Follow Simple Lifeforms

• RSS
• Email
• FriendFeed
• Twitter
• MySpace
• Facebook

Startup Diary – Fund Raising for a Video Game Company

Posted by Alan O'Dea | Jul 10, 2009 | Filed under Simple Lifeforms, Startup Diary

Setting up a company is always tough but has been made even more difficult for Simple Lifeforms because of two factors. One is obviously the current financial market which is truly terrible for all start-ups and continues to be so and the second is the fact we decided to make Social Games which is an entirely new games sector which a lot of investors really don’t know anything about yet. So for this start up diary I wanted to talk about the good, bad and ugly of fund raising for a games company as the biggest financial bomb in living memory blew up the investment market.

Not much is talked about fund raising for Video Game companies. The simple reason is not that many video game companies choose to raise external investment. Most video game companies choose the easier route of obtaining publishing funding to develop games. This has many pros and cons (far too many to be detailed in this post) but generally means that the publisher will ask for complete ownership of the games that they finance (completely reasonable) with the main effect the game company doesn’t own the games they make which naturally means they don’t get to reap the biggest financial rewards if the game is successful. This type of funding is more relevant to the big multi-million dollar online and console games and not the types of games we wanted to make.

It also wasn’t the right time or place to be courting publishers to the opportunities of the Social Games market as they themselves were facing massive financial uncertainty due to the financial crisis and every single one of them was shedding market capitalisation like it was going out of style. Not a good time for those guys you’ll have to agree.

When we started Simple Lifeforms our main objectives were;

• Self Funded – We had a lot of games we wanted to make and it was very important for us to be in complete control of the games we made.
• Self Published – We wanted to give our players the best experience possible this meant we absolutely had to publish our own games and making sure we managed customer support, feedback, billing, websites, marketing and PR for our fans.
• Publisher – We wanted to become a publisher ourselves and use what we already knew as developers and publishers and what we were going to learn about social games to help other companies make better social games.

So with these objectives in mind we had only one choice in front of us. We had to go and raise money to fund our ambitious plans. This didn’t seem that daunting. When we started planning Simple Lifeforms Tadhg and I both had very senior roles in the games industry and funding for games companies had been at an all time high (See: $1.7 Billion Invested into Online Games).  So whilst we thought the task was going to be hard we certainly didn’t imagine it wasn’t going to be as hard as it turned out to be.

There’s a huge difference between creating a game company that needs outside investment compared to a company that works for publishers. Some of the key differences and the things we have learned throughout the process are as follows.

Business Plan

Finding investors meant that the first thing we had to do was write a business plan. I’m not going to go into how to write a business plan for a games company as that’s an ENTIRLY different conversation but rest assured it’s hard, time consuming, soul destroying, exhilarating, humiliating but immeasurably worthwhile.

Be prepared to rewrite your plan several times and quite extensively, adapting it to feedback from investors, comments from advisors or to react to  major competitor, market or industry activity. I have always found that the most import thing you do with your business plan is get as much critical feedback as possible from people you trust first before you place it in the hands of investors.

Your business plan is something that gives investors a critical first impression and overview of your business and is being circulated to people who are spoilt for choice for investment opportunities. To stand out from the crowd you should actively seek critical feedback. Ask people to be very tough and critical in their feedback as that is really the only way that your plan, your assumptions and your ideas will get better.

Help and Support

When you’re setting up a company to obtain funding a lot of success will rest on the quality of your team, your business plan, your passion, choice of market, core idea, product(s) and most importantly finding people that are willing to invest in your business. That you will agree is a lot of things to get right ever before people will review your plan and hand over their hard earned money to bet on you, your team and your ideas.

An instinct you will have to fight is to believe that because you have expertise in your chosen area and have worked at a senior level in your industry that you have to do everything yourself and also that you have all the skills necessary to do it yourself. That instinct is both dangerously wrong and hard to fight. When setting up a new business the first thing I would advise is creating a list of people who can help you plan the business. This list should include potential mentors, advisors, investors and people that have expertise in areas that can help your business.

When we set up Simple Lifeforms the first person I contacted was Paul Jenkinson of Connect Midlands. Connect Midlands is an investment readiness program based in the East Midlands. The programme takes you through the entire process of planning a business and will help you create a business plan and then pitch and fine tune that pitch in front of real investors. This process is invaluable and its extraordinary good value for money. Paul is a great guy and he started the process by providing me with a business mentor. My business mentor became my first investor so there was a lot of value in starting the process this way for us. Through the connect midlands process we created our first business plan and investor pitch and with the feedback we received pitching to real investors we secured our initial funding from local angels and the regional screen agency EM-Media.

EM-Media invest in lots of media projects and companies and they have been a great supporter of video games. Most of the UK screen agencies provide some sort of funding for video game companies and projects so it’s well worth approaching them if you’re looking to fund a games company.

Fund Raising

Fund raising is that much harder now but expect some of the following to apply to your quest to find money to start and grow your business

Less Money

Expect to raise much less money at start-up than you imagine you’ll want, need or expect. When we started the business we were planning to raise between £500K and £1 million to fund a fully formed development studio, a portfolio of games, a big marketing budget, top shelf development team and enough resources to make large scale strategic moves into the social games industry. If we had started the business in 2008 or before that would have been both possible and realistic but absolutely no one is putting that sort of money into start-ups and that’s not going to change in the short to medium term.

Smaller Valuations

Expect to be hammered on your company valuation. The time for getting high company valuations based just on the quality of your business plan, team and idea are gone. Your company valuation will be a fraction of what it was pre financial crisis. You will have to accept that people will simply not value your business anyway near what you expect unless you are already in market, have users and are generating revenue. If you are the very early stage and have no product or market traction you will simple not get an investor to commit to a high valuation.

Investor Material

Your investor material will have to be at an even higher level of quality than normal. It is really competitive environment with a lot of excellent companies, teams and ideas pitching a smaller group of investors with less money to invest. Expect to spend a great deal more time on writing business plan, pitches, researching your market, reassessing your ideas, developing a working prototype and doing much more with less money and resources to stand out from the crowed. This is actually a great opportunity for new businesses. If you can manage to get all this material right, your business will be much better off in the long run.

Team

Many people have used the financial crisis as an opportunity to form new businesses or find opportunities to grow in the market gaps that have been created in the turmoil. You will be in competition with these companies that have excellent teams, ideas and products. It is important to get the right team for your start-up. A modern game company can use the best technology, media, creative and business ideas to capture global market opportunity. Investors invest in businesses they won’t really care that much about your game so make sure your team has strong financial, business and marketing skills or advisors (these can be part time) that will be able to run or advise you on running those essential parts of the business.

The greatest single lesson I can share is that your team is by far the most important component of planning and running your business and getting funded. If you get the team right you will have people that can help you plan the business, prepare your investor material, help you find investors and support you when things are tough. 

Progress, Progress, Progress

So assume you will raise less money, the money you raise will be at a much lower valuation that your want and that you’ll be expected to perform miracles with the money you do raise. Now I relish challenges so this is actually the fun part of the job for me. I love having little or nothing and finding creative solutions to problems and still being able to achieve great things. In fact most video game companies don’t have a lot of money anyway so you learn to do a lot with a little. But you have a really tough challenge ahead of you. Investors will expect a working product, paying customers and a scalable business model before they will even consider parting with any of their money so you will have to find very creative ways to reduce costs, develop products, build a team and prove your business idea with little or no money before you will be taken seriously and that is a very hard thing to do.

blog comments powered by Disqus