On Different Capital Sources For Gaming Devs

As you might have guessed, different capital have vastly different characteristics and are more fitted for different needs. You can generally look at your fund sources in 6 different categories: FFF, iBanks, Publishers, 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 a mature company.

Publishers

In general, it is not recommended to get your first tranche of funds from publishers for the same reason other non-game startups don’t want to a strategic investor too early in your raise: control. A strategic investor too early in the game can force the dev into decisions that only benefit the strategic investor and push out the other potential investors. In addition, generally the terms that publishers will give an early stage startup are incredibly one-sided, making the game dev take on most of the risk while reaping all of the benefits. This is not to say that publishers do not serve a purpose. Publishers are primarily useful for 4 things: their money, their rolodex, their distribution power, and most importantly, their patience. Most investors tend to be on a rather tight time table when it comes to their ability to sit and wait for things to happen, where as the gaming world usually needs a long term partner to be part of the team for support. By virtue of having all of the commercial pieces need to hedge a lot of the risks inherent in an early stage, publishers are generally in a better place as operation partners.