Ella Romanos • May 13, 2014
Over the last few years, we have seen a transition from developers relying on large publishers to fund, market and distribute their games, to a model where they can be more in control of the process. However this doesn’t mean that developers can necessarily do it all alone. Increasingly discoverability has become a challenge, and budgets have gone up as the quality bar on newer platforms has increased, meaning that organisations that can help with funding, marketing and distribution are as important as they were previously. The difference now though is that there are a lot more options for developers, and signing with a publisher who handles the entire process is only one of many options and (arguably) often not the best one.
On one hand this is great for developers as it puts them more in the driving seat, and gives them more control over their fate, but on the other hand, navigating through the options is a time consuming and challenging process.
This article looks at three options for funding that are being used by developers at the moment.
There have been an increasing number of opportunities for public funding that are available for game developers and studios.
Some of these directly fund game development, whilst others are funding for your company. Most come with requirements for match funding from 30% upwards, and all come with, at minimum, a fairly substantial amount of paperwork and boxes to tick.
A lot of this funding, particularly funding that allows direct investment into development, comes from the EU, in particular the ERDF (European Regional Development Fund). This fund is the reason why London and South East developers are often excluded from funding, because the fund is largely focused on assisting companies in areas identified as needing help with regional growth, defined largely as areas where raising private funding is more difficult. Usually you won’t know the money is from the ERDF unless you look into the detail, as UK organisations (e.g. Creative England) will apply for pots of ERDF money, and then use it to fund companies through their own schemes, sometimes mixing it with other pots of money. ERDF money generally has a lot of paperwork and a lot of boxes to tick, but can be fairly significant amounts of cash (in either grants or unsecured loans with little or no interest to pay), particularly for smaller developers. Because it’s focused on regional growth, they are also more willing to fund riskier companies than private funding bodies, making it a great opportunity in the naturally risky world of entertainment.
Other sources of funding are available, often smaller pots that can be used for specific business purposes. Two really useful options for developers are UKTI (UK Trade & Investment) who provide funding towards export activities such as attending overseas events or marketing. This funding is often matched and paid back in arrears, but can add up to at least 50% of your costs for expenses and exhibiting at events. The other is Creative Skillset, who via DCMS (Department for Culture, Media and Sport), provide match funding for anyone you hire with less than 12 months experience in the games industry.
SEIS (Seed Enterprise Investment Scheme)
SEIS was introduced by the government to make it more attractive for investors, primarily high wealth individuals, to invest in startups.
SEIS has a limit of £150,000, and is being used by many studios in the UK for funding. There are several funds who provide SEIS funding, several exclusively for the games or digital/creative industries, acting as a middleman between investors and the company. They all have slightly different requirements and focus, but generally they tend to be much less complex than other equity investment routes, mainly because of the lowered risk but also because these funds have a process in place that is designed to be implemented (relatively) quickly and simply, They will take a fairly small percentage of the investment money to manage the process, and then split revenues with the developer, generally in some form of waterfall distribution model where the developer gets an increasing percentage the higher the revenue.
Sometimes the SEIS will also fund marketing, within or separately to the £150k development funding, other times a publisher will be used, and the SEIS will simply fund the development of the game.
There are several project finance organisations now, who will setup a SPV (Special Purpose Vehicle) company, which will in turn be owned partly by the developer and partly by the project finance organization. That company will then own the Intellectual Property in the game, resulting in the IP being effectively owned jointly by the developer and funder.
As with SEIS, these funds will have different goals and requirements, but tend to be larger pots of money than SEIS, anything from £300k up to several million. These funds tend not to go below £300k due the administration costs of setting up and running the project
There are other forms of funding aside from the three discussed here, such as crowdfunding , EIS (Enterprise Investment Scheme) and publishers themselves. Which one is right for you depends on your situation, your goals, you game, and how you are planning to get your game to market. It may be that working with a publisher who handles the entire funding, marketing and distribution process is right for you, it may be that you want to retain more control over all, or some of the process, and are willing and able to take more risk for the potential larger gain. But exploring all the options and making an informed decision is the key.
Ella Romanos • May 13, 2014