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adiash

Raising funds

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Hi All, I am a software engineer, working full time in the field of video compression. However, my real passion lies in games programming. I have been developing a game for the mobile market (Nokia series 60 phones to be exact) in C++ over Symbian. It is important to emphasize that this is not at all in the league of Java games. In any case , the development is going well, but rather slowly since as I mentioned I am working full time. Recently I decided it is time to take the plunge. That is, quit my job and go pro in this field. However, there is the money issue - it always creeps up on you... I calculated the amount of money I need to start my own company and purchase all the tools + hardware + salaries and I got to about 60,000$. This amount should be sufficient for a full year. This is considered a ridiculous amount of money, and serious investors don''t even deal with such investments. This leaves the option of an "angel". Someone who is not a professional investor and that is willing to take the risk. Do any of you guys have an idea how to go about this? How do I find these "angels" ? Thanks, Adi.

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''Angel Investors'' are generally well-educated, affluent individuals. They usually _are_ serious investors. Frankly, they''re going to look at you just as hard as the bank would for a small business loan, and they''re going to end up owning the majority of your company.

I''d look into getting a small business loan or a second mortage on your house if you''ve got one first, unless you''ve got a rich uncle or something.

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Check with your local small business adminstration office or visit www.sba.gov.

What I learned from starting a business is that is HARD to get funds for a start up company for which you the principal have no experience, almost next to impossible, unless you have quite a bit of your own capitol to put up.

You have experience working as programmer, but you have no experience running a game developement company. I''m not saying you can''t find the money, but its going to be hard.

Luckily for me I found my ''Angel'' investor through my local church.

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There has been a pretty constant quest in the games industry to find sources of investment funding. Sadly they are still very few and far between. The general rules are
1. Seed/start-up funding has to come from FFS (friends, familiy, savings).
2. Investors want their money used to grow a company rather than just start one.
3. They want to see a plan that shows normal growth and accelerated growth (with their investment).
4. They want to see a clear exit strategy showing how they get their money+profit back.
5. Raising investment takes anywhere from six months to years.
6. Over 90% of business plans are rejected on the first reading.
7. Many of the deals that do get done are due to contacts (as shown by the above poster).

The above doesn''t mean you wont be the one to find that illusive investor willing to fund your venture your way. However it does mean that it will take time and the odds of success are not good. You need to have a plan B that you can get on with while looking for funding.

Given the small size of most mobile games you should look at following the standard shareware start-up model.
i. Make game while still working.
ii. Start selling game (and make almost no sales).
iii. Repeat until you have a portfolio and start to get a name for yourself/your products.
iv. Give up your day job.

If at some time dueing that you raise the finance you can fast track.

Dan Marchant
Obscure Productions (www.obscure.co.uk)
Game Development & Design consultant

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Elysian Productions Inc. has been looking for funding for a game concept that we have for almost three years now. While, we've made progress on that end, I can't tell you how difficult it has been. Two comments:

Angel investors are not for you with your need. You could accomplish your goals with a simple home equity loan and begging friends and family. Your Angel will more likely be someone that you know from church, school or your local community and this person will not make his living as an Angel investor.

A professional Angel isn't going to waste time considering a $60,000 investment. Consider that to be a professional investor you need to meet certain income guidelines and have a certain net worth. (~300K/year & 1M+ Net worth) To them $60,000 is something you spend on a car. Add a zero to that and now you're talking about something that they might look at. Its far easier to take ten million and invest it in two - four investments than it is to spread it amongst 10 - 15 investments. Each investment requires some level of time from the Angel to monitor how the investment works so more investments == more overhead.

Furthering this from the otherside of the equation, professional investors do not invest in games or products for that matter. They invest in companies. They invest in companies with a growth strategy and an income potential to repay the investment + at least 30% compounded interest. For this you will give up 60% - 90% of your company. The Angel makes his money from your business' net profits through dividends on his equity shares. If you only give up 60% of the company then 60% of your net profit better be able to at least return the compounded interest for the investment. If it can't then its not a good investment and you'll never get funding. A game does not make a company but a company can make a game. That distinction is very important and a savvy investor will weed out the companies that built themselves with no more forward thinking than the current game they want to work on. After all, how do you show long term viability if you do not know what your employees will be working on once the first game is complete? You're company cannot be a two-year-then-throw-it-away-because-we-forgot-to-plan-what's-next company.

