A Gambitious Proposal?

Access to finance is the biggest, most important challenge facing game developers across the world. In the UK alone, trade bodies TIGA and UKIE have published exhortations to the government to open up routes of investment for games studios - particularly since the country voted to leave the EU in June 2016.

But despite projects such as the UK Games Fund and schemes such as Videogame Tax Relief supporting British development, investment cash from private individuals or companies remains essential for growing businesses. This is particularly important for independent game developers, who often have the most difficulty raising the cash needed to succeed.

That's where Gambitious is aiming to step in and help. Founded in 2011 and majority owned by Devolver Digital, with Mike Wilson and Harry Miller acting as co-founders, Gambitious is a publisher that finds finance for independent developers by tapping into a network of private investors it has invited to potentially support its games.

But what problems do indie developers face when getting funding? Why have crowd-funding services like Kickstarter rubbed Gambitious up the wrong way? And how exactly does the service work? We spoke to Paul Hanraets, co-founder and also CEO at Gambitious, to find out more ahead of his appearance at the GamesIndustry.biz Investment Summit at EGX in Birmingham later this month..

Bridging the "equity gap"

To understand why Gambitious exists, it's essential to understand that getting investment in an indie game is, according to Hanraets, "extremely challenging".

In particular, he identified three main issues facing developers seeking funding of less than a million euros - the current maximum threshold for funding that Gambitious currently offers.

The first is a problem familiar to developers operating across the gaming industry: the number of rival games within the market. With Steam Spy claiming that there are over 2m games on the Steam Store and Apple showing off the fact it has 500,000 on the App Store alone, intense competition within the gaming space undoubtedly makes the fight for investment that much harder.

However, the second issue for early stage indie developers seeking investment is more specific to their circumstances. When an indie developer starts out and is hunting for third party support, they need to be able to build a serious prototype to show off their game idea. But if they're just starting out, how can they finance themselves while they're making the demo?

This phenomena, called "the equity gap" by Hanraets, is one of the biggest problems that face indie developers.

"We at Gambitious ask developers to show us a playable demo before we take the title into consideration. But a lot of indie developers are struggling to finance the demo"

"We at Gambitious ask developers to show us a playable demo before we take the title into consideration. But a lot of indie developers are struggling to finance the demo. That's what I see what a lot of starting indie studios."

That said, the third and final problem facing indie developers is one of their own making: the lack of a clear route to market. And according to Hanraets, it's obvious that some developers genuinely don't have a clue how their game is actually going to come out.

"[Lots of] the developers that pitch to us don't have a clear view of what they're looking for, a clear business plan or a breakdown of the amount actually needed for development," he said. This means that dedicated creators end up shooting themselves in the foot when looking for cash.

"Developers pitching their ideas towards me at events and at pitch events. They pitch their game. They have a very good story, they can pitch the basic idea behind the game and you can see their passion. But then when you actually ask them about the amount needed and the amount they're going to spend...they don't have a clear answer."

With market conditions against indies, and with Hanraets claiming that most investors see gaming as too "exotic" and "high risk" to put money into, indie developers are often turned away from traditional forms of investment.

Crowd funding and credibility

Despite promising to help businesses benefit from democratised finance on its website, it's notable that Gambitious approaches the topic of crowd-funding with at least some hostility.

Wilson has been particularly outspoken on the topic. In an interview for Venturebeat in June 2016, he described crowd-funding as "dumb money" the use of it by certain developers as "borderline fraudulent" because they failed to create a finished product using the funding they raised online.

"The problem we have with are that a lot of developers aren't honest and open on the projections of their titles"

When speaking to Hanraets about this, he was keen to highlight the positive aspects of crowd-funding and the role it could play in overcoming the equity gap.

"My colleague Mike is a bit more outspoken on that field than I am. Personally, I, and also talk for Mike, that crowd funding as whole is perfect for the industry. It gets developers the money that they need - also for the prototype."

Nevertheless, Hanraets was equally keen to point out that he does have concerns with the way Kickstarter is being used to fund games. And right at the top of the list of concerns for him is the perception of crowd funding services acting as a tools to prove concepts - not to properly fund game development.

"The problem we have with are that a lot of developers aren't honest and open on the projections of their titles," Hanraets explained. "We are getting pitched a lot of projects that did a Kickstarter campaign and were successful but they knew in advance that they were never going to make the title they wanted with the money they got from the campaign.

So they used it [the crowdfunding project] as a sort of seed funding for their projects, which I can understand because it's needed before they get to a publisher and they've got a proof of concept. But that's not what's being communicated on backers to the portal itself."

