Learn when to start looking for investors, where to find them, how to convince them, and how much money to ask for.
The video game industry continues to grow. There are more new companies, games, and ideas than ever before — and more money for those who succeed. According to Newzoo’s 2020 global games market report, the industry will generate $159.3 billion this year, a 9.3% year-on-year increase.
It is essential to understand that finding investors and negotiating a deal takes time. The more money you need, the more time it will take. At a minimum, the process will take two to three months, but it may take a year or even longer in some cases. Take this into account before you start searching for an investor. The sooner you begin the process, the better the chances are that you’ll have a contract by the time your pocket is empty.
If you are sure that you’ll need external financing at some stage of development, you should start preparing for this early on. At the very minimum, assemble investor materials and craft a shortlist of potential candidates while your game is still very early in development.
Just like developers, there are many definitions, types, and categories of investors. Take a look at our shortlist below, and consider which type of investor might match up best with your needs.
Specialized investors focus on the gaming industry. Usually, they are successful developers, publishers, or directly involved in the video game industry. UK Games Fund, Galaxy Interactive, or Transcend Fund are good examples.
Here’s what you should keep in mind when working with specialized investors:
On the one hand, it can be harder to work with a specialized investor. They are demanding and usually know more than you do. Also, they can be very tough if they think that you are not meeting your obligations or are trying to do something that could damage the project’s future success. Put simply, they are meticulous professionals who are sometimes challenging to communicate with.
On the other hand, their evaluation of your project will be the most correct one, while their experience working on products like yours will provide you not only with the required funding but also with valuable feedback. Typically, specialized investors make fewer deals as their demands are more strict. However, the percentage of successful games in their portfolio is much higher than that of non-specialized investors.
These investors include, for example, companies like March Capital Partners, Makers Fund, and Advancit Capital. For them, the game industry, and your project, is just another potentially profitable segment that will bring in large profits if successful. Thus, they are not deep into the market as games are only one of their investable market segments.
Here’s what you should keep in mind when working with non-specialized investors:
Unlike specialized investors, they are more focused on the final result and do not pay as much attention to the process. Thus, it will be more difficult to explain what went wrong if you encounter problems during development and require further funding. In light of this, you should not be deceived by the apparent simplicity of communication with non-specialized investors — it’s a double-edged sword.
Usually, publishers deal with the release and marketing support of the project and are also involved in its operations after release. In some cases, especially if the publisher specializes in work with indie developers like 505 Games, Devolver Digital, or tinyBuild, for instance, they may support the project with an advance payment that will later be withheld from the profit. Unlike classic investors, publishers do not want to take a share in the company or become one of its founders — they just want a percentage of the profits.
In order to decide whether a project is worth investing money into, publishers look at the following criteria:
Before making an advance payment, the publisher will sign a contract for the release of your game. In general, communication with the publisher will be similar to negotiations with traditional investors.
Your shortlist is compiled, the goals and objectives are clear. Now it’s time to prepare your pitch and other materials to convince the right investor to back your project. The first impression is the most vivid one, so make sure your offer looks great!
Here’s what you’ll need:
This is the all-important first impression. You send this presentation to the investor, and if you are lucky, they’ll call you back. A project presentation should:
All this should fit into 10–15 slides at most and consume no more than five minutes of an investor’s time. Your task is to attract their interest with this presentation so that you can discuss the details later, rather than provide the investor with all possible information at once.
The core asset of any indie startup is its team — the founders and employees. This asset should be thoroughly presented; make a small company portfolio that includes the released projects and tells the company story. If it’s your first project, skip this step and proceed to the next one. Otherwise, create a portfolio of key team members that will highlight their experience.
It should include:
Formally introduce yourself so that potential investors will respect you and your team for your professionalism. Your task is to convince them that your team has the necessary expertise to develop the project with a high level of quality within the specified time. One of the common conditions an investor has is to keep the key team members in the company for at least three years without layoffs or departures. Make sure your team members are ready to sign contracts like that.
Before investing in your project, the investor will want to make sure that you understand how to spend the money and justify your financial forecasts. “We need money to expand the team and buy a new computer for the designer” is an inadequate justification. A spending plan in a spreadsheet with highlighted monthly items, including office expenses and salaries, will look much more convincing. Also, it will allow the investor to check whether your costs are comparable with the market average or whether you’re asking for too much due to inexperience.
A roadmap is your development plan with the key points highlighted. This document shows that you can plan your time and correctly allocate company resources to achieve the desired results in a specific timeframe. You’ll have to report on reaching certain milestones, so make sure that your plan is realistic and attainable.
You do not need to show a complete roadmap with all minor tasks and branches, but the key information, deadlines, and milestones should be present in this report, particularly a release date.
Once you’ve sent your materials, it’s time to field responses. Try not to be too disappointed when most of your prospects either reject your pitch or simply do not respond. Just keep refining your materials, working on your game, and pitching new investors. Eventually, you should begin to see positive responses.
If an investor does show interest, you’ll want to prepare for the next step: an in-person or virtual meeting. Here, investors will pelt you with questions, such as the ones below. Stay calm, keep your answers crisp and informative, and above all, be honest.
Keep in mind that you are taking part in negotiations rather than a friendly meeting. The investor is anyone but your friend, at least at this stage. Stay focused. Don’t switch to an inappropriate tone, and be sure to exclude alcohol from the menu if you meet at dinner. You can always celebrate a successful contract when you sign the deal — for now. You’ll need a clear head and the ability to take a sober look at things. Also, be realistic — it’s good to get a million dollars, but it’s not always possible.
Once an investor states that they would like to commit funds to your project, you can start negotiating terms. You can do this on your own, but it’s recommended that you engage with a lawyer to help with contracts and other paperwork. You need someone who knows how to interpret business deals and who will be on your side.
Think carefully about the proposed conditions and evaluate them in the short-term and the longer term. Ask your partner(s) about how they plan to use their share in the company and whether they are interested in earning stable income or plan to sell the stake at a higher price to another investor. Learn whether they are interested in participating in the management of the company. You should not rush to sign a contract until you clearly understand all conditions — spend as much time as you need to get a solid understanding of all points and the fine print.
Searching for investors and negotiating a deal is a challenging task, even for experienced developers. There are many enthusiasts, but the amount of money they have access to is limited. Thus, studios with good portfolios (or star employees with solid reputations) have the best chances of attracting investments. In contrast, novices with no experience that have “great ideas” in a design document (at best) usually have zero chance of getting investor money.
Professionalism comes with experience. Even if your first, second, or tenth negotiations were not a success, keep trying. Analyze your mistakes and shortcomings, correct your presentations, put on a tie for a meeting, try to review financial conditions and market trends — just don’t give up!