A beginner’s guide to raising investment money for indie devs

So you want to raise investment money for your game dev huh? Makes sense. Devs cost money, art assets will cost man power to create (which you must pay for), and marketing is not free. Unfortunately, a lot of indie game dev companies are not very good at raising money. Most indie devs are quick to put together a Kickstarter campaign, but few would ever think about other alternatives to raise funds. As someone who has sat on the other side of the table, I feel like a guide that walks would be indie devs through this process could be helpful.

So, without further adieu, let’s get started

The three general sources for game dev funding

Bootstrapping – Getting money from friends, crowd funding, getting grants, etc. Anything that allows you to get capital without giving up control

Angel Investors and Venture Capital – If you need access to larger amounts of funds generally you’ll need to approach accredited investors or institutional investors. In all cases, the capital comes with a cost in equity.

Publishers – Going with a publisher USED to be how it’s done. Now a days, especially in the mobile space, the benefits that a publisher brings is almost not worth the incredibly one sided deals that devs have to put up with for the capital. Having said that, publishers can become valuable partners after a dev has managed to become a fully fledged business of it’s own right. Publishers tend to have a better capacity to handle the risk profile that many devs have compared to PE/VCs. In general Publishers are better for long term partners.

Which approach you take really will depend upon a number of factors:

– Are you a content maker or do you plug into the gaming industry in some other fashion?

– Are you primarily looking to build the game you want, or make money?

In almost all of these examples, Publishers are probably the worst option to pursue financially speaking. (Though, publishers can provide valuable know how, and tend to have more appetite for continued involvement even in the face of great uncertainty) The most pertinent question out of all of this is the second one, as raising money through investors changes the priority of the company from making a game to making money. (After all, that is why they invested)

The first question is less a question about priorities as it is about viability. Investors generally do not like companies that are hit driven as it is incredibly hard to predict and rely on. Investors generally like companies that have stable revenue in flow, so as to give the company sufficient ability to grow as a viable business. Pure content producers tend not to be able to do this, and as such, really work best with different funding models.

For the purpose of this article going forward, I am assuming that you’re trying to create a gaming company whose primary objective is company growth, and will be seeking investor funds.

Why do you need money?

Rome was not built in a day, and your game company will probably not always be viable in a single injection of investments either. When you consider taking investment funds, one of the first things you need to think about is your goal for this round. While the overall goal is to create a profitable company that can sustain its own development, there are a lot of steps in between from ideation to profitability, and so for the sake of sanity, it is much better to think of the interim steps as goals. We generally think of this staging as “rounds” in fund raising.

So how do rounds work? A round of investment is where you define how much money you need for a particular milestone. Every investment round will be led by a single investor who is known as the “lead investor”. Often times when you have multiple investors, trying to manage different deal terms can be a difficult. For this reason, the job of a lead investor is often to help navigate, organize and coordinate other investors in a round. A good lead investor can be critical to the success of a round.

The first round is called the seed round. This is the round where the company builds the product, creates its sales channels and tries to earn its first revenue stream. (Though in some cases, monetization doesn’t happen until later) At this stage, most tech startups will raise around $100K – 1.5M in funds to build the first stages of its business. For game makers who have the capacity to fill most of the production work by themselves, they can generally get away with raising less. Because of the inherently high risk profile of a company at this stage, most institutional investors generally will not participate in this round. And yet, convincing one of these investors can be one of the most crucial milestones of your company, as it can serve as positive validation for the rest of the market. Companies at this stage are usually categorized as “seed” or “early” stage, depending upon how much traction the company has already achieved.

The rounds of fund beyond this are generally referred to a series and an alphabet. (i.e. series A, series B, and so on) Series A is a significant milestone for a lot of companies as it signifies the growth of a company from ideation to finally being an actual business. In general, in order to qualify for a series A, most companies will require a strong proof of traction such as annual revenue of over $1M or some other meaningful metric. At this stage, this is where the VCs will join in on the fun. Most startups at this stage tend to raise anywhere between $5-15M. At this stage, a company can be considered an “early” stage company or a “growth” stage company.

Whether or not you raise a series B and up depends greatly on the company itself. Some companies will not need anything else. Series B funding is generally used for things like investing in a new facility, rounding out business capabilities, acquiring another company to complement the company growth strategy, and so on.

