Your funding is not a problem to solve, it is an opportunity to generate success. Just be mindful of the ideal timing of the different sources of project financing and you’ll have a much greater chance of pulling it off.
“I’ve got all the money I need to finish this project”SAID NO GAME DEVELOPER, EVER.
Project financing is a constant challenge to many game developers across the globe. Sources of funding always seem to be too few and far between, or not well suited to the peculiar challenges of game production. Aside from a small cadre of game savvy investors, in general, most are not well versed in game economics nor skilled in assessing project risk. And, none of these hurdles are aided by the fact that most game developers simply lack experience or training on the business side of things.
You are creating this wonderful, amazing, beautiful and fun game and—dammit—the problem of not having enough funds is just such a pain in the butt.
And so, industrious game developers set out into the world to solve their lack of funding problem, well, as a problem. Sadly, no one cares.
FUNDING AN OPPORTUNITY
Approaching funding as yet another problem to solve amid all the complexities of making and shipping a game may seem logical and pragmatic, but it sets the effort on path of imminent doom. First and foremost, investors are generally looking for great opportunities. They are not in business to help you solve your lack of money problem.
Game developers would do well to completely reframe their funding efforts as an opportunity as opposed to trying to solve their missing money problem. This requires that the project you are working on be a legitimate opportunity, which usually means that the game has commercial potential and is of course a wonderful, amazing, beautiful and fun game.
How do we know if a project has commercial potential? For starters, have you conducted a market analysis and examined your competitors to map out their performance? Have you already started building a community or had strong traction from actual players? Does the game design itself have hooks for discoverability and streamability? Do you know who makes up your audience and how to reach them cost efficiently? Does the production budget make sense given the game’s earning potential?
Of course, any project is a gamble. We can do our research to increase our odds of success, in part by better understanding what is—or is not—selling and trying to understand how the market evolves and shifts over time. It is better than just taking random shots in the dark. Alas, hope is not a valid business model.
PROJECT FUNDING SOURCES
Now that you’ve determined that you have a legitimate opportunity in hand, what are the typical sources of project financing for your game?
Depending on the context, this could be your day job or past savings in a more personal project situation. Or, it could mean taking on work-for-hire contracts or reinvesting profits from past projects, in a studio context. Essentially, all the cash you, your partners, your company are able to put on the table.
Any source of funds from someone who loves you. Your parents, your spouse, your best buddy, etc. This often takes on the form of a gift or a loan with very soft terms (potentially making family holiday dinners awkward), although it can also be done as a revenue share based investment (see royalty investment below).
Love them or hate them, publishers are still the largest source of game financing in the world. Thankfully, the funding comes with some extra perks such as marketing firepower, product expertise, porting capacity, platform connections and so forth.
While running a successful Kickstarter campaign is no walk in the park, crowdfunding remains a viable option. (As the most popular crowdfunding platform for games, in 2017, there were 347 successful campaigns, generating over US$16.5 million in funding.) And you have the added benefits of not having to pay out a revenue share (though the cost of mailing out a bunch of t-shirts can represent quite a financial burden) and of being able to count on a loyal list of new “backers” rooting for the project’s success.
Depending on where you live, you may be eligible for different grants and governmental funding schemes. From small $10K young entrepreneur support grants to juicy tax credits to matching funds for the development of new IP, be sure to explore the options in your region.
Being in the right place at the right time can pay off. New hardware always needs new games (like when Sony was ramping up for the release of PS VR, many developers got funding for their cool VR games). New distribution platforms need exclusive content to pull in users. This one is quite hard to plan for, but can be a blessing if you’ve got something that lines up.
As the name implies, this is an advance against a project’s future revenues. However, unlike a loan, the investor gets to participate in the upside (and not just get recoup + interest)… though it also means investors can lose their money if the project fails to deliver. This is a format usually used by friends and family who are a bit more willing to take on risk.
As made famous by Minecraft’s millions in sales during the alpha stage, selling a pre-release version of your game to help generate funds to continue development is viable if your project is far enough along. It is now quite common using Early Access on Steam. However, this does not work for all types of games and is usually best suited for multiplayer, non-linear, endless type experiences. The added bonus with this source is that the funds come directly from paying customers, which allows you to grow your community and get feedback to improve the game.
