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LAFS Marketing and Monetization Lecture 3: Game Funding

Level 3 of the Los Angeles Film School's Marketing and Monetization class.

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LAFS Marketing and Monetization Lecture 3: Game Funding

  1. 1. Level 3 David Mullich Marketing and Monetization The Los Angeles Film School
  2. 2. BUDGETS
  3. 3. How Do You Set Up A Budget?
  4. 4. Game Development Budget Simple Method Team Hourly Rate x Hours Dedicated To Project Hard Costs  Rent  Utilities  Equipment  Supplies  Insurance  Taxes  Etc.
  5. 5. Game Development Budget Alternate Method  Set your budget (and accept that limit)  Divide that budget into expenses
  6. 6. Revenue Goals Expected Price x Unit Sales Projections Deductions  Channel  Publisher  Distributor
  7. 7. Marketing Budget 8% to 15% of total revenues Note: This is typically used for larger organizations, and you shouldn’t necessarily spend this limit
  8. 8. Mini Financial Model Notes Anticipated Game Revenues Recommend Low, Medium, High scenarios - Subtract Development Budget - Subtract Marketing Budget Recommend Low, 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.
  9. 9. Where Do Game Developers Get Funding?
  10. 10. 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.
  11. 11. SELF FUNDING
  12. 12. Day Job Earn money from “real work”, but do game development at night and on weekends.
  13. 13. Bootstrapping Paying 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 road Cons:  Personal financial risks  Self-publishing costs
  14. 14. 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.
  15. 15. Bank Loans Bank 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.
  16. 16. 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.
  17. 17. 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.
  18. 18. 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
  19. 19. Contract Work Pros  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!
  20. 20. 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.
  22. 22. Private Funds Private 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
  23. 23. Grants Getting 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.
  24. 24. 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.
  25. 25. Grants
  26. 26. 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”
  27. 27. NEA Grant Winner Games for Change's Half the Sky
  28. 28. NEA Grant Winner City of Sacramento Art Project
  29. 29. NEA Grant Winner USC Experimental Game Division's Walden
  30. 30. Grants National 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
  31. 31. 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.
  32. 32. 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.
  33. 33. 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
  34. 34. Grants SBIR/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
  35. 35. Grants Public 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
  36. 36. 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
  38. 38. Angel Investor An 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.
  39. 39. Incubation Centers Support 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
  40. 40. 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.
  41. 41. 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
  42. 42. Shark Tank Pitch Spy Escape And Evasion
  43. 43. Why Did This Pitch Get Funded?
  44. 44. Four Pillars To A Great Pitch Delivery  Clarity  Simplicity  Passion  Practice
  45. 45. Six Steps To Success  Hook  Problem  Unique Solution  Team  Traction  Close
  47. 47. 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.
  48. 48. 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
  49. 49. Funding Models Model 3  Start contracting art assets.  Create a concept and go seek crowdfunding.  If successful, apply for Indie Fund.
  50. 50. Practice Round Come up with a Funding Model for your game.
  52. 52. 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.
  53. 53. How It Works Developers  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
  54. 54. Top Crowdfunding Sites Rank Site Fee Notes 1 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%.
  55. 55. Crowdfunding Extra Credits, Season 4, Episode 10 – Crowdfunding (7:29)
  56. 56. Pros and Cons Pros  Keep your equity and IP  Money is used for development  Focus on project Cons  Less flexibility to change direction  Funding project, not company  Specific projects get funding
  57. 57. Kickstarter Games Funded Only about 38% of all Kickstarter campaigns get funded!
  58. 58. Why Makes Some Campaigns Successful?
  59. 59. Crowdfunding Is NOT “Free Money” Running a Kickstarter is like having a full-time, unpaid, difficult job for 3 or more months!
  60. 60. 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
  61. 61. 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.
  62. 62. Form A Business Entity Before Starting Benefits  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.
  63. 63. Crowdfunding Canvas
  64. 64. 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%).
  65. 65. Build An Audience Before Launching  Build a Twitter following  Build an email list  Attend conventions
  66. 66. The Copy It has to look good. It has to appear professional and eye-catching. But no one is going to read it.
  67. 67. 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!
  68. 68. Example of A Well-Design Page
  69. 69. The Video Your 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.
  70. 70. Example Of A Successful Kickstarter Video
  71. 71. Too Much Story
  72. 72. Gameplay Too Late
  73. 73. How About This One?
  74. 74. Let’s Go Viral
  75. 75. The Rewards They 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.
  76. 76. The Rewards Physical 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
  77. 77. Successful Campaign Example
  78. 78. 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.
  79. 79. 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.
  80. 80. 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.
  81. 81. 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
  82. 82. 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
  83. 83. 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
  84. 84. 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.
  85. 85. Stretch Goal Scenarios Don’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.
  86. 86. 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
  87. 87. Marketing, Not Just Money Crowdsourcing 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
  88. 88. Common Pitfalls  Not delivering what was promised  Underestimating the effort involved in keeping a community happy.  Managing expectations.
  89. 89. Group Quest Create Kickstarter pledge rewards and stretch goals for your game.
  90. 90. The Ethics of Kickstarter
  91. 91. 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.
  92. 92. Boss Battle Ahead! There will be a test on Levels 1-3 the next time we meet!
  93. 93. Away Mission Analyze a Kickstarter campaign.