One topic that nearly always eventually arises in the process of video game development is the issue of funding. For many games devs, the concept often starts as a passion project that grows over time. Funding initially comes from their own savings, or from the generosity of family and friends who believe in the project. But this can only go so far. Developing modern games requires a lot of work from a lot of people – and if you want to take the game to market, you are going to need funding.
As such, it is really worth thinking about the potential routes for funding your game as you take it further down its development track.
The good news for games devs is that there are more options available than ever before.
Before we look at the funding options that games devs have to choose from, it is important to understand what typically holds back companies and games devs from securing funding. Some key challenges include:
Loans could be considered the most immediate and obvious route for funding. Firstly, you need to think about whether you are opting for a secured or unsecured loan.
Unsecured loans can be ideal for smaller amounts of money – these can be thought of like any personal loan. Lenders will look for evidence of your ability to repay and will need to see a business proposal to get a full understanding of how they are going to get their money back. Unsecured loans, however, will generally only allow you to access relatively low sums of money.
For much larger loans – at the kind of level required to fund your development budget – you might need to consider a secured loan instead. In a secured loan, the developer offers some form of security against the value of the loan – this typically takes the form of some kind of asset with a tangible value.
Various assets are acceptable as collateral to be drawn against a loan, but this will depend on the specifics of the lender. Common forms of collateral include existing revenue streams from other activities, contracted payments due from external companies, tax credits, investments, and even insurance policies.
Naturally, many game devs have some degree of trepidation about taking on debt. But sometimes it is worth reframing the idea and understanding the positives of debt finance. For example, debt can certainly be cheaper in the long term than raising equity, and relatively short term – as once the loan is repaid the relationship ends. And having the extra money in your bank account now provides you with a much broader degree of possibilities and can allow you to grow your operation. Trying to operate without money can leave you in a position where you simply can’t take your game to where it needs to be to be successful.
If you are not certain whether a loan is the right option for funding your game, there are other possibilities. An important source of funding comes in the form of grants. Grants offer money that does not have to be paid back – these are often funded by governmental initiatives or charitable organisations looking to promote specific types of projects.
There are a number of grants available for games devs – however, the funding criteria is often very specific and can be challenging to fulfill.
One popular and well-known example is UK Games Fund – this is a provider of grants focusing on games in the early stages of development. Another is Unreal Dev Grants, which offers funding to innovative projects working in the Unreal engine.
Crowdfunding is often at the forefront of the mind of a games dev thinking about funding. On paper this is an ideal solution to bring in money; present a demo to the public, and get direct funding to create the game you want without having to sell part of your business or borrow money from lenders.
However, crowdfunding might not be the dream it is believed to be. Firstly, it is rare for games devs to get the level of funding they need to fund the full budget of their game purely through a crowdfunding campaign. Worse, these campaigns can be expensive and time consuming to manage, actually resulting in them being a costly form of funding. And if your campaign fails, it is there in the public domain for all to see.
Nevertheless, with the right audience, a well prepared campaign and some luck, there are possibilities on sites like Kickstarter and Indiegogo.
If you are prepared to sell a part of your company in the process, then equity crowdfunding may be worth considering. Here, those contributing to your crowdfunding campaign actually buy a portion of the equity in the company or project in exchange. Known as seed capital – this can be a very effective way of giving investors a balance of security vs. risk. Seedrs is one platform that can offer an equity based crowdfunding solution to games businesses.
When you fund your game through private equity, this essentially involves you approaching investors directly to offer them a stake in the company or project in exchange for the funding you need. There are generous tax reliefs, called SEIS and EIS reliefs, which are available for equity investors in certain qualifying businesses. The reliefs can offer an important amount of downside protection to investors and should be given serious consideration where possible. And whereas with equity crowdfunding, where the investors are typically silent partners, seeking equity investment from private investors or even VCs can give you the opportunity to pick a specific backer who may offer you invaluable industry experience.
This can be highly preferable, especially in an industry as changeable as video games. The key here is finding an investor who is a good fit for your business – you are as much choosing them to invest in you, as they are choosing you to invest in.
Either way, it’s important to bear in mind that this is a long term relationship so the chemistry between you needs to work, and, as you are selling part of your company in the process, is relatively expensive compared to borrowing short term debt.
The government wants to encourage the British video games industry and offers Video Game Tax Relief (VGTR) as a part of this. VGTR gives developers in the UK the ability to offset a part of their tax burden in order to promote the sustainable product of culturally relevant games in the country.
In order to quality for VGTR, your game must fall within the following criteria:
There is no budget limit for VGTR, but the rebate is capped at around 25% of 80% of your qualifying expenditure.
One of the drawbacks with the VGTR is that your company can be left waiting a long time to receive its tax credit, which can potentially interrupt cash flow during the development process. An useful option to counteract this timing issue is to draw a VGTR loan.
A VGTR loan allows you to use your future VGTR claim as collateral for an affordable loan. The loan is then simply repaid when the tax relief arrives once you’ve submitted your corporation tax return to HMRC after the end of your company’s financial year.
Like with most industries, with video game development, you should look to make use of your own time and money before taking on further funding. Loans, equity and crowdfunding all offer money, but they can tie you to specific timescales and plans. Not every type of funding will be right for your game, so take the time to really understand the differences.
Ultimately, though, the vast majority of successful games do require funding in order to scale and grow as a business, so you must be realistic and come up with a workable plan to attract such funding and bring your game to the market.
In any case it can be hugely beneficial to get expert advice. Please get in touch with our experienced team of specialists here at Buzz Capital if you are interested and would like to learn more.