This feels particularly true when we look at a couple of major crowd-funding campaigns that grabbed consumer attention over the past year.

Star Citizen's seemingly never ending crowd funding campaign does give off an unhealthy whiff of pumping an oil reserve drive, while the $2m crowdfunding campaign for Shenmue III announced at E3 2015 was clearly less of a genuine attempt to raise funds for a game and more a demonstration for the benefits of publishers.

And although it makes sense for developers to attempt to do this to demonstrate an audience, it does blur the lines between what the campaign creator wants (extended funding) and what the consumer thinks they're backing (the finished game).

A more Gambitious Approach?

It's the space between transparency for investors and opportunity for indie developers that Gambitious aims to fit into.

The company acts first and foremost as a publisher. Developers pitch their playable demos to the company as a single project seeking investment, along with supporting documentation such as screenshots and a business plan to boost their position.

If the publishing arm of Gambitious accepts the game, then the company guarantees that the project will be funded. It does this in two main ways.

"We notice it a lot from the games that we sign that they want us to take care of the marketing title and breaking down on the development of the title"

First, it reaches out to its pool of 25-50 accredited investors to offer them an opportunity to invest equally in the game along with Gambitious. And second, if investment isn't achieved, Gambitious provides backstop funding to ensure the game gets to market.

Once the cash is secured, funding is parcelled out to the developer in batches when they reach key milestones.

It's this hand holding approach, which is rooted in Gambitious' close ties to Devolver Digital's publishing arm, that Hanraet believes appeals most to the indie developers.

"We notice it a lot from the games that we sign that they want us to take care of the marketing title and breaking down on the development of the title," he said. And the reason they want to do that is, in Hanraet's words, "so they can focus on what they're good at - making great games."

But while this approach benefits the developers themselves, it also plays a role in Gambitious' efforts to entice investors into funding individual parts of its portfolio.

By being selective on games, spreading the risk by seeking investment from multiple sources and providing real-time access for investors to performance dashboards, Gambitious deliberately lowers the chance of an investment catastrophe (or at least gives the investor the chance to spot it happening).

In the worst instance, this has meant investors have only made back 35% of their investment on Breach & Clear: Dividing Line (though Hanraets argues it may well break even following the end of its five year returns period due to the effect of bundling and other strategies).

But in the best instances, the likes of Train Fever - which was released in 2014 - made a profit within a month and developer Urban Games received a second round of funding for the soon to be released Transport Fever from Gambitious investors in under a week.

And in general, it's hard not to think that Gambitious' early record as an investment opportunity is a good one.

Out of the 15 games the company has pledged to fund and listed on its site, six returned a profit within a month. That's a 40% success rate, which rises to 50% when considering that only 12 of those games have been fully funded so far.

For Hanraets and co, maintaining that rate of success is pivotal to Gambitious' future. In its first iteration, Gambitious was a closed investment group accessible only by a select group of game focused investors.

But because of the company's strong returns, it is now opening up to general investors in countries where the legal environment allows them to (such as the Netherlands), as well as high value individuals.

"we're also getting requests from larger higher net worth investors who are less savvy, who don't want to go to the portal and pick projects"

"In the future, private investors who are just looking for a return will be able to invest," says Hanraet, " But we're also getting requests from larger higher net worth investors who are less savvy, who don't want to go to the portal and pick projects. They just want to go "can we invest in your portfolio" and we're researching how we can do that now.'

While this can be seen as a sign of Gambitious' success so far, it's also a sign of something else: the strange state of the global economy. As interest rates remain stubbornly low and government gilt yields turn sour, general investors are more willing to move money into "high risk" and "exotic" investments like games companies to try to get a return.

"Maybe some smaller successful entrepreneurs who can't put money into the bank [and get a return], so they put their money into holiday houses. But maybe some put their money into games,' mused Hanraets. "There are a lot of new investors who aren't game savvy but who like the returns they're offering and invest in our titles."

So amidst the economic doom and gloom then, there is perhaps an interesting opportunity for independent developers seeking funding. With companies and individuals willing to trade off some risk for a better return than the global saving economy offers, games companies could, perhaps, offer that opportunity for them.

Whether they can do it alone is highly questionable. But by perhaps buddying up with other developers or by finding themselves a meaningful partner, indie developers with a business head could reposition themselves away from being a creative company to being a dynamic investment opportunity.

But if there's anything we've learned from talking to Hanraets, it's probably best that any developer thinking about pulling a move like this should write a clear business plan for it first. Otherwise you're unlikely to get anywhere at all in this competitive market.