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Between the long work hours, unhealthy eating patterns, and overwhelming sense of uncertainty, developing a game can require a near heroic effort, the likes of which would render Kratos, Link, or Cloud paralyzed in fear. And as if that weren't enough, most indie game studios aren't exactly flush with financial resources. Thus, in order to keep the assets rolling in and the Internet turned on, most development teams are resigned to seek outside funding sources.
Thankfully, while still a formidable challenge, raising startup funds isn't quite the mission impossible it was back in the dial-up age.
Preparing to Become a Professional Fundraiser
They say indie game developers must wear many hats. Well, if your studio is in need of a cash infusion, it's high-time you don another fedora: that of the pro-fundraiser. But before you start calling up your long lost relatives or sell your Blu-ray collection on eBay, it's imperative that you first asset your development budget. And that will require a bit of guesswork.
Here are a few helpful tips to ease the process:
- You must realize that everything costs money: From new computers, to development kits, personal bills, and stress balls, your game development budget should encompass everything related to the development process. There is much more to creating a game than just art, design, and code.
- However, the majority of your costs will relate directly to game development: Thanks to social networking, and open-source resources such as presskit(), there are a plethora of ways to market your game for free. For more, check out our Marketing Checklist.
- New features cost more than you might think: Consider that, for every new feature you implement, more money has to be allocated to each development department. Worse yet, new features take time, and as the old adage goes, "time is money." Also remember that, if you're not taking a salary, each month spent developing a game is another month you won't be making money elsewhere.
- Development delays will happen: Whether your programmer is kidnapped, code is lost, or your artist suddenly quits, production delays are a natural facet of the game development process. Expect them, embrace them, and always account for them.
- You should write a game design document before making any budgetary estimates: I can't emphasize this one enough. Game design documents will provide you with a much clearer picture of the number of assets and time necessary to complete your game. Without one, you might as well pick a number out of a hat. The more quantifiable and itemized the design, the more accurately you'll be able to assess the man-hours required.
Granted, even by adhering to certain parameters, accurately predicting the cost of development is still a bit of a crapshoot. So when in doubt, err on the side of caution. It's better to budget for an elongated, disaster-ridden game development process, than for one that flows seamlessly.
One additional point: The vast majority of indie games cost under $200,000 to develop. Hits like Angry Birds, Braid and World of Goo were all produced for somewhere between $120,000 and $180,000. I've personally created games for less than $2,000. Never be fooled into thinking that you'll need to procure a Triple-A budget to create an indie game.
The Business Plan
The potential for procuring funds via a crowdsourcing platform or an accredited investor improve dramatically once you've developed a prototype or demo. But in order to get to that point, you will have to raise what's commonly referred to in the investment world as seed capital. There are a few ways to go about this, but they all begin with having a solid business plan in place.
Business plans are not the 200-page exercises in torture they used to be. In fact, most investors prefer business plans that are direct and to the point. In it, you should provide a brief description of your company and its structure (You did form a company, right?), a market analysis of your preferred industry and direct competition, an overview of your product line and how you plan to sell it, and an overarching marketing scheme. To conclude, you'll want to make some financial projections, and indicate therein how much funding you are currently seeking.
Performing market analyses is not as daunting a task as it might initially seem. For instance, if I were creating a retro RPG (which I am) I would first reach out to other developers who have done the same, and ask them a few questions about their development costs, their sales, what worked, and what didn't. You'd be surprised just how willing most developers are to divulge this information.
And even if procuring this data proves difficult, there are plenty of developers who write postmortems, detailing their profit margins. Indie RPG developer Zeboyd is a prime example.
Now the fun part. With your handy business plan and budgetary documents in place, it's time to raise some cash. Here's where to start:
Friends and family: There are a slew of advantages associated with private money, not the least of which is that, often, your friends and family won't be out to make money on the deal. Even if they do require a small equity position or full repayment in exchange for upfront cash, that's a small price to pay compared to the potential pitfalls of working with a lender.
The one drawback of borrowing from friends and family members is that you run the risk of severing ties, especially if the terms of repayment aren't fully disclosed. To counter this, make your equity partners aware that they could lose money on the deal, or at least that they might not see a return on their investment for some time. Sadly, most companies are not profitable within their first three years.
Personal savings: Tapping into your personal savings carries some risk. Unexpected circumstances happen, and while you may think you have enough money to fund a game on your own, one major life event can change that in hurry. For instance, losing your day job, paying medical bills, major developmental delays... these things happen, and without a safety net they can prove catastrophic.
Instead, only dedicate a portion of your personal savings to your game development ventures, and segregate them in a account separate from your emergency funds. Ideally, operational funds would be held in your company's personal bank account.
Business loans: Business loans are not without their drawbacks. Ever since the financial crisis of 2008, lenders have tightened their belts, and generally won't approve your pre-revenue company unless you possess an exemplary credit rating.
The approval process itself can be a grueling, months-long affair, especially if you're applying for an unsecured (non-collateral) loan. Plus, the high interest rates often attached to loans of this variety can parallel those of credit cards.
Still, there are certain advantages to business loans. They provide your team with a sizable cash infusion—so much so that you won't necessarily have to seek additional sources of funding. They also place a bit of pressure on you to complete your game in a timely matter, if only to pay back the loan more quickly.
