GAME FUNDINGLevel 3

David MullichMarketing and MonetizationThe Los Angeles Film School

BUDGETS

How Do You Set Up A Budget?

Game Development BudgetSimple MethodTeam Hourly Rate x Hours Dedicated To Project

Hard Costs Rent Utilities Equipment Supplies Insurance Taxes Etc.

Game Development Budget

Alternate Method Set your budget (and accept that limit) Divide that budget into expenses

Revenue Goals

Expected Price x Unit Sales Projections

Deductions Channel Publisher Distributor

Marketing Budget

8% to 15% of total revenues

Note: This is typically used for larger organizations, and you shouldn’t necessarily spend this limit

Mini Financial ModelNotes

Anticipated Game Revenues RecommendLow, Medium, High scenarios

- Subtract Development Budget

- Subtract Marketing Budget RecommendLow, Medium, High scenarios

= Projected Profit/Loss

If you are willing to take a loss be clear on the acceptable loss you can absorb before you get into your market-budget planning.

Where Do Game Developers Get Funding?

Indie Project Funding Options Day Job Bootstrapping Bank Loans Friends, Family & Fools Festivals & Contest Prizes Contract Work Reinvesting Private Funds & Grants Angel Investors & Venture Capitalists Incubators & Accelerators

Let’s take a closer look at each.

SELF FUNDING

Day Job

Earn money from “real work”, but do game development at night and on weekends.

BootstrappingPaying for the business yourself, whether it’s through savings or credit card debt.

Pros: Keep your equity and IP Greater flexibility to maneuver Less dilution down the roadCons: Personal financial risks Self-publishing costs

Bootstrapping

Invest no more than you can afford to lose. Don’t do it if you can’t handle stress well. Invest in a business, not a product. It’s best to use other people’s money.

Bank LoansBank credits or other forms of private loans.

Very dangerous in the risky world of game development. Banks want collateral, so this isn’t much different from self-

funding. If you’ve formed an LLC or Corporation, you may be able to get

the loan in the company’s name. Unless your company has a track record, you’ll probably have to

personally guarantee the loan and use your personal credit worthiness to get it.

In the absence of other sources, though, this may be the way to go, at least for that initial capital.

Friends, Family & Fools

Receiving funding from people who personally know you.

Pros: They may be more understanding than banks if the

project fails.

Cons: You may lose Aunt Edna’s retirement nest egg.

Friends, Family & Fools

You can receive money as a loan or an investment.

As a loan, there is no expectation of profit apart from interest, so you can avoid any securities law issues.

As an investment, they can be made aware that there is a very high failure risk and they may not get their money returned.

Contract Work

Developing games for another company as well as your own.

Sources: Textbook publishers, healthcare companies, advertising firms

RFP: Request For Proposal Usually work-for-hire, but sometimes you can get

royalties or other fees Best when contract work and your own games

Contract WorkPros Great way bootstrap a startup as well as to stay fed and keep a

roof over your head. Can give steady income, but lasts only as long as the contracts do.Cons Margins on contract work are very low. Contractors may be upset if you are making enough money off of

them to make a game. VC’s may be reluctant to work with you. have similarities Work on your own game will suffer!

Reinvesting

Funding Project B with continuous income from Project A.

If Project A is your only source of income, this is the same as self-investing.

Consider setting up different companies if these are two dissimilar projects.

Don’t do this if you’re not good at multi-tasking.

PRIVATE FUNDS AND GRANTS

Private FundsPrivate funds, like Indie Fund and Sony’s Pub Fund, help content creators, technology pioneers or visionaries financially.

Some give a non-refundable lump sum of money and some provide low or zero interest on loans that you pay back if you become financially successful.

Others want royalties once game is released. Most want to see a prototype before taking part its

development

GrantsGetting a portion of your costs back from the government.

More of a cost-cutting option than a source of funding. Sources: non-profit foundations, governmental agencies, even

game development or media funds. Hire someone with expertise in writing grant proposals. Some grants are awarded only to non-profits and so a game

developer can partner with a university, think tank, or museum. Grants can come also come with strings attached, such a

requirement to make a version of the game free to the public.

