Independent game company finance article

News for Immediate Release
Zero Sum Software
Issued: Nov 25, 2005
Contact: CP McBee

How to finance your independent game without going through a developer, the facts

By CP McBee

Most avid video game players dream of creating games, but it comes as no surprise that very few actually do. Even the most experienced video game programmer/artist can't afford to work on a game full time without financial support. When I first decided that I was going to develop games, I found lots of literature about how to create a game, but nothing about how to create a game company. I felt strongly that there had to be some way to start and run my own company without going through a publisher. My name is CP McBee and at the respective ages of 21 and 22, my partner and I raised a substantial amount of money, recruited a team of talented individuals, and released our flagship title "Prelude to Darkness." I write this article with the hope that fellow independent game developers will improve their chances of raising money using our strategy of focusing on creating a business rather than just a game.

Very few prospective game developers take business planning into consideration once they have decided to create a game. This, in my opinion, is what stops most great games from being released. Independent games can be developed as a part time hobby if you are content working on what you love in only during your free time. But if you are compelled to do what you love for a living by making your own games full time, you will require capital.

The first thing you must do in order to raise money for your company is to take a step back and look at your video game as what it is to potential investors: a product.

As soon as you stop looking at starting a video game company as making a game, and start looking at it as starting a business, you're on the right track. Indeed, the questions that must be asked when starting a video game company are fundamentally the same questions that must be asked when starting any other type of business.

  • How will the product be made?
  • Who is my target market?
  • Can I run the business on my own? If not, who will work with me and why?
  • How will I finance the business?

The focus of this piece is finance. You'll find, however, that before you can hope to finance your business you'll have to have a solid grasp of all the other issues. Raising money requires you to have a business strategy, not just for solicitation purposes, but for your own edification. Before approaching investors you must have a solid foundation in the form of a well written business plan and a strong team.

Your first Business Plan

Writing a business plan is your first step towards raising capital. The likelihood of anyone raising money without a business plan is slim to nil. The business plan is both your roadmap and your sales document. It shows others that you have done your due diligence and that you have a firm grasp on how to grow your video game company. Now, it is not my intention to provide you with a step by step template for the "perfect" business plan. There's no such thing. What I can do, however, is explain all of the methods and tools that I used to raise money for my video game company.

Business plans take a lot of time and effort to properly prepare. You can expect to spend at least one month preparing it, using any of the many templates which are available. What's more, no two audiences for your business plan are exactly the same, and you will need to customize your plan for each of them. As a video game developer, there are three primary audiences you will need to address: yourself, potential teammates and potential investors. To clarify, when I say that you should tailor your business plan to different audiences I am not suggesting that you should fudge numbers or omit facts. A good business plan has nothing to hide. What you should do, however, is think about what each audience is wants to see in your plan and focus on those elements.

The first person that you have to write your business plan for is yourself. Running a business without a business plan is like creating software without a design document. There are any number of unforeseen issues that will arise, and you need methods with which to iron them out when they do. In addition, before approaching anyone else about a business idea you need to have a clear idea about how things are going to run. Research the industry, know your competition, analyze distribution methods, etc. It's not all fun, but knowing that it can finance your dream should make it a lot less boring. Don't get discouraged if your first few business strategies don't seem to hold up. Continue to refine your model until you find your niche. Perhaps your niche is within an up and coming genre, a unique distribution method, an emerging operating system, or a packaging deal.

When creating the business plan for yourself you do not need a complete, thoroughly edited plan. Obviously spell checking will not make a difference on how well you understand the ideas it contains. What is important is that you have a business model that works and feel comfortable with all of its core concepts. We will call this your first draft. Finishing the first draft of your business plan is a tremendous milestone and a great feeling. You can now approach potential teammates knowing that you have a feasible business strategy for your game company.

