Securing capital for a software project?

May 3, 2006 6:24 PM

A colleague and I want to raise money for a project our company currently can't take on. How to get this ball rolling?

(This is long. The question is in bold at the bottom for those who wish to skip ahead.)

I work for a NYC-based software company that is familiar with video game development. A colleague and I have been developing an idea for a game we really, really want to make. We're confident that it has serious Selling_Potential, and we also believe we can pull together the rest of the talent we need to ship 1.0.

The only problem is that, well, it's larger than anything the company has ever done, and in fact, in order to begin and finish this, we would likely need to secure additional capital. We'll come back to this.

UPSIDES (or "we can't lose"):

We're smart. We've seen projects to 1.0 and beyond before, we've seen others fail, and we've seen our own failures. We understand how to ship.

We've already got in-roads to the (closed) platform we want to develop on (contacts, relationships, development and testing kit access), so we don't have to spend three-to-six months kissing someone's behind just to get past [e-mail].

We've already got a great art director in the company who would love to work on the project, and could be freed up for it. Same goes for sound design. Level design is the part of the team we'd need to expand on, but we've already got 1/3-1/2 of what we project for that.

The engine, we believe, we already have in existing IP. See "DOWNSIDES" below.

The idea is solid, and the bosses like it. In fact, everyone to whom we've pitched so far has liked it. Are they just telling us what they think we want to hear? Totally possible. In fact, likely. But at the very least, we and our Very Skeptical Bosses think it's a triple-A title.

DOWNSIDES (or "we're totally fucked"):

This project is a triple-A-size title, which means all of the people I mentioned above? Yeah, they/we have to be pulled into our own little world for 18-24 months, and that costs money. Our normal duties have to be replaced with other people, and additional people we pull in from outside jack up the costs as well.

We've got an engine, but it will require a some changes, like any adapted engine. That also means we still have to provide the world with objects, scenery, textures, etc. AI work, scripting, playtesting cycles, extra kits . . . the list piles on quickly. "We have an engine, we just need to make stuff" is the mistake most indie game devs make, and we're fairly confident we can avoid that. But now we've just added more cashmoney requirements. MATH PROBLEMS HERE.

In short, we need to figure out how to secure the funding the company would need to begin production on such a title. We're not talking Halo 2 here, more like something in the development scope of 10-15 people for approximately 2 years. Think Hitman, as far as size goes.

We pitched the idea this afternoon, and The Bosses liked it. And then proceeded to show us that we don't have the resources to do it. The colleague and I decided that this is a great idea, and we should put our money where our mouths are and show some initiative to get this in the pipe.

The Colleague and I want to do this for the company, but we've never done anything like securing this kind of funding before.

Where should we start?

posted by Mikey-San to work & money (12 comments total)

Mikey-San, meet patphelan.
posted by nicwolff at 6:53 PM on May 3, 2006

How much do you need to raise?
posted by Frank Grimes at 6:54 PM on May 3, 2006

Yeah, how much? I may know some people. Or rather I know some people (in the games industry and with capital) but whether they would be interested at all I have no clue. If you gimme a ballpark I could put out some feelers. (Don't get your hopes up - 80% likely they wouldn't be into it.)
posted by NailsTheCat at 7:19 PM on May 3, 2006

I hesitate to release any figures here, but anyone interested in a fiscal dialogue, please feel free to contact me:

org dot bungie at mikey-san
posted by Mikey-San at 8:43 PM on May 3, 2006

Partial funding from the publisher?

You have to find a publisher, anyway, right?
Or are you planning something crazy like self-publishing?
posted by blenderfish at 9:34 PM on May 3, 2006

If your bosses really liked it, they'd raise capital to do it.

There's no direct way for you to do this "for the company" that doesn't involve changes to their balance sheet, such as dilution of ownership, adding debt, additional capital from current investors, etc. If your company had the equity, and was willing to sell a bunch of authorized but heretofore unsold treasury stock, probably at deep discount, to a very small pool of angel investors, who might be willing to sit back, fairly hands off, for 2 years, they might get somewhere, but that is a fairly unusual situation to be in for any small company. Expect that they would pay an effective 50% to 70% rate for equity based additional capital doing something like that, and expect to see a whole lot of oversight from the angels, even if they are the most laid back ones on the planet. Lots of progress reports, lots of IP evaluations, applications, etc., and nothing like your own "little world for 18-24 months." Other People's Money (OPM) comes with reporting responsibility.

It sounds like you and your excited colleague are coders. Probably coders who neither understand or respect "the suits" who actually manage the capital flow through the business, and have legal responsibility to the owners/stockholders. The CFO gets paid to juggle opportunity and risk, which are the two sides of the coin you think you're holding. Go take a meeting with the CFO, let him juggle if you can get him excited enough, and he'll let you keep coding (maybe on your new idea, mostly likely on the one you were hired to work on).
posted by paulsc at 11:13 PM on May 3, 2006

Also, it occurs to me that 10-15 people for 1.5-2 years is pretty shy of AAA nowadays.

Keep in mind is that the games business is quite a bit different from other software businesses. I don't know any details about what the traditional core competencies of your company are, but shifting into the game industry probably represents a lot of risk, since in many ways you're starting from scratch. (software development methodology is different, required skills and personel are different, technology is different, profit outlook is different, marketing is different, sales channels are different, etc.) Essentially, this amounts to either a monumental change in direction, or a monumental derail for your company.