Grants Development Grants: Outside the United

States there are various programs to underwrite games in small amounts from $50K up to $1M.

Research Grants: Most commonly awarded grants for game development, but funding is in the name of accomplishing the research objective and not creating a complete game.

Grants

Grants

National Endowment for the Arts (NEA) Added games to their list of eligible

projects in 2011 Interested in developing work that has a

broad public impact, can reach a lot of people, and is accessible

Grants are awarded by a panel of experts – including a “layperson”

NEA Grant Winner

Games for Change's Half the Sky

NEA Grant Winner

City of Sacramento Art Project

NEA Grant Winner

USC Experimental Game Division's Walden

GrantsNational Institute of Health (NIH) Largest funder of health focused research in the

United States. Ro1s: Large multi-year grants which can be in the

$millions. R34s: Offer smaller amounts of funds (perhaps $1M

over a few years) but act as stepping stones to higher-end grants.

Health & Human Services and Center for Disease Control also offer grants

Grants

National Science Foundation (NSF) Major funder of game-oriented work Focused on discovering how to improve learning

outcomes, as well as artificial intelligence, crowdsourcing, and much more.

Majority of their grants are multi-year efforts with good-sized funding that must move through major research universities and established non-profit research labs and centers.

Grants

Department of Defense (DOD) Longtime commitment to simulation and

interactive-based training. Funds game-based work in a variety of ways

either through direct competitive contracts or SBIR/STTR grant programs.

America’s Army: First-person shooter franchise designed as both a recruitment and a training tool.

Grants

Small Business Innovation Research (SBIR) and Small Business Technology Transfer Program (STTR)

Used by a number of government agencies to award grants

Open to businesses with <500 employees Awards $2B/year for research Developer retains full rights

GrantsSBIR/STTR Process

Agency will list challenges under its domain Developer will respond with ideas for proposals Reviewers will score submissions Submissions that score well may be funded Funding begins as soon as contract is negotiated Phases:

1. Feasibility test (<=$150K)2. Prototype (<=$2M)3. Commercialization (not funded)

Developer retains full rights

GrantsPublic and private foundations like Robert Wood Johnson Foundation or MacArthur Foundation to improve areas like education and healthcare.

Mix of open-invitation call for proposals and private invitations to submit ideas

Rarely don’t accept unsolicited submissions Program managers at these foundations act like scouts Study their sites and understand their submission

process

Grants Cultivate partnerships with groups that can submit grants Build useful core technologies Attend events and meetings Understand applied games and challenges Understand how funding generally works Plan and write well Don’t depend on grants for the majority of your income Don’t use a square peg as a round hole solution Don’t turn away consulting or testing opportunities Read papers, news Web sites, science magazines, and play

serious games

OUTSIDE INVESTORS

Angel InvestorAn affluent individual who provides seed (or front) money for a business start-up, usually in exchange for convertible debt or ownership equity.

Usually offer some seed money and consulting for the start-up. Prefer to be near you to offer their business know-how and network

easily while also keeping you under radar. Find an Angel willing to stay in for more than a year and has game

industry knowledge. Best to approach with your concept and use their money to make a

prototype. This type of investment does invoke securities laws, so the counsel

of an attorney is strongly recommended.

Incubation CentersSupport startups until they produce something marketable or at least get an investment for a longer period of development.

Access to mentors, seed money, office space and investors. Most offer a support for a limited amount of time (usually

varies between 6 months to 1 year). Quality of the center depends on mentors and the investor

network. Some require an equity around 3-20% and provide seed

money, some require a smaller equity 1-5% in return of mentorship and office space without making any cash injection

Venture Capital

Provided by firms or funds to small emerging firms that are deemed to have high growth potential. Rarely fund companies in initial stages Interested in huge profits, so they look for

scalability Approach with high risk – high profit proposal Be aware that relevant pitch decks, doing

forecasts, revenue reports will take away from your development time.

Venture Capital

To attract interest: An experienced team of developers and business

people. Helps to have a management team experienced in

start-ups. Data showing real users are addicted to your game. Plans for leveraging your first hit for future success. Should be scalable to ramp up quickly Product can’t be easily duplicated

Shark Tank Pitch

Spy Escape And Evasion

Why Did This Pitch Get Funded?