Once you get all this solved, you'll then know what your next steps are. In your current state, friends, family, savings, and credit cards are your best method. They ask far fewer questions and require far less expertise.

Kressilac
a.k.a. Derek Licciardi
President, Elysian Productions Inc.
www.agesofathiria.com

[edited by - Kressilac on January 15, 2004 1:18:41 PM]

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> This leaves the option of an "angel".

You will hardly find a ''solo'' angel investor willing to make an investment. I suggest you contact you city''s ''First Tuesday'' organization if you have one. Angel and VC investors meet informally once every month for reviewing business plans and pitches from various companies seeking funding. It''s usually by invitation only, but you might find in the FT city''s web page well-known names you may want to approach with your idea and get useful information for your business idea.

As kressilac said, unless you propose a solid business plan backed by a solid management team and some expectation of explosive growth, your chances are slimmer than nil in getting VC or angel financing.

-cb

http://www.firsttuesday.com/

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Personally, I wouldn''t seek an angel or a private VC for the kind of money, and kind of project you are talking about.

First off, and this is from personal (bad) experience, the ''angel'' can turn into a ''demon'' pretty quickly, and before you know it they have majority share in your company and are telling you how to run it. It goes downhill from here.

Secondly, you''ll probably have to at least get some work in before anyone is going to invest in you, and if you CAN get some work in, then you might be able to use that money as your investment and retain complete ownership of your company.

Further down the line, that share of your company will be worth far more than that 60K you''re looking for to start up. If you can start-up relying on your own funds, working from home, you may end up generating enough cashflow to continue.

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quote:
Original post by Obscure
6. Over 90% of business plans are rejected on the first reading.


That''s a little overdone I think. I think it is more like 98% or ever higher. Anyway, I had to write a businessplan as well for my company. I followed NewVentures handguide on writing a businessplan and it tuned out pretty well for me.

I couldn''t find it on the internet anymore so I''ve uploaded the guide to my website. I suggest you read it, learn, and try to make sure that you are with the 2% and not the 98%.

startingup_part1.pdf
startingup_part2.pdf
startingup_part3.pdf
startingup_part4.pdf

I hope these help!


Sander Maréchal
[Lone Wolves Game Development][RoboBlast][Articles][GD Emporium][Webdesign][E-mail]

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I strongly advise against quitting your day job and taking loans of any sort.

If you are looking to start a company (however small) and you plan on doing this long term, then I suggest the following:

1) Form a LLC (limited liability corporation) and write a solid business plan.
2) Find a good corporate lawyer. You shouldn''t have too much trouble finding one willing to lower his rates, or maybe do some work in exchange for a minority stake in the company.
3) Don''t spend money on anything you dont immediately need.

As far as investors go, most "accredited" investors (angels) will usually invest in a startup anywhere from $10-20k and not bat an eye. This is usually "mad money" for these individuals, and they have it to burn. More experienced angel investors will usually do $50-100k, but tend to be more "sophisticated"...they may want a seat on the board, better voting rights, dilution protection, future options, etc. etc.

Keep in mind that investors arent looking to fund an individual, they are looking to get in as early stage investors and will be looking for a big payoff (called an "exit") in the future...usually through an acquisition, merger, IPO, or a buyout.

There are a lot of creative ways to deal with private investors for funding, and there are also a lot of things you have to watch out for. This is where having a lawyer handy is a super good idea. For example, you can''t post "startup company seeking investors, stock is $ per share" on your website...that breaks half a dozen laws and the SEC considers that an illegal public offering.

If you plan on going it alone as a one-man studio, then I would suggest incorporating as an LLC (much better than a sole-proprietorship or a Subchapter S), and working in your free time to get a simple game or two out the door. This is low risk for you, and all of your expenses (software, etc.) can be used as tax writeoffs through the LLC.

Don''t take out any loans, and don''t even think of risking your house. If you are quitting your day job, and that money runs out, you are going to be in a bad situation.

Start small and simple. Look around, you might find someone (publisher) willing to advance you some royalties in exchange for rights to your mobile game (assuming you have it far enough along for a decent demo and its designed/developed well).

Feel free to email me if you have any questions or need some advice. I''ve been in the industry since the early 90''s and Ive worked with several startups. Not to mention I''ve raised quite a bit of funding over the years from angel investors.

There is a lot more to be said about the topic of approaching and dealing with private investors...

Robert Rice
robert@orchidmedia.net

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