EDITOR'S NOTE: Author Mike Futter is a freelance journalist and gaming industry consultant.

Making a video game is a series of creative challenges.

Some of those challenges, you’ve prepared for. You’ve gone to school for programming, you’ve honed your visual arts skills, or you’ve built a career in sound design. Perhaps you’ve worked in a QA shop or done some freelance localization. Maybe you’re freshly “indie” after years in AAA. But unless you’ve studied finance, happened to stumble into those responsibilities earlier in your career, or have the benefit of a business professional on staff, you may not be quite as ready for those important tasks.

You’ve got big creative ideas. Whether slightly blurry or completely in focus, you have a picture in your mind of a game you want to make. What you may not have is the money to execute on that vision. You know you need financing, but you might not know the differences between the types of funding or how to secure it.

Before you start pitching your studio or project, it’s important to understand who you’re talking to. To that end, we’ve assembled a brief primer on the different types of funding you might pursue.

Venture capital, angel investment, project funding, equity investing... What does it all mean?

Private equity (or “PE”): Private equity investment comes from individuals or firms that purchase ownership in companies that have not yet gone public or public companies that investors plan to take private (though the latter isn’t common in the video game industry). The goal, as with any investment, is to see a return through a company’s growth.

Private equity is a diverse field, with some funders choosing to take a passive role. Others are more hands-on, providing guidance and supporting management. Often, PE firms will target established but underperforming companies in the belief they can turn them around and reap big returns.

Some private equity firms funding in video games include Providence Equity Partners, Insight Venture Partners, and Lightspeed Venture Partners. There are also funds that focus specifically on the video game industry. Makers Fund, Kowloon Nights, and Hiro Capital are just a few of these new groups springing up to support studios and industry innovators.

Venture capital (or “VC”): Venture capital is a catch-all term for early stage investments. It can come from private equity, financial institutions, or solo investors looking to help take small, promising companies and help them reach their potential. VC is risky, but it’s becoming a common way for new businesses to secure funding necessary for growth. VCs usually want to make sure their risk is mitigated as best as possible, that means exercising governance control of a company through board seats and voting rights. It’s important to note that an investor may require the ability to veto certain salary increases, sale of intellectual property, or other significant business decisions to make up for their votes, which will likely always be in the minority compared to business founders.

Venture capital firms investing in games include Sequoia Capital, Kleiner Perkins Caufield & Byers, and Andreessen Horowitz.

Angel investment: Angel investors are typically experienced entrepreneurs or seasoned executives that have made their own fortunes. They typically fund in fields in which they have professional or academic experience, often seeking out companies that have cohesive business plans and strong managerial teams.

Although the term "angel investor" may sound heavenly, these individuals are still looking for a return on their investment. They just may be in a position to offer expert guidance, mentorship, and access to other high-profile funders that might otherwise be out of reach for a nascent business.

Crowdfunding: While not the first video game crowdfunding project, 2012’s Double Fine Adventure (renamed later as Broken Age) put Kickstarter on the map for game developers. The idea is simple: pitch your game to your audience and ask them to fund it years before it will be delivered. In practice, crowdfunding is a complicated, intense, and stressful way to seek funding. The bubble has long since burst, too. In 2019, video games earned $16.9 million on Kickstarter, down from more than $50 million in 2012. To date, there have been more than 50,000 projects launched in the games category, with more than 20,000 successfully funding (though it is important to note that this group includes tabletop campaigns, which make up the bulk of funding in this category). Crowdfunding isn’t the magic bullet for video game funding some hoped it would be, but it is still a viable path if you have the right project.

Kickstarter continues to be a popular target for companies seeking crowdfunding, though Indiegogo offers different options, including one that still awards backer funds for projects that do not reach their targets.

Crowdinvesting: The crowdinvesting model blends the grassroots community building of crowdfunding with a more traditional outlook on funding video game projects. Fig, founded in 2015, is a curated platform for seeking both crowdfunding and microinvestment. The model has seen success, with 25 of 39 campaigns successfully funding (64%), including Double Fine’s upcoming Psychonauts 2 and Drastic Games’ Soundfall. The platform has also made investor profits for five of its eleven released games, with five games profitable to investors and a sixth close to breaking even. Fig continues to evolve its model, recently expanding to a model called “Open Access,” an ongoing funding campaign for games that are in an early access state.

While some people see crowdfunding and crowdinvesting as a generator of momentum, Fig founder and CEO Justin Bailey cautions against seeing either as a magic bullet for success. He suggests that these types of campaigns come after developers have traction.