Finally, yeah, if you're not authorized to negotiate on behalf of your company, there isn't a lot you can do, other than maybe introduce people to each other. (And, in another sense, if you're going to work scrounging funding, have these contacts, and this much faith in your idea, you probably should form your own company anyway. Maybe attempt an amicable spin-off from your current company?)
posted by blenderfish at 1:24 AM on May 4, 2006

Would this be multi-platform or purely PC?
posted by NailsTheCat at 6:44 AM on May 4, 2006

If your bosses really liked it, they'd raise capital to do it.

They do like it, trust me, but we're a small company, and we're full-up on projects at the moment. I'm looking to kick something like this off not tomorrow, but in a year or so. Waiting is not an issue. This provides plenty of time to make sure key projects are completed or in maintenance mode, develop the idea further, etc.

Lots of progress reports, lots of IP evaluations, applications, etc., and nothing like your own "little world for 18-24 months." Other People's Money (OPM) comes with reporting responsibility.

Our normal duties have to be take on by other people, and we have to work on just this project for 18-24 months. Therefore, "our own little world". That's all.

"There's no such thing as a project without status reports", as they say.

Probably coders who neither understand or respect "the suits" who actually manage the capital flow through the business, and have legal responsibility to the owners/stockholders. The CFO gets paid to juggle opportunity and risk, which are the two sides of the coin you think you're holding. Go take a meeting with the CFO, let him juggle if you can get him excited enough, and he'll let you keep coding (maybe on your new idea, mostly likely on the one you were hired to work on).

I don't respect my bosses? What? Did you come here just to snark me and pretend to be the Big Nasty Manager? If you just wanted to tell me that I don't respect my bosses, there's nothing to suggest that, I don't understand why you bothered to post.

I really hate to sound like I'm slapping at the hand of advice, but telling me I don't respect the people who run the company because I want to find a way to fund a project that will benefit said company is honestly pretty offensive.

I wasn't hired to work on a specific project, and I'm not trying to get out of my Current_Project. I'm simply looking into the future. That's all. If it doesn't happen, it doesn't happen.

Anyway.

senor blenderfish:

We wouldn't be transitioning into the game industry (that's half of our current projects), but we would be moving to a bigger level of such with something like this. We've done games before, but just never one of this magnitude internally. I'm essentially feeling things out, because this would a large, but not totally foreign, step for us.

Finally, yeah, if you're not authorized to negotiate on behalf of your company, there isn't a lot you can do, other than maybe introduce people to each other.

That makes sense, and when I woke up this morning, I realized that I'd have a better shot at this if I lined up contacts and kept developing the idea.

if you're going to work scrounging funding, have these contacts, and this much faith in your idea, you probably should form your own company anyway.

That makes sense, but I really like this company, and want to see it Get Bigger. It's been good to me.

NailsTheCat:

It would be a console game. We prefer the ability to target hardware, and we already have our feet in the door for the platform we'd target. (We've done work on it and have those relationships.)
posted by Mikey-San at 8:17 AM on May 4, 2006

I've passed on your original post to my wife who's in the gaming industry. Her company owns a manufacturer. If they were to be interested I have no idea what sort of ownership they would expect but it's worth a shot.
posted by NailsTheCat at 10:08 AM on May 4, 2006

Hey, thanks. Quite appreciated.

The Colleague suggested I clarify what I've been talking about by "bosses". The bosses, in this case, are the Pres and V-Pres of the company (we're small, there isn't a big chain of escalation to get through).
posted by Mikey-San at 10:31 AM on May 4, 2006

With some rare exceptions, money in the game industry to produce games comes from publishers: Electronic Arts, Vivendi, Microsoft and Sony are examples of bigger publishers. How you get money is simple: you ask. Simplicity does not mean it's easy. Asking is a long song and dance, usually requiring you to offer a presentation and, if possible, a prototype of what you want to deliver.

Don't worry, these companies are literally in the business of giving money to make games. Microsoft and Sony are more aggressive than most, because they are trying to get good games for their platforms.

The terms that you get from a publisher isn't necessarily good. However, if you are part of an existing company with existing product, you will probably get a more favorable deal than most - if the publisher's cash is not the sole source of income for a game, their leverage in the deal room is drastically reduced, which increases your studio's chances of actually walking away with a deal that might result in profit.

Unfortunately for you, the cheapest place to open these discussions is at E3, which is next week. In a perfect world, you'd go to E3 next week with appointments with people from all the major companies, where you do pitches for them behind closed doors. It's probably a bit late to set those appointments up now, so if you're planning on following through with this, expect to spend a lot of time on airplanes.

Last but not least, it's not unheard of to get money from outside of publishers (i.e. from venture capitalists or angel investors). Unfortunately, VC cash usually doesn't fund a game, but rather funds a company with a vision - and if your game is a departure for your company, it will probably make them suspicious. Also, investment cash for actual game development isn't usually done, with the exception of MMO titles, where WoW has opened a lot of investor eyes lately. If you're not looking at MMOs, publisher cash is your most likely source of income.

Last but not least, 15-20 people is wildly optimistic for a AAA-title these days.

If you have more specific questions, you can ping me at ubiq -at- zenofdesign -dot- com.
posted by Ubiq at 5:08 PM on May 4, 2006