Remember, Rome was not built in one day, and neither will your gaming business. When thinking about rounds, focus on the goal of the round itself. Are you trying to raise money so you can build the product? Gain customer acquisition channels? Increase your marketing capabilities?

On Investors / Source of Funds

As you might have guessed, different investors have vastly different characteristics and are more fitted for different needs. You can generally look at your fund sources in 4 different categories: FFF, Crowd Funding, Angels, and Venture Capital. As part of your raising strategy you should always try to court as many sources as possible.

FFF (Friends, Family, and Fools)

You got this great idea, and all you really need is some money to make it happen. No problem! You pull out your phone book and call up every aunt and uncle who has a bit of money that they can lend and use that to start your business. Usually, this is where a lot of you will begin your funding journey. That’s all well and good, as your friends and family will be where you get the best deal terms and give up the least amount of control over your company. However, this route can make for some awkward family reunions if things don’t go well. When going this route, it is imperative that you as an entrepreneur let your creditor / investor know that there is a possibility that you could end up losing all of it, and that they should only give you money if they are comfortable with that potentially happening.

Crowd Funding

As the new frontier for game funding, creating a Kickstarter campaign is almost a rite of passage for indie devs now a days. Certainly crowd funding is a fantastic way to raise money as it allows you to raise money without losing any significant amount of control over your company. There are a variety of platforms now a days for crowd funding, Kickstarter and Indiegogo being the most popular. There are also now game specific crowd funding platforms such as Gambitious and others. Running a crowd funding campaign can be considered a science all to itself and is not really the focus of this article.

Suffice to say though, crowd funding requires a certain amount of PR and Marketing acumen and generally for those without the capability or a readily bankable name, the amount you raise will not be very significant.

Angel Investors

When you have a high net worth individual come to you and invest in your company, this is generally called an angel investor. Angel investing was relatively rare during the early days of venturing investing. However, as more and more VCs are moving upstream to invest in more mature startups, angel investing has picked up the slack to fill the void. Angel investors generally invest around $20K – $200K of investments capital in exchange for a small portion of your company.(Though it can be significantly more) Angel investors tend to be people who have experienced success as entrepreneurs or investors themselves and will leverage on their own knowledge and networks to inform their investment decisions.

All Angel Investors have to be accredited investors to be legally allowed to invest. What this means legally is that they must either:

– Have at least $1M in assets, not including their real estate assets, or

– Have an income of at least +200K / year

Venture Capitals (VCs)

If you want gain access to a significant amount of money (i.e. $1M+), VCs are the best way to go. VCs are made up of investment professionals who take other high net worth individual’s money and invest in startups. Each VC will have its own preferred stage of investment / industry / region that it likes to focus on. Finding that fit will be one of the most critical aspects of finding a good VC. Because of the inherent risk of investing in an early stage company, most VCs will not invest in a company that is without traction, and the process of closing a deal can be quite complex / time consuming. (In general, it can take around 3-6 months to close a round with a VC)

Investment Banks

As a good rule of thumb, only established and mature companies can raise money from investment banks. Investment banks generally will not touch any company that isn’t working with at least $100M+ in deal size. For this reason it is not worth it for indies / startups to approach investment banks. Really, if you’re able to raise investments from iBanks, you’re not an indie dev, you’re operating on the same plane as Activision.

While all 5 types of investors can be viable at different stages, for the purpose of this article, we will only be focusing on Angel Investors and VCs.

Who to Court?

Picking the right person to take money from is a lot like dating. You as an entrepreneur have to go out and court the right investor, but also find the right investor for you too. For angel investors, this can simply be a guy who is willing to invest and maybe can be convinced of your vision. This is MUCH harder for VCs. After all, when dealing with VCs, you’re generally talking about a lot more money, involving a lot more individuals. So how should you go about finding the right VC?

Figuring this out is why you need to do your own due diligence on the VCs you’re pitching to. It pays to know who you’re pitching to so you don’t end up wasting your time.

This list of questions is by no means comprehensive, but it will give you a good start on gauging a potential investor:

Does this investor:

– Invest in a company at your stage / size?

– Invest in companies in your industry / space?

– Invest in companies with that return time frame that you are looking at?

– Have a SUCCESSFUL exit with a company like yours?

– Have a general partner(s) who understands your industry lingo?

