How developers can secure investment with a recession looming?

The video games industry is often described as recession proof. However, 2022 has already proven to be a turbulent year and that resilience is no longer assured.

During GI Live London’s investment and publishing panel, experts weighed in on how funding game companies is changing during times of economic uncertainties.

London Venture Partners principal analyst Harry Hamer highlighted that this time is different now there are free-to-play and premium gaming business models. He adds gaming only had competition with film and TV in the past.

"I think you're going to have to think about the players who are spending a lot of money, at least against the free-to-play environment" he explained. "Will that recession adversely affect them, will that reduce their spending more or less than let's say a premium game?

As a result he says, investors are thinking about the long term. So, there’s an understanding that when studios are pitching their game, the current game being presented may not be the final product.

"Even though there's a recession, it shouldn't really affect what's interesting in five to ten years."Harry Hamer, London Venture Partners

He adds, "Even though there's a recession, it shouldn't really affect what's interesting in five to ten years."

Curve Games' vice president of partnerships Bobby Wertheim echoed the sentiment as he described investing as something of a marathon. He noted that his funding focus is on games that offer player experiences that can grow over time.

"I like to work with studios that have a longer-term vision and the games become like a platform for the community that we create together…" he said, adding that teams with a lengthy vision for their title are what he considers 'safe bets.'

However, Curran Games Agency founder Cassia Curran offered a cautious perspective for studios seeking funding. She notes that they should be prepared if a publisher that's supporting them goes under.

She highlighted that a lot of new publishing companies have cropped up in recent years but questioned their longevity. The impact would be significant and Curran explains that it's a scenario that game makers should have within their business plans.

"With regards to the publisher side, I actually am counseling a little bit for studios that are trying to find publishers or have received offers to be careful and think about what happens if this publisher goes bust in the next few years," Curran said.

Whereas Square Enix Collective producer Lauren Hunter questioned the funding viability of studios that were established recently during COVID-19. She explains that they may have some difficulty as they approach investors.

"They're kind of coming into this phase of they've got something to share and to pitch," he explained. "Publishers may be looking for something more reliable in the market. It's a horrible thing to have to kind of discuss almost, with these creative and passionate people; where do you place yourself in the market?"

Hunter expounded further, positing that these studios really need to consider who will purchase their game — especially with the looming recession. She adds that people will also be more conscientious with their time and money.

"How are you going to sell to a publisher that this is something that people are going to invest their time and money into over something like a free-to-play or a AAA title," he explains.

Regarding publishers, panelists addressed the question of whether publisher support is still necessary for game companies, especially in an age where it's easier than ever to self-publish to PC and mobile.

Wertheim noted that if a team runs out of time, cash, and they have a game to release, this will pose a great deal of issues. A publisher would provide developers extra time and money to allow them time to polish a game. Benefits would also include support such as marketing and further resources after a title’s initial release.

"I think on so many levels it's helpful to have a publisher."Bobby Wertheim, Curve Games

"I'm married, I have two children, I want to make sure they continue to have a roof over their head," he explained. "Rather than put all my eggs into that basket and take all the risks myself, I think on so many levels it's helpful to have a publisher."

Hunter explains that publisher partnerships can also be beneficial outside their business support roles. Some can provide game development guidance as well to help a title ship. Also, she highlights that publishers can recognize if a studio has feasible development and post-launch goals.

"I think that there's a lot of industry expertise that a publisher can give in terms of coaching that's not just like financial as well," she said.

Hamer explains that studios can place themselves in a better position working with more established publishing labels. He encourages them to do their own research and look at their respective bodies of work as well.

"See what their experience is like, almost like asking them to pitch back to you — 'Why should I go with you?' It’s the same with also on the VC investment side," he added.

"We're trying to enable studios to have multiple shots on goals. Maybe if the first game doesn't succeed… [studios] are able to pivot either with that game or go into a new direction, that's something that we work with our studios on."

Curran recommends developers search for publishers that best suit them on a case-by-case basis. For example, there are partners that have a good track record with launching a studio's debut title. There are others that can help with game’s looking for an ad campaign as well. She adds that the search for specialization would determine if a company needs a publisher label or investor.

"If your game is more of a community-driven sort of title you’ll also want to build a fanbase around your studio," she expounded. "You want to make multiple games in this specific niche or genre that you're inhabiting. I would say maybe think now about getting a publisher, get project financing or investor.

Curran notes that, depending on the studio's specificity, it would be best to develop in-house capabilities such as community management. This level of player feedback to the developer requires a more hands-on position, so a publisher could possibly get in the way.

She adds that given a team's experience or goals it is possible to self-publish and be successful in that role.

The experts then addressed possibly the biggest question for game companies; what do developers need to convince investors to bet on them?

"In all honesty, the prototype or demo, the vertical slice, that is the number one important piece that is convincing to publish," Curran answered.

She said that having a fun game and demonstrating that the team can meet the intended goals is crucial. However, showcasing that capability is crucial, especially for a first-time studio.

"The question I always get from developers is how polished, how extensive, and how big should the prototype demo be?," she explained. "And that again varies a lot depending upon the studio.

"If you're a first-time studio you probably really want to have a full-on vertical slice."Cassia Curran, Curran Games Agency

"So the more experience your studio has, the less advanced, you can get away with a less advanced prototype. Or if you're a first-time studio you probably really want to have a full-on vertical slice."

She elaborated further, with so many games that are available, the best way to standout is with a good prototype.

Hunter shared the same sentiment but urged developers to polish their work prior to pitching, especially if their project is more complex, like a competitive multiplayer game.

She explained that having a better technical understanding of the game keeps development relatively straightforward. Whereas if a game has to be rebuilt from the ground up, that would harm the relationship with investors.

"You want to be continuing to move so figuring out all of the complicated aspects of whatever type of game you're publishing in advance is really good," she added. "And also having a good production plan is great, too."

Hamer explains that in terms of a demo, his investor group doesn’t require one. Instead, he is searching for the reason a potential investment is worth the bet.

He concluded, "We're looking at maximizing the upside of whatever big ambitious thing you're going for. Maybe it's not going to be the big industry-changing game, but actually it's just a nice game underserved market, maybe a little niche but it's going to be a great money generator for you and also for the publisher so why not go for it?"