Festivals and Contest Prizes
Many festivals and contests around the world have cash prizes. For example, the IGF’s Seumas McNally Grand Prize comes with a US$30K cash prize. It is perhaps not wise to plan your budget around the chance of winning festivals, but it is certainly a nice perk to leave an event with fame, glory and a few extra dollars in your pocket.
Importantly, banks are not being listed as a source of project funding. For the most part, they view games as being too risky, especially when they are developed by start-up or young indie studios with no existing cash flow or assets/collateral. Of course, it is a different story if you are a going concern and want to set up a line of credit or bridge tax credits, etc.
A NOTE ON COMPANY AND NON-COMMERCIAL SOURCES
And what about VCs and angels? Or art councils and foundations?
A critical element of reframing your funding effort as an opportunity is clearly understanding what your opportunity actually is. There is a big difference between a game PROJECT as the opportunity versus a game STUDIO as the opportunity. Understanding the difference will save you a ton of wasted effort.
VCs and angels invest in companies. They are buying equity and becoming long-term partners in your business with the expectation that you will build tremendous value in the company over time and eventually exit the scene. This often implies that you are working on games that have exponential revenue potential (think in terms of Fortnite, League of Legends, Hearthstone, Rocket League, Clash Royale) and are considered as games-as-a-service. If you are not gearing up for building a massively scalable business, then don’t waste your time looking at company-oriented sources of funding. Sadly, studio level investing is too deep of a topic to be adequately addressed in this article.
Conversely, if you are working on something that is intentionally non-commercial in nature and has some other intentional objective in mind (e.g., to raise money for a charity, to advance medical research, to empower a repressed community), you can look to art councils, museums, foundations, research agencies, and other groups that align with your mission who may have funding programs. Alas, these intentionally non-commercial sources are extremely unlikely to fund your awesome ninja battleroyal game.
SOURCE RELATIVE TO TIMING
Now that we are familiar with all possible categories of game project financing, we need to take each source’s typical timing into consideration. Sadly, we can’t just collect a big bag full of money whenever we want to and it is therefore critical to understand the sweet spot for each source.
The above graph represents a typical game’s development timeline (although the ‘production’ segment often would stretch well beyond the border of this page). During a project’s early stages, as you are concepting and working on a prototype, ‘you’ are the most likely source of funding (followed by love money)—not only because the funding amounts are relatively low at this stage, but also because only you, or someone who loves you, is crazy enough to invest when you have yet to begun building traction and proving viability.
Many publishers like to get involved in projects once they are deep into pre-production or early in production. This usually means there is a strong prototype that proves the game’s fun factor, and the team has a more calibrated sense of the effort needed to deliver the whole game. It also gives the publisher enough time to ramp up its marketing efforts and plan out QA, localization and porting schedules.
As the project matures and stabilizes into production, you can begin taking part in festivals and competitions. The focus here should really be more on marketing and community development efforts, but taking home a cash prize is always nice also.
The timing window for crowdfunding is shifting later and later into production. Whereas five years ago, you could possibly succeed with a strong concept and very early assets, now backers need to truly believe the game will ship and they place a much greater burden on the developer to be well advanced into production. This is not even mentioning the fact that most successful campaigns require anywhere from 9 to 12 months or more of community development work ahead of time!
Pre-sales efforts are best timed during your beta phase, or sometimes as early as the alpha phase. Of course, the more robust and stable the game, the better your chances of generating pre-sales revenue.
The other sources of funding outlined above are somewhat less sensitive to timing (e.g., royalty investments) or have very specific program-related deadlines (e.g., government funding scheme) that are too variable to list here.
A LAYERED APPROACH
It is quite rare to raise a game’s entire budget in one shot. Normally, a layered approach is needed: you invest your time and energy in the concept, then borrow a bit of money from your uncle to complete a prototype, then head out to GDC to score a publisher, who then funds the completion of the game and pays for marketing and console ports. Or a thousand other possible permutations… The key is to be mindful of where you are in your production timeline and match the sources of funding to your timing for optimal effect.
And, critically, you need to always be pitching an opportunity rather than your lack of money problem.