• If half of the people in the room don’t understand your industry, you’re most likely wasting your time. You want to spend your time educating them on the opportunity, not on the industry.

– Have general partners that you have a good rapport with?

– Have general partners who can get excited by your idea?

– Have people who would make good members on your board?

– Have the capacity to handle the deal? This means three things:

• The bandwidth: If they are already swamped with another deal, they are less likely to pay attention to you

• Have the funds to invest? Obviously, if they’re tapped out, there’s no money to invest

• Have time to invest? Most funds exist for 7 years, with it’s final years focused on exiting deals and making their money back. As a result, a fund that is nearing the end of its life is not a good candidate to ask for a risky investment

An investor who can fill most of these is more likely to be receptive to your idea, and won’t end up wasting your pitch time on explaining. In addition, a VC that matches better with you will also be potentially far more helpful for your company in the long run.

Remember, an investor is not just a piggybank; they are also your partner. Treat them as such and use whatever resources they can provide.

NOTE: When looking at these VCs, don’t just read what is on their website. Look at their actual investment history on websites like crunchbase.com or cbinsights.com for information. A lot of investor websites will claim interest in more sectors / stages just so they don’t miss opportunities, but are more comfortable with certain kinds of companies.

The Pitch and the Pitch Deck

So, you’ve figured out who you want to pitch to, what should you actually say to them? (Suppose that you actually got to meet them… we’ll cover that in a bit)

You have to remember that when pitching to a VC, the ultimate question they are trying to answer is if you and your team will make them any money, which in turn is answered by figuring out if your company will be successful. To this end, VCs generally try to use several indicators to gauge their chances:

– What problem are you solving?

– What is the size of the market for the problem you’re solving

• You need to distinguish between the complete market size (how far you can go) and addressable market (what you can tackle out of the gate). This gives them an idea on how quickly they will see a return on investment.

– Competition in the same space, and how you differentiate

– The product / service

– Any traction you can show currently. This can be in the form of performance metrics such as sign-on numbers, etc.

– Bios on your team

• Remember, they are not investing in just you; they are investing in your team. A lone wolf is too high of a risk!

– Financial projections

• In the seed stage, this is generally limited to just revenue, expenditure, and profits.

• It is completely expected that what you put here is nothing but pure fiction. What they are looking for here is not an attempt to test how well you can tell the future, but an indication on what kind of assumptions you’re making about your performances.

• For this reason, it is prudent to be conservative in your estimates, and flexible in your modeling so you can respond to changes.

The Winning Pitch: What are Investors looking for?

When investors look at your slide deck, they will be looking for some fairly specific things:

Strong Traction

Of all the factors that are out there, this is the most critical one of all. The more you have to show for it, the better. So what is traction? To borrow the definition from the Neighborhood Entrepreneur blog

“Traction indirectly refers to how well a startup is getting general market validation of its business proposition and proving out its business concept. Put another way, we could merely say that traction is a measure of how well your startup is progressing. Refining this a little further and honing in on a working definition, we could say more specifically that traction is a measure of how well a startup is delivering its business model and how well its target demographic is accepting that business model. Traction is also a line of demarcation — it marks the transition point from idea discovery or ideation to customer acquisition and validation.”

~The Neighborhood Entrepreneur

This definition seems awfully vague in some places, and that is intentional. Traction is a very general concept because it can differ from business to business. The critical factor here is that you’re showing that the market is indeed interested in what you’re selling.

Now having said that, there are a certain number of things that are fairly common when it comes to showing traction:

• Revenue

• Sales Volume

• High Profile Customer (especially if you’re a B2B)

• Number of views

• Number of players / users

• Customer engagement

• Recurring users

You will notice that all of them will allow you to draw financial implications in some way. Again, this is deliberate. Eyeball views, while valuable, does not always directly convert over into revenue. (Facebook can attest to that) Obviously, in certain cases this is not feasible, especially when your product requires more development time before monetization. In these cases, you need to show indicators of future growth.

Traditionally, a lot of startups use IP or patents to show how defensible their market is. In today’s world, both of those mean really very little (unless you have a huge legal team to go with it). In today’s world, traction is the new IP.

