25 Sep 09

Reading about: Funding

It’s a public holiday, so I’ve had nothing to kick me out of browsing today. Usually when that happens, I end up reading as many interesting things as I can find. At the moment, that means business-related stuff.

Today’s topic was funding, thanks to a couple of cool links courtesy of Silicon Cape‘s Justin Stanford. The whole investment/funding/trying to get money to break out of the contract-cycle thing is a very different area for me, I know we need to do it (we have to get away from working for pay and start working for revenue) but I’ve never been much of a salesman. It keeps feeling like one of those “business things” that’s secret knowledge beyond the reach of normal mortals or something equally kooky.

I believe I speak for all of us when I say “bugger that, there’s nothing here I can’t figure out”. So, here are my thoughts after some of today’s articles:

Do You Really Even Need VC?
Good question. Does QCF really need venture capital? It’s the thing everyone in the business community (yeah, the one with the hats and the silly handshakes – you’ve never been invited) talks about… The article raises good points, explaining what VCs want and what VC money is essentially for.

Based on this reading, I’ve come to the conclusion that QCF doesn’t need VC funding… We’re not trying to be some huge company that is eventually sold for zillions, we’re trying to create a stable platform for us to create games from. Sure, we want to be insanely profitable, but I don’t see us growing beyond 25 people in the next 5 years. We may even go public at some point, trading on our reputation and the aforementioned insane profitability, but we’re a collection of creatives instead of a monetisable set of assets. The small amounts of money (<$1M) that we need to hit that revenue business model aren’t in the VC “rocket fuel” league. A good analogy would be that taking VC “rocket fuel” money would transform QCF into a publisher, not a developer.

That leaves us with angel investors and the dirty word this post: Loans. Finding the right angel investor would be a boon. Angels tend to be happier with profitable businesses instead of massive exits after 3-5 years and they often bring valuable skills to the table. They’re also more likely to invest smaller amounts in a business. So, anyone know any angel investors in/around Cape Town? We’ve already been doing the whole friends and family thing – practice pitching when needed – and it’s working: We’re getting interest, quite a lot of it. What we aren’t getting is help turning that interest into money in the bank, paying to develop a game. We have NO idea how to structure an investment deal, or what that really entails. Hence looking for an experienced angel investor, someone who could sketch the pattern for an investment relationship even if they don’t invest themselves.

Which brings me to the loan topic. When it comes down to it, money is money. Loans leave bad tastes in people’s mouths, but that’s something that this article helped me to reconsider. We should seriously look into getting some sort of capital loan to fund a project, especially given the film-related project funding model we’ve been kicking around recently (more on that in another post, maybe). Getting a loan for R500k to fund SpaceHack (with a little extra wiggle room) doesn’t seem like a bad idea. It at least bears adding to the list of things to look into.

The Hacker’s Guide to Investors
Trying to understand how people who invest in businesses think. Sort of treating this like a player/designer relationship: I want to get into these people’s heads so that I can give them the “play” experience that they want. Some good reading here. Uses a bunch of concepts that I keep reading about, but don’t fully understand: Valuations, equity dilution, offering pools, etc. Equity breakdowns still confuse me – would be nice to find a good guide so that I can get my head around it. I hate how “business types” assume that you’re either stupid or useless when you haven’t been exposed to these sorts of terms before. The article raises this point, saying that “[w]hat investors still don’t get is how clueless and tentative great founders can seem at the very beginning.”
I’m perfectly comfortable learning complex systems, I really just want the equity API docs, plzkthanks 😉

I’ve got a few more articles about angel investment queued up in my browser tabs, hopefully I can hit them soon.

3 Responses to “Reading about: Funding”

  1. Leslie Young Says:

    Awesome read, thanks dis.
    Gonna hit those links a bit later.

    “I really just want the equity API docs”
    hehe. that would be very useful :)

  2. Justin Paver Says:

    Hey Danny, I’m curious why you haven’t approached Dan Wagner about this. As you know he founded I-Imagine with VC funding and probably has a ton of good advice and experience to impart.

    Also if you’re serious and have the means, there is the option to get a financial advisor. Financial advisors could probably help quite a bit with formulating and even understanding the components of a business plan. Heck, there’s even software for formulating business plans.

    Failing that, naievely googling “game developer business plan” turns up this:
    * http://www.bplans.com/computer_programming_business_plan/executive_summary_fc.cfm
    and this:
    * http://www.gameproducer.net/2006/06/22/basic-marketing-plan-for-indie-games-2/

    I think it’s a good idea that you’re learning to understand all the parts of a business. That’s critical, otherwise you’re flying blind and have to trust others to take care of that aspect for you. On the other hand, if I were a “business type”, I wouldn’t want to finance someone who didn’t understand the concepts either :)

  3. dislekcia Says:

    Hi Justin, long time no hear!

    We have spoken to Dan about random business things and the game industry, specifically XBLA and how to get on it, post-Spacehack. However, the thing I was going for when I wrote this was the question of if we even needed investment. It turns out we didn’t: We’re completely self funding Desktop Dungeons right now, probably for the next year at least.

    QCF’s business plan was written long before this 😉 In fact, one of the key people I bounced it off (as it does contain some rather unorthodox ideas about developers owning their IP and revenue share structures) is a financial adviser friend. There’s a surprising amount of similarity between writing a design doc and writing a business plan. They’re related processes.

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