Devblog #13: Let's Talk About Funding
I often talk to people who want to start a new game studio. Either they’re leaving AAA games to do their own thing or they just want to understand more about how games work. I’m not an expert on the topic by any means, but I talk to a lot of people and I was deliberate about how we funded Stray Bombay.
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There are lots of options these days for a fledgling studio—publisher deals, digging into savings, crowd-funding, hitting up friends and family, or raising venture capital. The mistake most people make is that they think more about the money they’ll need, without considering the strengths and weaknesses of each approach. The funding path you choose directly impacts the type of game you can make and how you’ll eventually release it.
If you’re thinking about opening a studio, the best thing you can do is talk through your options with a bunch of people who represent a diverse range of experiences. (I have lots of those conversations, so if you’re thinking about starting a studio, reach out. I’m happy to give advice and I love learning what people are up to!)
The first question you should ask is – why get anyone else involved? While there are a small number of people who have the skills needed to build a game solo (or with limited help), most people will need a team of programmers, artists, sound designers, testers, and more. It turns out, teams are expensive. People need money to live. If you want people to give you their time, they expect to be compensated fairly for it.
Time plus people equals a game. Money buys more time. Most people who are starting a studio are going to need money.
To figure out how much money you need to make a game, you start by figuring out your burn rate. The burn rate is the monthly cost of running your studio. That’s usually costs associated with people—salaries, insurance, taxes, software, hardware, etc. Once you get started, you’re going to want to keep a running tally, but for back of the napkin math, a good rule of thumb is that your burn will be the monthly cost of salaries plus another 20%-30% depending on your location.
In reality, this means money goes fast. If you have a million dollars in the bank and 6 employees making your game, you’ll be out of money before you know it. With 6 employees making an low-to-average industry wage, then your studio’s burn rate will be about $100k a month, every single month. That million bucks looks like a lot in the bank, but it won’t cover your burn for a full year. And we haven’t had a burn rate as low as $100k for a long time.
So you create your design, you figure out how much time you need to build the game, and you multiply that time by your burn. That’s your game budget. If you’re super smart, you’ll add 20% to that number, in case something weird happens like, you know, a pandemic.
Most people don’t have millions of dollars available to them. Where do you get the money to start a studio?
[h3]The Traditional Route – Get a Publisher [/h3]
The traditional path for a startup game studio is to sign a deal with a big publisher—Microsoft, Ubisoft, EA, Sony, Nintendo, etc. This is an oversimplification, but the gist is that you pitch your game, the publisher likes the pitch and decides they want to work with you on your project. Then you work together to lock down the schedule and budget, and they write you a check. The money they give you is an advance on royalties from future sales. It’s tied to milestones that you agreed on before signing the deal, and if your game isn’t ready on time or other problems come up, they could expand the budget (if you’re lucky) or shut down the project if they don’t think they’ll get their money back. There’s more to it, but that’s the gist.
The publisher relationship is usually a true partnership. They have the power to ask for, or even demand, changes that they think will make the game more successful to market or monetize.
With most publisher deals, the moment you launch, you start paying them back – they need to recoup their investment before you see real revenue. The structure of these deals varies widely, sometimes the developer will get no money from sales until the original investment is recouped, sometimes they get a small percentage until it is recouped. Sometimes it’s more equitable. How you negotiate your deal matters a ton here.
This encourages developers to “stack” their game – they want a huge launch because they can’t keep working on the game and growing the company until they pay off their debt to the publisher. While they’re only getting that small cut from the publisher, they’ll continue burning at almost the same rate as they were pre-launch. So they’ll launch like a traditional game, with a full product that’s deep and has a ton of content based on whatever design choices they made before the game was out.
If they made good choices, everything is great. The audience is happy, the publisher gets paid, and the developer has ongoing revenue to invest in the game (or start work on the next title).
But if they made poor choices, they have to scramble to correct as quickly as possible. If they don’t find success fast, they risk running out of money before the game finds a sustainable player base. This often leads to developers dictating a roadmap to players instead of really engaging with the community, finding out what players really want, and letting that partnership shape future updates to the game.
[h3]It’s Dangerous to Go Alone – Equity Funding[/h3]
What if there was another way to pay for your game? A way to retain your indie freedom without incurring massive debts?
At Stray Bombay, we went with equity funding. We pitched our concept for what became The Anacrusis to Upfront Ventures in Los Angeles, who ultimately decided to fund us. In exchange for a small percentage of our company, they gave us money to make the game.
While they give us advice and are active contributors to many aspects of our business, at the end of the day they trust us to understand the game we’re making and the players we’re making it for. After all, that’s why they invested money in our business. We act on the suggestions we think make sense, but we’re also free to ignore their advice when we want.
The big difference between equity funding and a traditional publisher deal is that our investors don’t need to be repaid at launch. Most firms are interested in investments that will show a return in ten or more years.
[h3]Why It Matters[/h3]
That means we can launch our game differently. Instead of needing to sell as many copies as possible on day 1 in order to repay the publisher and reduce our burn rate ASAP, we can launch a smaller game that’s still appropriately priced for the content we’re releasing. Most of all, it means we can start engaging with the community sooner than if we built a bigger, more expensive game.
Engaging with the community means more than just posting a roadmap that shows our future plans. We can’t wait to watch people play on Twitch, listen to the stories they share, and integrate all of that into our development loop of build > test > iterate that’s worked so well to date.
By working in partnership with the community we can ensure that the game we’re building is the game people actually want to play. If we do this well, The Anacrusis will find its natural audience and continue to grow over time.
This is important.
I learned this lesson the hard way with the Scavenge mode for Left 4 Dead 2. Everyone on the team loved it. We played it all the time, outside of organized playtests, during breaks, evenings, and weekends. But it didn’t resonate with players once the game was out in the wild. At one point I looked at metrics and saw that literally ten people were playing it at that moment.
That was rough. We had spent a ton of time and energy building a mode that players didn’t even hate, they were just completely apathetic toward it.
But it was an important lesson to learn.
So when we launch the Anacrusis, we're launching with enough of the game to show people what we want to build. The game makes a statement – what you’ll play represents what want to do. We want to create a social game where players can spend quality time with their friends, while the Director tailors the perfect the challenge and intensity for them, regardless of their skill level. We did a ton of work to make this happen, but what we’ve built is representative. It’s the core kernel of that concept.
This is our vision, but for the next part, we need your help. We need you to play the game and let us know what you love and what you hate. We need your serious ideas and your silliest suggestions. We want to build new modes with you. We want to empower the community to build maps and guns and skins. We want you to try other people’s mods and let us know which ones are awesome so we can put them in the game. We want to build a game that engages with the community in a whole new way.
When we push the game live, that’s just the first step in what we hope will become a decades-long journey we can all take together.