So, what specifically, would serve as suitable traction in the gaming industry? With content creators (who are, by the way, generally not suitable candidates for investors), the only metric that matters to investors other than actual revenue is user base size, and some ability to convert players into paying users. This, by the way, does not have to be on a single game / product. In fact, in the eyes of the investor, a gaming company with a portfolio will be a safer bet than a single product company every single time. While it is entirely possible to achieve critical success on just a single game (certainly CCP games of EVE Online has done it), in general the risk profile for a single game is way too high for most investor appetite.

Indication of a strong team

Your business vision will change over time. Maybe your game genre is no longer profitable; maybe you’ve discovered a competency within your company that can serve the gaming community in a different way (i.e. Tapjoy went from content maker to cross marketer); or maybe you just don’t like the way your company is moving. Change is an inevitability that you can’t avoid. A bad team will not survive the pivot while a good team will find a way to make the reality work with their vision no matter what. It is for this reason that a strong team is critical.

So what makes a strong team? Previous experience either in the industry you’re operating in, or as a previous entrepreneur helps. (It is good to have both in your team) If you’re the CEO, past experience in bringing a company from no revenue to a successful IPO is a huge boon. If you’re the technology guy, previous experience actually developing and deploying whatever it is you’re building is critical. The important thing here is your profile needs to match and complement each other. (As opposed to overlapping)

The key here is that you need to show that your team gives you all the skill sets you need to successfully grow the company. So, for example, if you’re making a freemium game, you BETTER have someone on your team who knows how to do customer conversion like a champ. If you’re making a tool for game devs, then you better have someone who is intimately involved in the game dev community. And of course, all teams will need a good production guy. (Hey, I said don’t over focus on production, not ignore it)

Team chemistry is also incredibly important. This is why teammates who have worked together prior are viewed more favorably as the team structure is a proven variable.

Size is also important. The more team members you have, the more you can do but also the harder it is for a company to move quickly and the more your overhead will be. In general, a team of 2-3 are the most common configuration. The exact optimal point is really dependent upon the team’s chemistry.

Another element that is also quite important but often overlooked is your coachability. Coachability, in this case, is an indication of how receptive you are to advice and how well you can integrate the knowledge/resources of your advisory board. Someone who is stubborn or arrogant will be less likely to correct the course of the company when it goes off track and it is often not uncommon for investors to feel that the entrepreneur has become his own greatest enemy. A little bit of humility can go a long way.

Caveat to the above: if you’re Steve Jobs’ zombie or Larry Page, feel free to be the stubborn visionary all you want.

Big growth potential

The ultimate goal of every VC is to fund the next Google / Microsoft, and in order to do that, they need to know what the limits for your company’s growth are. This is why they ask you the size of the entire market. For content producers, just pointing to the total gamer market is not very helpful, as anyone who knows anything about this market will know that there is no conceivable way you can hit every segment.

Warning: do not purposely over estimate the market size! First of all, if you blow it too much out of proportion, the investors will know and that will hurt your credibility. More importantly, it will impact how you run your business. Nothing sucks more than finding out that you can’t fit into your britches. When estimating your market size, always be mindful of what configuration your company will take on, and what your actual value proposition is.

Viable Addressable Market

So we know how big the whole pie can look, but before you get there, you need to first conquer one market segment at a time. Pie in the sky is great to shape vision, but your first goal is surviving out of the gate, so be realistic about what you can get out of the gate, and have a plan on how you tackle those out of the gate. Focus on the low hanging fruits: how easy is it for you to get up and running? How many players will you be sharing the market with in this initial space? You want it to be as few as possible. Chances are, if the market you’re looking at is viable at all, you WILL have competition, however many that might be. Show us how you can beat them or skirt around them.

However, if you cannot come up with a single competitor, that’s not good either. If you have no competition what so ever, it means that it is an unproven market. That is not necessarily mean you’ll fail, but it does beg the question why no one else has done it yet. If you can’t find a SINGLE competitor in your space, chances are that you’re not looking wide enough or your market is too small / esoteric to begin with. Don’t get me wrong, it is entirely possible that you actually managed to identify a blue ocean, but the odds tend to be stacked against you there. If you have indeed discovered a blue ocean market, proving it will be critical to getting investors on board.

Again, within the gaming world, content producers are at a severe disadvantage.

Resource / Competency Fit

Not all investors are a good fit. You want someone who can sign a check, but also someone who can help find good strategic partners, put you in front of potential customers, and can help you access more funds. The most valuable thing an investor can give you (other than money) is their knowledge and their rolodex.

