Finding an investor as a games startup can be immensely difficult. Not least because many investors do not know exactly what to look for when assessing the entertainment value of games, and the risks involved with launching a game.
But what do you then do as a Nordic games studio in need of funding? To answer that question, Danish games industry organization Interactive Denmark’s latest Growing Games event in Copenhagen focused on planning and financing in the games industry.
To take part in the discussion, Interactive Denmark had invited VC investment company Sunstone Capital’s Nikolaj Nyholm, Unity 3D co-founder and former CEO, David Helgason, and investment firm Capnova’s Per Chrom-Jacobsen, among others.
Throughout the day, the speakers each laid out their version of why gathering the required funding in the games industry is not easy, and what it means and takes to do proper business planning as a games studio. Here are some of their thoughts.
Appropriately, since the day was hosted at Egmont, the first speaker to dive into business planning and financing in the games industry was Maz Spork, Head of Project Office and Innovation at Egmont. Spork has roots that go way back to 1987’s UK games scene, and talked at Growing Games about why it is difficult for investors to invest in games startups.
“What are you guys pitching (red., to the investors), anyway? A game, a business, a vision, a dream, a pipe dream? We have all these people from indies to larger companies in the games industry, and this confuses investors!”, Spork starts out, as he describes why an investment in a games studio differs from an investment in a typical Tech startup.
All these typical tech investors hear when you talk about your game is risk, risk, risk, Spork explains:
“And here’s the reason: You’re starting out with a business model that is full of assumptions and uncertainties. Your knowledge/assumption ratio is very low. Usually, as you go along, you’re going to turn these assumptions into knowledge, and this is why capital is so expensive in the beginning and not so much later.”
“So even though we have people who have passion for games, they won’t invest in assumptions.”, Spork says, as he also adds that some uncertainty is of course always needed when starting a company. You need to make a leap of faith, but you need to be very specific about what that leap of faith involves.
Lastly, to top it all off, you also have different types of investors. Generally, speaking Spork introduces two types of investors: The financial investor, and the strategic investor. The only issue is that you want to get the financial investor on board when only the strategic investor is interested, and you want the strategic investor at a time where only the financial investor is interested.
“You have the financial investor, who wants to get out of your business as quickly as he can, and then you have the strategic investor, who wants to stay in and milk the cow in the end. What is strange is that in the early stages of your business, you really want the Strategic investor, and in the later stages, the financial investor. But reality is often the opposite.”, Spork explains.
But luckily, he concludes, there’s still hope for both investors and games startups. Because according to Spork, the answer lies in making sure that you and your team:
- Go for the grammar, meaning that you should know the investor you are talking to. Talk to your target audience, and know their language.
- Find evidence, which means searching for any and all evidence that can show that your idea has a future. This is necessary as nobody is going to invest in ideas.
- Work together with others in the games industry. “The more you guys can work together, the better”, Spork says, and remember, the investor is part of your team too!
Be sure to check back next week, as we unravel what Unity Technologies’ David Helgason, Sunstone Capital’s Nikolaj Nyholm, and some of the other speakers had to say about business planning and financing in the games industry.
Booked your tickets for our Games Business 2015 conference yet? Denmark’s largest games industry conference for Nordic game developers returns on December 7th to discuss the future of business in the games industry. The lineup of speakers includes as Ex-King Tommy Palm, Christine Thaarup, Steffen of Betadwarf, and many many more!
Tickets are limited and can be booked here.