The Alphabet Soup
During my time at University, I learned about the ‘Alphabet Soup’, a term entrepreneurs use to define the array of various start-up supports in the form of grants, loans, incubation schemes and everything in between.
The reason why it’s called the ‘Alphabet Soup’ is because of the sheer volume of different supports with different acronyms, making it as hard as possible for a wily entrepreneur to find the support which is relevant to them.
After all, even once you find out the difference between the DF, AMPF, BIF, and PTF, they’re all completely different funding schemes with different criteria and benefits, so where do you begin?
Personal loans are exactly that, personal. You as an individual get all the money, but you also individually harbour the risk and responsibility to pay it back even if your business fails. You can get a loan from a bank, an overdraft and borrow through credit cards, at various and sometimes steep rates of interest.
To address this, the government has recently helped launch the ‘Start-Up Loan’ fund, chaired by entrepreneur James Caan and backed by Lord Young of Graffham to help make personal loans to young entrepreneurs more accessible.
To me, this seems like quite a viable option for all those small indie start-ups out there, as it clearly supports one-man bands. But if you also have multiple people in your team you can each apply for a loan (the payback rate is five years at 6 per cent) giving you ample amounts of start-up cash. One of the best aspects is that the funding can be granted weeks or even days after application.
Business banking loans
Most start-up business loans from banks start at around 8 per cent interest over multiple years, and you need to have formed a company to apply for one.
Applying for one is not as easy as you might think, you need a solid formal business plan and financial model with realistic projections to even be considered, and the bank has other criteria based on things such as credit history, what sector you’re in and whether you have any securities like a house to pay the loan back.
For game companies, this option would probably be best for small teams who have recently left other studios to ‘go it alone’, or perhaps teams of students who want to create their own business.
Spreading the risk of a larger loan over several people’s contributions can be more appealing and because business loans are for limited companies you are not personally responsible for paying the debt. You also don’t have to sacrifice a percentage of the company, unlike equity funding.
Soft loans and grants
Soft loans to me are the most appealing source of funding, and could perhaps be the holy grail of financial options for your start-up. The great thing about them is that you don’t necessarily have to pay back the loan if your project is not successful.
The downside is that these sources of funding are hard to find, often have very specific criteria (e.g. only available to some regions or sectors, only for certain types of products) and competition for them is extremely fierce.
An example of this for game companies is the Abertay Prototype fund, a soft loan of £25,000 to contribute to the wage payments of an interactive digital product.
Grants are like soft loans except you don’t have to pay the money back at all, even if you’re successful. They are normally given out by the government to support a particular sector or national or regional need.
Government bodies which offer grants include the Department for Business, Innovation and Skills and the Department for Employment and Learning.
For example the Business Investment Fund from Creative England has already provided hundreds of thousands in grants to digital businesses across the UK through funding from the Department of Business, Innovation and Skills.
Again, finding and securing these sources of funding is exceptionally hard due to specific criteria and heavy competition, and there is not as much visibility on them as you might think to make you aware of them.
Angel and VC support
This is a source of funding which is a fine art, a mystery, and very subjective sometimes. For example, London, (and ‘Silicon Roundabout’ specifically) is supposed to be a hotbed for tech angels and venture capitalists (VCs).
However at a recent angel and VC networking event at Google Campus London which I attended, the guest speakers (Angels and VCs themselves) explicitly told the audience that there were only around 40 of themselves in the region operating in the software sector, and of those only around ten were available or were currently not fully invested in other companies. Wow.
So considering that game companies only make up a part of the wider section of software development, how useful are angels and VCs to the average indie start-up in their first two years, regardless of if they’re working out of their bedrooms or if they’re a larger team of industry veterans breaking free of the corporate sector?
In my opinion, not that useful unless you have some kind of world beating technology or one of them is a close personal friend.
Angels and VCs are also not typically interested in companies less than a year or two old, so they’re generally more helpful later on and not normally used as ‘seed’ funding.
The advantage of this method though is that there is no interest on the investment and the risk is shared through equity, unlike a bank, although you do have to pay them reward in the form of ‘dividends’ if you are successful.
These can be regional, national and international, and form a hefty bulk of the ‘Alphabet Soup’. Equity schemes are where you give up a percentage of your company in exchange for support, either financial or physical e.g. mentoring and incubation.
It basically runs like angel funding except it is run as a scheme, often by an organisation, so more businesses can apply and the funding is more publicly known. They can be government funded or private.
The main advantage of this type of support is that you can gather resources quickly at no up-front cost, although you have to sacrifice a small portion of your business (normally around 10 per cent).
Private examples include Game Accelerator in Estonia, which offers various supports to international games start-ups, and government supported funds include the Global Accelerator Fund in Sheffield.
Well, that Kickstarter bubble for games burst pretty quickly didn’t it? Now I’m not saying that Kickstarter is not an option, but it does seem like you need to have significant momentum behind you in terms of market presence to be really successful on the site these days. So how useful is the platform to most game start-ups in their very early lives in the UK?
Realistically, in my opinion, the typical (i.e. not having famous staff members) start-ups could get a few (possibly several) thousand pounds worth of investment to begin their project if they executed their campaign well enough, so it’s still a viable option.
However the novelty of ‘I have a game idea, I’m going to get tens of thousands in funding by default’ seems to have long since left us.
Crowdfunding in general is still a support option, but as a relatively young method it is quite hard to pin down the advantages and disadvantages specifically yet, and only time will shed a more accurate light on them.
Incubation and Mentoring
This is a tricky topic. Are we talking ‘free’ incubation which most true start-ups need in the first six months or so of their lives, or are we talking ‘discounted’ rates at a tech hub for hot desking?
Obviously the free incubation is the most appealing and useful, regardless of how old your company is, however free spaces are few and far between. Abertay University and Birmingham Science Park offer free incubation to some start-ups based on certain principles, as do some other universities, especially if you’re an alumni.
For the more readily available ‘discounted’ incubation a quick Google search for your desired start-up locale should provide you with options from local colleges, universities and other government-owned or supported office buildings. For example Tech Hub, City University, Ravensbourne College and the Knowledge Dock Business Centre in London all offer various rates and conditions for incubation.
Mentoring is offered at incubation hubs, but you can also find an industry mentor less formally at networking events or at academic institutions. Gaining knowledge this way is absolutely invaluable, and although you can’t tangibly measure this source of advice compared to say, financial support, I would recommend finding a mentor, whether it be an old lecturer or boss who is an industry veteran, or someone you simply meet on the off-chance.
If you’re an entrepreneur starting your company, you’re always thinking ‘what can I get for free’. And if you’re not then you should be. ‘Freesourcing’, as this stance is more formally known, is a term coined by Jonathan Yates in his book titled ‘Freesourcing: How To Start A Business With No Money’. There really aren’t many downsides to this method of support apart from that it takes time and effort to find these great offers, but I have a few for you.
The Microsoft BizSpark programme offers free software to start-ups worth tens of thousands of pounds, including Visual Studio and Office.
Another example is Freecycle. Need a chair for your office or bedroom studio? How about a desk? A computer? A printer? Simply go to Freecycle’s UK website, where people post up adverts of items they don’t want any more, and simply offer to take it off their hands!
For more examples of freesourcing, you can read the Freesourcing book. It’s not free (typical) but it does help you obtain free assets for your business.