So what happens if I’m missing some of these components?

Let’s be clear here. You are human, and so you won’t be able to do everything. The investors understand this. You don’t need to be perfect, but you need to know what your limitations are, and what kinds of things you can do to help manage them! Obviously, the more ground your team can cover the better. However if you’re missing one or two things in the equation, it is not the end of the world. The VCs, in some cases, can actually help you with these shortcomings. This is one of the important reasons why they do diligence in the first place. The key though, is to make sure that the VCs have the capacity to fill that gap if you can’t.

Why gaming companies generally do not have investor capital

Before we move on, there is one thing that needs to be made very clear: gaming companies are generally a harder sale for investors than other tech companies. There are a lot of reasons for this, many of them can be entirely self-inflicted by the entrepreneur. To understand this, we generally need to consider the common types of gaming companies:

– Publishers

– Services (Testing Labs, platform hosting, etc)

– Hardware / system construction

– Content Producers / Studios

Different types of companies will have different risk profiles and different success factors. However, by in large most startups in the gaming space will be content producers. And most of them are simply not suitable for investor capital. The most common reasons are the following:

Unclear Addressable Market / Differentiation

By in large, this is one of the common problems for gaming startups. We need to first understand that most investors are not gamers, and do not understand what the significance is of say, an FPS vs. an RTS. Genre differentiation is a handy way of differentiating one game from another, but it is not sufficient for an investor since at the end of the day, an FPS is still competing with an RTS for eyeball time in front of the computer screen. (Or mobile game, as the case may be) To most investors, this lack of proper market differentiation speaks to an inability for the entrepreneur to really segment the market in meaningful ways. This inability to clearly pick out a market to move into can lead to the second problem:

Too many competitors / too much noise

Let’s be clear, there are LOTS of game devs out there. Let’s take the mobile gaming space as an example. There are probably at least half a dozen new games on the iOS store every day, all coming from different studios. There are around 600 million iOS devices sold to date, and we can assume about 70% of them will play games. That’s 420 million gamers. Currently, the iOS has around 150K active games available for download. So even if you were to split the gamers evenly across all games, we’re looking at an average of 2800 players per game. That’s a miniscule number by comparison. While in reality you won’t be splitting player bases like this, it shows how crowded this space really is from just this simple perspective.

The bad news is that there is NOTHING an indie dev can do about this, as this is a macro condition. The only thing you really can do, if you’re a content producer, is to find a better way to segment your market and really show what makes you different from the other guys.

Too much product focus / Weak overall execution skills

This is an issue that doesn’t just plague game makers, but all tech industry startups in some way. Many entrepreneurs are primarily engineers / technical personnel / research / developers, and those are the primary verticals they think in. As a result, a lot of entrepreneurs will spend too much time on just developing their product and neglect to make sure they have the ability to sell, to reach out to players, to get feedback, and just in general operate a business.

Problematic business model

This goes hand in hand with #3. It’s not just about WHAT you sell, HOW you sell it makes a difference. In the gaming world, there is several basic business models, not all of them will be suitable to what you’re selling. Understanding the strengths and weaknesses of each one, and executing on the one that is most suitable to you is incredibly important.

High Risk profile

Let’s be clear here, gaming is an entertainment media business, and media products tend to have really short consumption cycles. In the context of game content, having something that lasts more than 6 months is damn near phenomenal in this day and age. What this means is that the game you have spent the past year making might not have a shelf life that will last it for more than several months. This translates into unstable revenue generation, which presents a HUGE risk for investors. For game content creators, the cure for this is to focus on the portfolio of products rather than a single one, and trying to focus on increasing the long term value of your existing customers instead of focusing on quick cash grabs.

The Process of a Pitch: from meeting them to getting into the room to closing

We’ve talked a lot about the “what” and the “who” of raising money, but we haven’t really looked at the “how” yet. Indeed, the actual pitch itself might even be the easiest part. So what exactly do you need to get through the pitch process? Well, unlike Shark Tank’s 15 minute pitch, there is an actual process in place that can take around 3-6 months.

The general anatomy is broken down into the following phases:

– Meeting the Investors

– Getting the Pitch

– Pitching, and relationship building

– Due Diligence

– Terms Negotiation

– Deal Close

Meeting the Investors

You got your pitch deck, you got your team, you’ve figured out who to pitch to, now you need to make contact. It might seem really tempting to just email your slide deck to your investor of choice, but you must resist that temptation! VCs get hundreds of pitches in their mail box all the time, and they have almost no way of going through all them with any level of detail at all. Doing that is like trying to apply for a job through an online ad.

