

[PoV]

One of the Ninja Bee guys gave an interesting talk at GDC about funding smaller games through the investment of people you know. Games in the $100k budget range and up, well below the point where VC's care. It's also an interesting organization approach, establishing a company per project, to keep things clearly organized.

Your Project Name, LLC: Funding Projects by Forming New Companies
http://store.cmpgame.com/product.php?id=1887&cat=56

It'll cost ya $8 to listen though.

[zoombapup]

Nothing: I think the VC you talk of (experience/money) is more of an Angel investor than a VC.

VC's tend to be interested in a really short term max profit thing. Angels see long term potential for sustained profit.

I'd work with an Angel I thought added value. I'd never touch a VC unless I absolutely had to (like in the case of Youtube needing VC capital for actually running the service).

[MerscomMan]

zoombapup: I guess the biggest question is how much is a huge profit to them?


Most VCs are looking to make a 10X return (10 times their investment) in a 3-5 year timeframe. If your projections/model does not support this, they will not be interested.

[zoombapup]

Thanks LLoyd, my memory when it comes to the VC routes I looked at must have been shaky. I knew it was a huge figure. 10x sounds about right.

Basically, they expect to have a load of "misses" paid for by one "hit". But if youre a miss, you're really going to be screwed.

[jcottier]

VC's are looking to invest huge amount of money. No way, they will be funding indies.

JC

[moose6912]

I would say any developer could get money out of a VC providing they have the right vision for thier company.


Nope, having a vision is 1 thing. Being able to execute it and having the right people execute it is another. I always believe that "Talk is cheap and action speaks louder than words".

Most VCs that I know go for someone with a track record. So they would fund Will Wright or John Carmack, even if their vision may not be right and that is because they have a proven track record of delivering good games on their rapsheet. Joe Average with no track record and a vision?Chances are almost nil.

Besides, with a VC, you will have a situation where the VC forces you to do something that you do not want and could hurt the company in the long term and the VC doesn't really care since they are just hoping to invest and get out in 10 years max.

VC = Venture Capitalist or Vulture Capitalist. It could be both, so go in with both eyes wide open.

[Spore Man]

"Vision". Only a VC who has had practical experience working IN the game industry would understand a "vision". Anyone else and it's the same old smoke n mirrors game you have to play.

How else do you get a VC to understand that "it's ok" that you have to extend your deadlines to twice as long as originally projected? Anyone in game dev would understand the "when it's done" mantra, but a VC would get awfully nervous and that's not a good thing.