Four Pillars To A Great Pitch Delivery Clarity Simplicity Passion Practice

Six Steps To Success Hook Problem Unique Solution Team Traction Close

FUNDING MODELS

Funding Models

Model 1 Find an angel investor for the first 6 months

of your development. Build a demo. Apply all the available festivals. Get noticed and start seeking a publisher. If that doesn't happen quickly, try staying

alive with contract works.

Funding Models

Model 2 Make some little savings from your other

projects. Apply for a technology grant. Develop something innovative. Start seeking a Venture Capitalist

Funding Models

Model 3 Start contracting art assets. Create a concept and go seek

crowdfunding. If successful, apply for Indie Fund.

Practice Round

Come up with a Funding Model for your game.

CROWDFUNDING

Crowdfunding

The practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

-OR-

Preorders, with incentives.

How It WorksDevelopers Set funding goals and time limit Countdown clock starts All-out social media PR blitz

Funders Select a contribution tier Pledge the amount stated Become entitled for the tier reward

Top Crowdfunding SitesRank Site Fee Notes1 Gofundme 5% Over $2 Billion raised for personal fundraisers.

Processing fee of 2.9 + $0.30 applies

2 Kickstarter 5% Personal fundraising not allowed. Creative only.Processing fees between 3-5% apply.

3 Indiegogo 5% 3% processing fee. $25 for international wire.

4 Teespring 10%+ T-shirt crowdfunding site.Fees vary based on t-shirts selected for sale.

5 Patreon 5% Must pledge an on-going amount. Creative projects only.Additional processing fee of 4%.

Crowdfunding

Extra Credits, Season 4, Episode 10 – Crowdfunding (7:29)

Pros and Cons

Pros Keep your equity and IP Money is used for development Focus on projectCons Less flexibility to change direction Funding project, not company Specific projects get funding

Kickstarter Games Funded

Only about 38% of all Kickstarter campaigns get funded!

Why Makes Some Campaigns Successful?

Crowdfunding Is NOT “Free Money”Running a Kickstarter is like having a full-time, unpaid, difficult job for 3 or more months!

Do Your Research Look at other, similar Kickstarters

How did they raise?Where did they raise it?

Ask developers about their success and failure stories

Legal Liability

This type of fundraising is not considered an investment and avoids any securities law issues.

BUT.. You are entering into a contractual agreement with your backers to deliver the promised rewards. Because of this, you need to get your project planning together before entering into this type of relationship.

Form A Business Entity Before StartingBenefits Avoids the personal income hit a tax time Protects you from personal liability Forces team to sort out ownership issues

A local university business clinic may help you avoid higher legal fees.

Crowdfunding Canvas

The Ask Think hard about what it’s really going to cost to

develop your game. (e.g., $300K) Then think hard about the minimum you need to

make your game. ($130K) Now cut that in half ($65K), because there’s

bonuses to hitting your goal in the first week. Remember that the Ask should be inclusive of

Kickstarter fees (~10%), federal taxes (~20%+) and rewards (~10%).

Build An Audience Before Launching Build a Twitter following Build an email list Attend conventions

The Copy

It has to look good. It has to appear professional and eye-catching.

But no one is going to read it.

The Copy The body copy is your store window, so window

dress. But don’t expect people to do a deep dive and

read every single thing. Communicate as much as you can visually.

Motion! Excitement! A static page is for a static project and your project is EXCITING. Be confident!

Watch the character limit!

Example of A Well-Design Page

The VideoYour video is a commercial for the rest of the page. If it’s a bad commercial, potential backers ‘change the channel’. Take time to do it right. Keep it short: less than 3 minutes. 2 if you can swing

it. Get to your gameplay footage fast. (Secret: Most

gameplay footage is faked) No talking heads. Your game is more interesting than

you are.

Example Of A Successful Kickstarter Video

Too Much Story

Gameplay Too Late

How About This One?

Let’s Go Viral

The RewardsThey have to be cool enough that people want them BUT they have be cheap enough that you can fulfill & ship them.

Find items that are valuable to your audience, not just expensive.

Get quotes on EVERYTHING. Call up multiple print shops or shirt printers.

