As part of the research for our recently released sources of UK games finance guide for TIGA and Google, we interviewed a wide range of funders and funding facilitators.
Several of our questions prompted some very practical advice on how UK games companies should – and should not – solicit for funding. Their advice was genuinely useful so this month I want to highlight and expand on the three most common themes.
TEAM > PROJECT
Many studios make the erroneous assumption that it is the dazzling quality of their game in development that will secure them funding. While acknowledging that the originality and commercial potential of any software in development plays a role, it is the quality of the team that is of paramount importance for funders.
As games angel investor Chris Lee points out: “I tend to think a lot less about the projects and almost exclusively about the team,” a point on which games VC London Venture Partners’ David Lau-Kee agrees: “It’s all about a rounded, business-driven team.”
These sorts of experienced games industry equity investors are investing with a long-term view. They aren’t necessarily expecting the first game to be a success and so need to have confidence that the team has the skills and drive to adapt, sometimes to outright failure, and persevere, even if it means taking the company in a radically different direction – scenarios experienced by many of the largest developers such as Supercell, Kabam and King.
KNOW YOUR MARKET
Another common theme was the importance of applicants being able to demonstrate not just a clear market opportunity for their company but also a detailed understanding of this opportunity. Again, this goes beyond the virtues of a single product.
“I need to be excited about the genre vertical and believe there is an opportunity to capture market share or even dominate a sector. I don’t bet on a specific project to achieve that,” Lee explains.
In addition is the need for a sophisticated understanding of the opportunity, i.e. the dynamics of the sector being entered, the competition, the target audience and the strategy being employed to exploit the opportunity. Games project finance specialist Standfast Interactive’s Enda Carey highlights one of the biggest problems it faces.
“Despite the fact [our funding] gives them the ability to self publish, most developers don’t know where to start,” he states.
The third major theme was the importance of preparation by funding applicants. Equity crowdfunding platform Crowdcube’s Luke Lang sums it up: “Preparation is vital for success so it is frustrating when people don’t think things through or put the effort in.”
Carey advises companies seeking funding to prepare “like they would with a job interview – understand the company they are dealing with.” For Standfast’s project finance model, the other major funding hurdle is when “developers don’t understand our model and equate it to a publisher deal looking for signature payments and an inflated man month cost”.
For early stage equity investment, a common mistake is to assume that investors are after a comprehensive business plan. For LVP, the ideal is an “outline deck” which “describes a fresh take, illustrates a clear understanding about how to move the needle, how/when to scale, shows ambition and drive, and gives us a sense that this is (or will be) a fully-rounded company”.
Interestingly, the provision of detailed forecasts and potential investment return details as part of the funding pitch did not rank particularly highly for the angel and venture capital investors.
Most investors know that, for start-ups at least, such forecasts are pretty meaningless. In fact, forecasting huge growth rates, returns and investment multiples is “likely to put angels off” according to Chris Lee.
Being able to demonstrate an understanding of the business models employed and potential exit scenarios for the company, and not being unrealistic with financial forecasts, is usually sufficient.
Given that TIGA, in a separate survey, found that 61 per cent of UK studios had unsuccessfully sought third-party financing in the previous three years, this could be useful advice. For a detailed look at all the available options for raising finance for games, download our report for free at bit.ly/1kvDPJC.