Building your Team

The second step towards receiving financing is building a solid team. At the time that I decided I would start a video game company, I had no programming skills, graphic arts skills, or history of raising money. I had my business plan, which was a work in progress, but that was about it. After talking to various programmers and designers with no luck, I met programmer (and Zero Sum co-founder) Mat Williams while working part-time at a small video game company in Cambridge, Massachusetts. But you don't have to work at a game company to find good people. There are plenty of great people out there, and great resources with which to find them, including:

  • Sites with game development forums such as Garage Games (, RPG Codex (, Mad Monkey (, Independent Game Developing Association (, and GameDev (
  • Game development conferences such as the Independent Games Festival (, indiegamescon ( or even E3 (
  • Multimedia labs at colleges and universities

Once Mat and I determined our personnel needs, we developed a criteria for the people that we would want to work with: rapport, competency, and commitment:

Rapport: Liking the people you work with is one of the most important factors in actually getting a game completed. When you meet with someone, there should be a synergy, an excitement that rivals your own for the idea of the project. Working with someone who you don't enjoy being around will make the tough days very hard to get through. It is also important to get along with your teammates because when there is any kind of disagreement (and there will be) you will find it much harder to resolve in an unfriendly atmosphere.

Competency: It's important to think about how good your team mates look on paper. When presenting your business plan to investors, one of the most important investment criteria is that you have a strong team. But remember, just because someone looks great on paper, it doesn't mean that they are competent. There are a great number of people in the world who are masters at having others make them look good. Make sure that you are not dealing with this type of person by asking them to bring examples of their work, and discussing their experiences with them.

Commitment: Make absolute sure that the person you are working with is expecting to expend the amount of energy on this project that you anticipate will be needed, and then some. Lots of people will agree to a project halfheartedly only to bail when things get tough or other opportunities arise. Be very direct about what will be involved and gauge both the seriousness and likelihood of their responses.

It is best to set up an informal meeting with potential team mates in order to gauge these things. Of course, it's a two way street. They are assessing you and your opportunity just as much as you are assessing them. The onus is on you to prove that you have a viable concept and get them excited about it. First and foremost, you must be passionate and motivated about what you're doing. If you're not, don't expect anyone else to be. You should exude your excitement about the project in a way which will rub off on them. Your enthusiasm, coupled with your strong business plan will usually be a winning combination.

Having a final draft of your business plan won't usually be necessary to sufficiently interest potential teammates. It actually makes more sense to approach potential teammates with an unfinished business plan, this will allow you to integrate their ideas. The first draft of your plan will suffice, with a few notable alterations:

1) Know your role: Unless you secure yourself a sensible role in the company, there is nothing to stop your team from simply taking the project on themselves. I was keenly aware of this, particularly since I had no real technical skills at the time. Well, if you've already written a business plan, you have a great argument for being the business manager. After all, most technical folk would prefer to be left to their own devices and not be bothered with financing, marketing and all the other "business stuff." At the same time, they know that to build a business all of these things are necessary.

If you already have someone to handle the business side of things, perhaps you would make a good fit as project manager. Project managers generally should not be developers as well as it is a conflict of interests. You also need very little computer programming skills to be a project manager. What ever role you choose, make sure that it is clear in your plan.

2) Prove your Competence: Clearly it's not just enough to say that I'm the "business guy." The people I wanted to work with were extremely talented and had fantastic credentials. I had approached them, so the onus was on me to prove that I was competent enough to handle my responsibilities in assumed position. Most potential teammates will not read the whole plan, but some will, and there are a number of things you can do to prove your competence:

  • Make sure that the business plan looks very professional. If there are pages flying around or things are not in order, it will speak to your character
  • Be very clear about how you will acquire money
  • They will want to see that you have the stuff they want to do down pact. That means in tact financial statements and a solid operations plan

3) Game focus: Once they are confident that you're capable of handling your role, whatever it may be, they need to be excited about the project. Have as much detail and information about your game idea in the business plan as possible. Try to include pictures, story boards, or anything else visual to help get people excited.

Ultimately we ended up with a team of highly skilled team of programmers and graphics artists, most of whom attended Harvard with Mat.