SHIPPING! Take your hypothetical package to the post office website and see how much it’s going to cost you to send.

The RewardsPhysical or digital rewards given to backers based on pledge amounts.

Each reward tier usually includes rewards from previous tiers

Additional info: Estimated delivery date, shipping territory, quantity available.

Pledge Reward

$5 Exclusive digital wallpaper

$15 Digital copy delivered on Steam

$25 Elite version of the Grappling Hook In-Game Item

$30 Name in credits under “backer”

$35 Digital Art Book

$50 Closed Beta Access

$65 Elite Avatar Skin

$75 High resolution digital map

$100 Printed art book

$125 Signed printed art book

Successful Campaign Example

Launch The first 48 hours are critical for collecting money. Launch on Monday-Wednesday. Don’t launch on a holiday or the same day as any big

events or game releases. Projects seem to fund more often in the summer, not so

often in the winter Tweet and email mailing list as soon as the campaign

launches. You’ll know in the first 3 days whether your campaign

will be successful.

During Campaign

Running a campaign is a full-time job!

Answer e-mails, questions on Kickstarter, Twitter and Facebook.

Get in touch with the press, bloggers and more.

The Community

Warning: The community will take a sense of ownership in your game. Be careful about posting your *ideas* for game features because they will take it as gospel, and if you don’t implement them, they will come after you.

Stretch Goals

Additional features to will implement once money is raised beyond the original goal.

Goal Feature$50K Goal Reached

$60K Artbook upgrades to hardcover

$70K 2nd Playable Character

$80K Nightmare Difficulty Mode

$85K Voice Acting: David Hayter

$100K Cheat Codes

$125K Local Co-op

$150K New Boss

$175K Speed Run Mode

$200K Boss Rush Mode

Stretch Goal Objectives Get new backers to pledge to your

campaign Get current backers to pledge more about

your campaign Get your backers to talk about your

campaign Get the media to talk about your campaign

Stretch Goal Types Straight Additional Stretch Goal

Adds value to all backers Extra levels, better music Motivates backers to spread the word

Segmented Additional Stretch Goal Adds value to only a subsection of backers Port to a new platform, additional language May bring in some new backers

Incremental Rewards Stretch Goal Adds value to backers who increase their pledge Additional content added to a new reward level

Stretch Goal Rewards Extended Content (Straight Additional Goal): More levels in a

platformer, more campaigns in an RTS, an extra character in a fighting game

Exclusive Content (Incremental Reward Goal): Variations of existing content that can easily be produced.

Improved Content (Straight Additional Goal): Taking existing content and making it better.

Port To A New Platform (Segmented Additional Goal): Consoles, Mac, Linux, Mobile

New Language (Segmented Additional Goal): Spanish, Chinese, Arabic, Klingon

Physical Content (Incremental Reward Goal): Game box, art book, t-shirt.

Stretch Goal ScenariosDon’t announce your stretch goals at the start of the campaign!

Scenario 1: Your campaign barely makes it. You don’t need any stretch goals (or maybe just one at the end).

Scenario 2: Your campaign is funded mid-way. Have relatively small stretch goals, and maybe an ambitious one at

the end.

Scenario 3: Your campaign is funded in a few hours. Have some small ones you can meet right away, and then space out

ones of different financial sizes.

Stretch Goal Tips Treat stretch goals like mini-campaigns in

themselves Focus on what the community wants Think through how would-be backers

interested in them will hear about their existence

Marketing, Not Just MoneyCrowdsourcing is generally thought of as a way to procure a budget for your game, but it's also a great way to create awareness. Forces you to create a product description and video Can get your website hits Open communications with a lot of other developers A lot of other journalists keep up with new

campaigns

Common Pitfalls Not delivering what was promised Underestimating the effort involved in

keeping a community happy. Managing expectations.

Group Quest

Create Kickstarter pledge rewards and stretch goals for your game.

The Ethics of Kickstarter

Alphafunding

Like crowdfunding, except that you provide fans with an incomplete game, and they fund its completion.

Mid-sized online distributors like Desura offer this service.

Boss Battle Ahead!

There will be a test on Levels 1-3 the next time we meet!

Away Mission

Analyze a Kickstarter campaign.