So what do they do? Often they will call up someone in their own circles ask if anyone knows who you are. If you get a warm referral from someone, they’re that much more likely to at least give you a shot. This is why the first thing you SHOULD be doing is actually building a relationship with your prospective investor. The first step should not be to overwhelm them with all the details of your startup, but rather it should be to get to know the people in the VC and the way decisions get made in that startup.

That’s right, you got to network. (And really, it’s a good skill to develop, entrepreneur or not)

The question is where should you go then? Anywhere where entrepreneurs and investors may lurk is good. Your local IGDA chapter events can be a good start and will help you connect with other game dev entrepreneurs on what your issues are. Tech Meetups are also good places to meet would be investors. Another fantastic venue is VC events such as MAVA (Mid-Atlantic Venture Association) held events like TechBuzz, and Capital Connection. However, one of the best places to meet a potential investor is probably through an accelerator programs / incubator programs. In these places, you go through true trial by fire where they test out your business concepts and give feedback. Many of those who work at incubators tend to have connections in the VC world, and by performing well within the program, you gain a valuable positive referral.

The Pitch Itself

There are three levels of pitching, the elevator pitch, the 5 minute chat, and the deep dive. Depending upon where you are in the pitching process, you will need to prepare a pitch at the proper level. (Of course, you will eventually need to do all three)

Some general tips when doing the actual pitch:

– The Suspension Bridge Principle: Think of your overall story as a bridge. You need to guide your audience across it, and along the way, each section will need its own support. Some people will just want to drive across without too much thought. Some will want to look over the edge. Some might want to climb down the sides, and take a look at the actual nuts and bolts that holds the support beams together. Learn to accommodate all of this.

– Always prepare more information than you need. The average McKinsey presentation can run over 100 slides, knowing that the consultant will probably only get 2-3 slides before the meeting has to be called. You don’t need to ACTUALLY prepare 100 slides, but you need to have a real answer to support your claims.

– Always be cognizant of other people’s time. Time is literally the most valuable commodity these people have on their hands, and your ability to make every second count is one of the most important aspects to a good pitch

– Every person in that room will have different priorities. Some will care about the margins; some will care a lot more about the management team, etc. Figuring out what it is they are most concerned about will help you use your time with them more effectively. Unfortunately, there is no shortcut to this except learning to read the people sitting at the table. For this reason, you need to be flexible on how your pitch shifts.

– Do not be too secretive. There is literally no upside to this. While you might not want to give away your patented secret formula, showing transparency shows trust and helps build the relationship. Remember, you’re there win allies, so treat them like it.

The Elevator Pitch

You walk into an elevator with an investor, and after a brief intro, said investor asks what your company does. You have 30 seconds to tell him and get his card for future conversations. What do you say? In this scenario, you don’t have time to lay the ground work and the background. You need to hit up all the high points of why your game/product is going to deliver. Don’t tell me about ROIs or competitive cost structure (unless competitive cost structure is THE key value proposition), tell me about the basic premise. Tell me about the problem, the value proposition, and the solution you bring. With 30 seconds, that’s all you can reasonably squeeze in.

The 5 minute pitch

There are two variations of the 5 minute pitch.

One is where you get the ear of someone who is willing to listen, and you got 5 minutes to get things across. This is generally like the elevator pitch, but now you can talk more about market size, competition, and cost structure. This can easily, depending upon how the conversation goes, turn into a 30 minute talk.

The second variation is the event pitch. In most fund raising events such as Capital Connection and the like, a company that chooses to present there will get a 3-7 minute presentation using a slide deck. In this particular forum, there are generally no Q&A sessions, just rapid fire presentations.

The Deep Dive

In general, your first meeting with an investor will be of this type. In these presentations, you generally are expected to do a 30 minute or so presentation that details all the basic parts of your business plan. This differs greatly from the other pitches before in that in prior ones, the listener will let you finish your pitch. Here, it is almost guaranteed that you’re going to get interrupted, due to a variety of factors. (Time generally being the most common) It is for this reason you need to know what parts you absolutely need to get across, and what parts can you jettison for later discussion. It is also here you need to show how well you can pivot your presentation to focus on the parts that the investor cares about.

