There might come a point in any start-up’s life where the founder(s) see that in order to finish the product they need outside financial support. They realize they need to hire more people, pay themselves salaries, pay for services or pay rent. Whatever it may be, it is quite common for start-ups to find themselves in a situation where they need funding.
Venomite is going through something similar right now. I’ve realized we need to hire a full-time team to proceed with the development in a serious manner. We will need to outsource some art, like 3D models, animations and textures. We’ll need an office space where we can work together and make videos. All of that takes money.
How to get money for a start-up?
I’ve done a lot of research into the options Venomite Studios has to fund the rest of the development. In this blog post, I will try to give you an overview of what I’ve learned so far and what an indie game development studio might need to go through to get funding.
There are several different deals you could make to get funding for your company. But what it always boils down to is this. There is some company or person who has the money you require. You approach them with a deal – if they risk a sum of their money by giving it to you, you promise to multiply that sum for them to make it up their while.
In detail, the deal might be a trade of your company’s equity for their money. That is called an investment. The 100% of your company is valued at some amount and you agree to sell some percentage of that to the investor. The investor hopes that the value of that equity will rise in the near future, so if he/she decides to sell that equity he/she will make a profit from what was invested in the first place.
Another way this deal might go down is called a loan. This is pretty straightforward if you know what banks are. Even tho usually game dev start-ups don’t get loans from banks, but rather from corporations or civilians. It still works similarly – you get an amount for some period and pay back a bigger amount at some time later.
Then there is funding where you get someone to pay for the whole game’s development. All salaries, art etc. But when you release the game some percentage (often around 50%) of the game’s revenue will go directly to the funder.
Of course, there can be as many types of deals as there are people willing to make them. But the three I mentioned above are the most popular kinds I’ve come across during my research. But because all of these deals are made with people and their money, you should be very prepared when going to them and asking for money.
You need to prepare!
Obviously, if you turn to a wealthy person and say “I need about a million dollars and I will make the best MMO RPG in 6 months.” they will not take you seriously and probably ignore you for the rest of your life.
But if you go to them and say something like this: “I have a team of 5 people in place right now. We have been working on a first-person puzzle game that plays with gravity manipulation. Our prototype has been downloaded 10 000 times and given highly positive feedback. We have done thorough market research and see a clear gap in the market we can fit in. There are 3 similar games – game1, game2, game3. But our game is different because of blah-blah. We will need 250 000 USD to get us to a public beta release in 6 months. Here is how we plan to spend the 250 000…” It is clear that this person knows much better what he is talking about. He has planned everything out and it is much safer to give this person a large sum of money.
Put yourself into the investor’s shoes!
While writing this article I tried an experiment. I imagined myself as an investor. Sitting at an expensive table with a Rolex on my wrist and an expensive suit on. I had a large office and my time was very valuable, not many people got to spend it. In walked a passionate game dev entrepreneur who had been given 10 minutes to pitch his idea. What do I want to find out from him?
Here is what I came up with:
- What are you planning to spend my money on?
- What exactly are you building?
- Why will this game be successful?
- Do you know what you are doing?
- Can you handle it when it gets tough?
- Does the product work on the market? (Do people actually want to use it?)
- Can I trust you?
- Does the product have potential to grow after my money has been wasted?
- Have you handled large amounts of money before?
I know I wasn’t that much off, with the questions I came up with, from most of the articles floating around the internet on this topic. The investors are people just like us. It is best to be prepared, and actually know what you are doing.
Have these ready when you pitch!
I bet every single investor will try to find answers to these questions I mentioned above. They will not directly ask you these, but they will find out the answers. When you are going to pitch, it helps A LOT if you have the following:
- A team (and people on your team or mentors who have experience on what you are doing)
- Prepared presentation or document that very well describes the game you are building
- Have built something like a prototype, MVP or a vertical slice
- Have tested the market (and have statistics to back your tests)
- Confidence, commitment and passion
- Prepared spreadsheet, visualization or document describing how you are planning to spend the money
Have these 6 points prepared and you are MUCH more likely to get the funding you need!
Even tho this post turned out longer than the average articles I usually write here, I still only scratched the surface of game dev start-up funding. But I hope that after reading this you have a slightly better understanding of the whole thing and find it easier to find out more if you are interested. This topic is, in fact, a very fascinating one!