“In reality, we work better when we're trying to amplify what they already have,” Bailey explained. “Everybody likes to be part of a success story. Everybody likes it when momentum is already established. It's just way too hard to try to get things moving. When they come into this, they should think, ‘Hey, I'm going to bring at least half of both the traffic and the funding I need for this campaign to succeed.’”

We’ll discuss crowdfunding and crowdinvesting in greater depth in a future article.

Publishing: Traditional publishing is still a viable option for a number of developers. While there are different models under this umbrella, a publisher typically provides funding early on in development, provides a variety of services (marketing, public relations, quality assurance, localization, first-party relations, etc.), and allows studios to focus on making the best game possible instead of dealing with a number of non-creative concerns. We’ll be talking more about publishing in the future.

Grants and Tax Credits: Your studio’s geographical location might make you eligible for certain types of funding. The Canadian Media Fund and the UK Games Fund are two examples of government financial support for local companies working in digital interactive media. The state of Georgia, in the United States, and the province of Quebec, Canada are examples of regional governments offering tax credits.

Likewise, some companies offer incentives or funding opportunities for using certain tools. With $100 million set aside, Epic MegaGrants provides funding for a wide range of projects and creators, including game and tool developers, both students and educators working in academic settings, media and entertainment creators, and more. If you’re working with Unreal Engine, or contributing open-source tools and resources for the community, applying for an Epic MegaGrant may be a good option.

Funding is not a problem; it’s an opportunity

A big part of preparing to seek funding is understanding that your motives need to align with your prospective funders’. It’s easy to look at your need for cash as a problem requiring a solution. But that will only get you so far. You may convince friends and family to support your project based on need alone, but the investment community isn’t going to bite.

“I see it every single day where it's like, ‘Hey man, I just need money. I don't care if it comes from VCs or publishers or banks. I just need a bag of cash,’ says Execution Labs co-founder Jason Della Rocca. “It doesn't work that way.”

Della Rocca says that funders are looking for opportunities. Positioning funding for your studio or game as a problem isn’t likely to work.

“A person who's going to give you money is looking for an opportunity, and the opportunity looks different depending on who they are,” Della Rocca explains. “If I'm your mom the opportunity is different than if I'm a bank. It’s different if I'm a VC. It’s different if I'm a platform or a publisher."

Shifting perspective from what Della Rocca calls a “missing money” problem to one that entices an investor with opportunity is a key to being successful. Finding those hooks starts with identifying what your team is good at, touting the talent you’re working with, and highlighting the path you’ve taken so far.

That ultimately leads to a major fork in the road: project funding versus company equity financing, which we’ll cover in-depth in our next piece.

Let your principles guide your pursuit of funding

Finding funding can be challenging, but it’s important to remember that taking equity investment or project funding is a long-term proposition. You’re going to be working with your funder for years, and it’s crucial that you find the right match.

That might even mean making the hard decision to turn down your only offer if the terms aren’t right. However, if you have a strong studio and/or a great game concept, chances are another offer isn’t too far away.

Just as it’s necessary to determine what kinds of opportunities you are offering a funder, it’s important to go through the exercise of figuring out exactly what you want from a relationship with an investor and your core principles when seeking funding.

Polyarc (Moss) took a number of years to find the right funder for the studio. CEO and co-founder Tam Armstrong revealed that he and his team spent years figuring out whether they wanted equity funding or project funding.

“The project funding we were able to have productive conversations around, came with constraints or requirements that we were not particularly interested in,” Armstrong said. “Not to say that they're either good or bad, but we were very interested in retaining ownership of our intellectual property. At the time the project financing options we had didn't seem to allow for that. Whereas the equity investment does intrinsically allow for that because they're investing in the IPs.”

Armstrong noted that there are, of course, project funding deals that allow developers to retain control of their intellectual property. (Note that your legal counsel should review any contracts and can best advise you about IP ownership, control, and usage on a case-by-case basis.) Ultimately, Polyarc pursued equity investment, but not exclusively to retain control of its intellectual property.

“Once we were talking to enough of these people, we realized that the incentives being aligned to see the success of the company just felt better to us,” Armstrong explained. “It felt better to know that the money we were taking had similar goals to ourselves, which is the long term health of the company.”

Looking ahead…

In our next article, we’ll discuss finding funding at different stages of the development process, provide guidance on pitch materials, and share tips from funders who are out there looking for games and studios just like yours. In the future, we’ll take a closer look at crowdfunding, crowdinvesting, and publishing as options for making your game a reality.

Mike Futter is a freelance journalist and gaming industry consultant. He is the author of the Gamedev Business Handbook and co-host of the Virtual Economy podcast. Find out more here.