As of 2020, the PC and Mobile gaming industries accounted for $37 billion USD and $77 billion USD respectively.
With the advent of this ‘new normal’ and its corresponding restrictions, persons have found themselves in need of alternative forms of relaxation and entertainment.
Whilst theatres, museums, and cinemas have been forced to close, mobile gaming has thrived and is surfacing as a hobby for many. On a personal note, I have never been a gamer, but I too found myself fixated on at least three favourites within the last year. It turns out that I was not alone in this endeavour as 70 percent of the persons who have been playing these kinds of games (hyper-casual) do not identify as gamers. According to Adjust and Unity’s Hypercasual Gaming Report 2020, within one week in March 2020, there were 1.2 billion downloads of these easy-to-use, easy-to-make, easy-on-the-eye, free-to-play casuals.
The week in question is on record as the greatest week for app installs to date.
Hyper casual is emerging as a darling category of gaming (and interestingly, this surge predates the Covid-19 pandemic). Hyper casual accounted for almost eighty percent of the games downloaded in 2019. This new type of game had the propensity to create a new set of users and producers, further disrupting the industry with what INSEAD Professors W. Chan Kim and Renee Mauborgne often refer to for companies as a “Blue Ocean Strategy”.
Whilst in a conversation with a classmate who recently launched his own comic book business, I suggested gaming as a way to diversify. Subsequent to making the suggestion, I thought about what funding options developers with a new interest in this field would have at their disposal.
The funding of gaming has evolved and expanded with time- further leveling the playing field and increasing competition. Traditionally, studios would solely seek to win the approval of big-name publishers such as Tencent Games, Nintendo, or Electronic Arts (EA). These traditional publishers would have the frameworks, infrastructure, audience, and capital to finance the design, development, marketing, and distribution of the pitched video game.
Publishers would either take a split of sales or immediately recoup advance payments once sales commenced. President of the European Central Bank, Christine Lagarde, recently said that the digital transformation we have experienced in the last year equates to seven years of transformation under normal circumstances. These days, traditional publishing is being commoditized and publishers ought to constantly re-evaluate their business models.
This time has been described as the ‘golden era of gaming’. It is the opportune hour for developers because it means that they need not simply go to a publisher to get recognized. Some might even argue that it is detrimental to go to the publisher.
Raising Capital as a Video Game Developer
- SELF FUNDING
If ever there was a time to create games, it is now. Before, you could not create a game unless you had access to extremely talented technologists. In this era, aspiring game developers can apply what Laurence Capron and Will Mitchell refer to as the “Build, Borrow or Buy” method and truly leverage technology tools that can be easily bought or borrowed, rather than having to build from scratch. Examples of these are Amazon GameLift, Unreal, and Unity.
The pool and profiles of developers increases as persons can now utilise these technologies and sit at home during (and after) the pandemic and create games.
- FAMILY AND FRIENDS
The story of Unity’s founders living a tremendously frugal lifestyle, working 24-hour days, running out of money and eventually having to turn to family for a 100,000 Euro loan is well known. Today, Unity is a mega- successful entity but the lessons here are “High risk, high reward” and “Nothing ventured, nothing gained”.
It is important to take calculated risks and when asking family and friends for either a loan or investment that you have a solid plan for repayment or their returns on investment. After all, it is family and this is a testament of their trust in you.
- SERVICE MONEY
Work for hire has generally been a good way for developers to garner revenue, especially with the burgeon of the gig economy and new funding business models such as Apple Arcade.
Apple Arcade is not as easily accessible to developers. This subscription service requires that developers are selected to be a part of the programme. Whilst it is good for the chosen developers and no doubt is an added income stream for them, being selected is perhaps not the easiest of tasks.
Crowdfunding is an attractive funding route for creators, as well as a great mechanism for market research.
Kickstarter has been a platform for successes. It raises millions annually, raising as much as $47 million in the year 2013. However, there is the illusion that these platforms automate success. This could not be further from the truth as studies suggest that crowdfunding platforms do not provide triumph for games targeted to children or free-to-play games, for example.
The platform is a tool which amplifies what would appear to be great, sellable, scalable projects with a loyal following and excitable community.
Despite (for many) not living up to the great expectations laid out for it, Shemue 3 broke records for the fastest video game project to reach the $1,000,000 USD and $2,000,000 UDS thresholds and the most crowd funded video game on Kickstarter (raising in approximately $6.4 million with more than 69,000 backers).
An example with a more positive outcome was Iron Harvest. Released on Windows on September 1st 2020, Iron Harvest raised approximately $1.5 million and has gone onto enjoy both awards and predominantly positive reviews.
The blog post of British and Thai composer Ninichi, “10 Awesome Sources of Funding and Grants for Your Indie Game” is a must-read for anyone looking to explore this type of funding.
Ninichi provides a great range of options. From the European programmes such as UK Games Fund, Creative Europe and Creative England, to IndieCade, which is based in California. Options with a greater global scope are Ancient Games (UK-based but global access), Unreal Dev Grants (anyone using UE4 can apply), and CryEngine.
- VENTURE CAPITAL
“It’s always a bad time and a good time to start a game studio because it has been growing so consistently over decades that such a huge market provides good business. That being said, it is also really competitive on all the platforms so it’s much harder to bootstrap something (truly valuable).”– Emily Greer of Double Loop
It is imperative that the creator asks herself critical questions. Does she want to build an entity or a product? Does she want great reviews for a niche game or does she want to create a Top 20 Grossing mobile game? Once one’s scope has been identified, the funding strategy becomes more apparent. Whilst she may self-fund or ‘friends and family’ to build a live alpha to present to angel investors or VCs, if she wants to build an entity and create a Top 20 grossing game, self-funding and ‘family and friends’ will more than likely not suffice. The best options would be Angel Investors and/or Venture Capital.
In VC, you have to have a sellable story and a proper team with expertise. A diverse team, where everyone has distinct responsibilities and can work well together. These elements bring credibility to the table for investors.
Whatever money the creator may think she needs from investors; the reality is that she will need more than that initial figure. That said, she must not arbitrarily request money for the sake of wanting it without legitimacy and reasonable foresight. The ask must typically include the operating costs at least until the next fund raise. If asking for $500,000 USD, her valuation must include a runway of 24 months and she should accordingly be planning her next fund raise to occur within 24 months.
Some of the notable VC firms dedicated to gaming are BITKRAFT Ventures, Black Sheep Ventures, CAA Ventures, Dune Ventures, GameFounders, Gamerforce Ventures, Konvoy Ventures, London Venture Partners, Remagine Ventures, SeventySix Capital, and of course through what we’re doing here at Mediatech Ventures.
As a newly-formed hyper casual gamer, I look forward to seeing what you create! Best of luck!