Credit cards: Similar to business loans in that your credit rating will dictate the amount of credit you'll receive, credit cards are another viable option. However, even if your credit report is sparkling clean, procuring a credit card can be risky business.
Look at it this way: if you acquire a credit card with a $10,000 limit and a 19.9% interest rate, and then promptly max it out, you'll need to make monthly payments of nearly $200 a month just to break even. Alternatively, you could only apply for credit cards with low or nonexistent introductory rates, but those rates typically expire after a year. Be wary.
Funding through non-monetary means: Not all funding schemes require that you amass tons of personal debt or exhaust your savings. Here's where a little creativity goes a long way. For instance, you could make use of free or inexpensive rapid prototyping tools such as Game Salad.
Another option is to seek out employees willing to work on a small revenue share or volunteer basis. Granted, some volunteers tend to be on the unreliable or inexperienced side. But you'd be surprised just how many talented creative types are willing to trade free work for a chance to bolster their portfolio.
If you do find a gem in the rough, entice them to stick around by indicating that you're currently raising funds, and will offer them a proper paid position once more options become available. Or just bite the bullet and start paying them now.
Doing freelance side work yourself is also another viable route. Try to take jobs that will enhance your knowledge of the game development field—for instance, working as a game programmer will task you with using the same skills necessary to create your own game. Even taking a job as a game journalist or game development writer can pay dividends, both financially and through knowledge gained. It's also a great way to build a solid reputation.
The main drawback of taking on freelance work is that it eats up your time; time that could be used to create your own game. Regardless, it's still one of the safest and most rewarding pre-demo funding paths you can take.
By now, you may have noticed that every startup funding vehicle comes with drawbacks. This is just an unfortunate truth. The good news is that once you have created a prototype or demo, less risky options suddenly open up.
You've created a demo, but it's still buggy, uses some programmer art, and only displays five percent of your game. You need more money, and fast. Here are some of your options:
Kickstarter: One of the most widely used fundraising mechanisms on the planet, Kickstarter allows game development companies to raise funds without assuming much risk. All that's required of you is to deliver upon your promise of producing a game and to provide rewards to backers. There's no need to repay loans, no high interest rates and no need to give away parts of your company. It's truly a match made in indie heaven.
Well, not entirely. Should you fail to meet expectations, you'll suffer a major reputation loss, and face the scorn (and possible class-action lawsuit) of your backers. Compounding matters further, you'll likely have to reserve a significant portion of your raised funds for backer rewards.
One final note: Whatever you do, don't fall into the trap of asking for less money than you really need. The only scenario where it's acceptable to ask for a percentage of your budgetary needs is if you're already in the process of making up the difference via an alternative funding avenue.
Crowdfunding 2.0: A new model is emerging, one in which individuals residing in the United States—regardless of whether or not they're an accredited investor—can purchase shares of a startup. Made possible by the JOBS Act of 2012, Crowdfunding 2.0 could potentially prove a viable financial outlet for development teams seeking $1 million or less.
I say $1 million because the SEC is in the midst of placing harsh restrictions on just how much capital a company can raise in a calendar year. Investors will also face limitations, the severity of which will be contingent on their financial portfolio.
Crowdfunding 2.0 is infinitely more attractive to investors than its vanilla counterpart, in that they'll receive a potential return on their investment. It's for this reason that funding portals like Crowdfunder may eventually supersede Kickstarter in popularity.
Indie Fund: Indie Fund is a mish-mosh of several successful independent developers, all with the common goal of helping ambitious developers achieve their aims. Their model is simple: Indie Fund will fund a game's development costs in exchange for full repayment of the initial loan plus 25 percent royalties until it has either made double the initial investment, or until two years pass. Should a game not generate enough revenue to cover the repayment cost over a two-year period, Indie Fund eats the loss.
Do be warned: Indie Fund hand-picks its candidates, with only games received well by the press or by gaming festivals making the grade. Still, it's perfect for innovative developers with at least some industry experience under their belts.
Angel Investors, Venture Capitalists and Publishers: I'm grouping these together because they all belong to the old guard. Venture capitalists, in particular, are very wary of investing in companies that don't possess a long-term plan. However, if your startup has plans of releasing a commercial engine, along with two or three games over the next several years, approaching a VC suddenly becomes a viable option. The same applies to angel investors.
Publishers are generally in the business of making money, not games, and are notorious for writing off niche or quirky indie games that may or may not succeed in the marketplace. It's for this reason that Tim Schafer turned to Kickstarter in the first place. And with portals like Steam and the Google Play Store, along with consoles, displaying an increased willingness to publish indie games, traditional publishing models are rapidly falling out of favor.
Alphafunding: Essentially a means of allowing gamers to buy and play your game before its ready for commercial release, alphafunding is a useful device to help you get over the budgetary hump. PC gaming portals like Desura have implemented the model with some success. Alphafunding is also a worthy marketing device, as it gets a nearly finished version of your game into buyers' hands.
There's a wealth of opportunities for game development companies seeking to procure funding for their next foray, with more alternatives propping up every year. With so many options available, there's hardly a need to limit yourself to one source.
That being said, it's important to consider the best possible route. With funding comes the possibility of debt, equity and reputation loss, and of course, stress. Take a deep breath, proceed with caution and know that where there's a will, there's a way.