Tips When Putting Together Your Deck

Do not focus too much on your game / tech

This is incredibly common for a lot of indie devs. They focus on the game production so much that they do not think about anything else. This is highly problematic for investors as the game is only the product, not the entire business. Focusing too much on the game can cause you to over engineer your product, and waste valuable resources that could have gone to growing other vital areas of your business. For an example of this, look at the development history of Retro/Grade. The makers of the game spent almost 4 years making it, and it’s a GREAT product, but ended up with incredibly poor performance as a result of over engineering and not enough focus on growth. You have to remember that you are not just an artist who makes works of art. You’re also a business person now, and so you need to think like one. And a business is not just a single product.

“If You Build It, They Will Come.” No, they won’t.

I like Kevin Costner, but when it comes to business, I would not follow his advice. Getting distribution to happen takes time. Ask any business development entrepreneur and they will give you a very sobering tale of those early days where they had to make thousands of phone calls just to get a few more units of sales. The same goes for games. As a media product, discovery and conversion will be your highest goal. Always assume that you will have to dedicated a large portion of time to just growing your market.

Do: Show traction!

I know this sounds repetitive, but it bears repeating. Traction is probably one of the most important things you can do to convince investors that you know what you’re doing. After all, nothing speaks louder than results. To this end, show them your milestones, your prototypes, your current revenue generation, your partnerships, etc.

Due Diligence

If your initial pitch is successful, then usually what follows are several rounds of due diligence. This is where the investor will start spending time verifying your claims and validating your numbers. In the early stage companies, most of this will be spent on talking to previous colleagues, old/existing customers, consulting market data from credible sources, etc.

Terms Negotiation

You made your pitch, your numbers look good, you’ve spent the last 2-3 months talking to analysts doing due diligence on your company, and have managed to produce a 100 page report on every brick and mortar that your company is built on. It’s time for to manage the deal itself.

First of all, understand that there is no such thing as a standard deal. While you can certainly characterize certain items as fairly common (such as the usage of preferred shares), there is no such thing as a standardized deal. Every deal with have its own unique needs. So while it is okay to start the conversation off of a template sheet (i.e.SeriesSeed.com has some templates for seed stage equity raise), as you move forward you will need to start modifying the terms to best suit your situation.

The deal (summarized in the term sheet) is concerned with two things: How much money to give and how much control to get in return. Those are the primary concerns. Everything else, while important, is really just there to manage the details of those two concerns.

Term sheets are not, by the way, legally binding documents. They are considered letters of intent, and have no legal binding power in court. The actual anatomy of the term sheet and what each term means can become incredibly complex and given that there are a lot of good books on the topic, I won’t be going into detail here.

A word of caution on the negotiation itself: always remember that at the end of the day, you’re looking for a partner, not a one-time sale. Think of it as a pre-nuptial agreement between couples. The agreement is there to protect the parties and strengthen the partnership, not to screw each other out of your assets. Trying to drive a hard bargain can damage the relationship and if done too much can cause the other party to just withdraw from the table.

Conversely, do not be afraid to walk away from a bad deal, even if it means walking away at the 11th hour. Sometimes, the differences between the parties will be too great, and sometimes, the investor might not be dealing in good faith, and are try to take advantage of you. While not common with reputable investors, it does happen. Yes, you have worked really hard to get to this point. No, it does not mean you should take a deal that genuinely bad for you. Remember, this is supposed to be a partnership, and both parties need to be able to share the risk in an equitable fashion.

As you can see, going through all of this can be incredibly confusing. This is why you should never approach this without a good legal counselor. Term sheets can be fairly straight forward, but the legal contract and the exact processes can be very complex. An inexperienced legal counsel can make mistakes that will be difficult to fix later on by focusing on the wrong items. There are a lot of larger size law firms such as Cooley LLP and such that take on startup companies. In these cases, you are selling to them as they are selling to you. Getting good support from legal counselor will make the deal closing procedures go a lot smoother, so do lean on them for assistance.

Conclusion

Being an entrepreneur is not easy, and the process can sometimes seem very challenging when looking at it from the outside. This is especially so for game companies. However, like all things, the key is to find a way to break it all down into its smallest component. I hope that this guide has been useful in at least helping you understand the basics of the investment world itself.