Your Business Plan For Investors

Once you have a good team in place team, it's time to go through your plan with a fine tooth comb. Remember, to investors the game is just a product and all they want is a general idea of the way the game works. No matter how intriguing you find the details of your combat system, for example, investors will only be interested in such detail as it relates to your competitive advantage and/or development time. In fact, by spending too much time discussing product details you run the risk of seeming to be wrapped up in making a game rather than building a business. It's better to focus your plan on the aspects of your business that investors want to hear about, which based on my experience, go in the following order:

1) Future growth: If an investor was interested in moderate returns, they would be investing in treasuries, not your company. This is a high risk venture, therefore the potential returns have to be high as well. The plan needs to have a growth and exit strategy which projects a high return on investment.

2) Team: The common adage is that people invest in the team, not the idea. This is why I recommend that you have a solid team before you venture out to investors to begin with. In my experience investors always looked at resumes either first or second. If your experience isn't incredible, having people on your team with great credentials will make your case much stronger.

3) Defined niche market: Have a firm grasp on not just what makes you different, but what sets you apart from your competition.

4) Financial statements: If you don't know how to put financial statements together, there are plenty of templates out there. Your finances should be in good order. They are not at the top of the list, however, because most savvy investors know that just because your financials aren't in perfect order, it doesn't mean that you're not on to something. I had a statement of start up costs as well as profit and loss statements and cash flow statements for five years. I did not include balance sheets.

Early on profit and loss statements are not very useful for most small entrepreneurs in house. They are primarily designed for reporting purposes and include a lot of things that don't necessarily effect your cash flow. To that end, savvy investors will be paying much closer attention to your cash flow statement.

5) Distribution: For those who actually knew about the industry, this was arguably the biggest issue. Finding people to distribute your game isn't tough, and your margins will be nice and high. Of course the drawback is less visibility as they will not usually market for you. We used PayPal, but there are several others.

6) Thoroughness: Perhaps the most frustrating part of spending so much time writing a business plan is knowing that you may be the only one who ever reads it cover to cover. I had countless encounters with investors who simply glanced at a few pages before asking me the questions they already knew they would ask. But, there were people who read the plan thoroughly, and others who read only certain sections carefully. Those who do not examine any part of the plan in depth still expect to see a weighty plan, with lots of nice colorful pictures and exhibits. My business plan was around 30 pages before exhibits and appendices, and about twice that after.

Financing options

When I first started looking for money I was frantic. I had promised my team mates that I could raise money, but I wasn't exactly sure how I was going to do so. I began by looking up just about every resource in the area, taking meetings with anyone who would take my calls. Looking back I could have spent my time much more efficiently. The following is a brief synopsis of my experiences with different types of investors.

Venture Capital: I met with several venture capitalists, but never got past a second meeting. It became quite evident that while our concept was viable, it was still a bit too risky for most venture capitalists. We also had two other factors against us. First, venture capitalists are also usually only interested in equity stakes, and when we started we only wanted to profit share. Second, at the time venture capitalists were generally uninterested in investing in businesses looking for less than a million dollars in capital.

Loans: Banks also didn't fit the bill for us, since we decided we didn't want to incur any debt, personally or as a corporation.

Grants: I looked into minority grants, but they usually focused on community building efforts so we decided that we were not what they were looking for and vice versa.

Incubators: Also wanted a large equity stake, and often a portion had to be directed toward equipment and leasing.

This left us with one option, angel investors.

Angel Investors

Angels are by far your most likely source for raising capital for an independent game company. They are individuals with enough disposable income and/or savings to invest in projects that they see potential in or find interesting. Generally speaking, angel investors are wealthy. If they aren't wealthy, they at least have a enough saved to warrant an investment. In either case, they have money and are looking for something interesting to do with it. Now, not all those who are rich or have savings are potential angels, many would much prefer to put their money where they know it will safely earn a moderate return. That said, there are still a great many people out there who are looking for something more exciting, and with the potential of higher returns. Here are some likely reasons why someone would be an angel:

  • They recently made a lot of money in some sort of transaction
  • They have been holding a well paying nine to five forever and wish to be involved in something exciting
  • They were once involved in the industry you're interested in starting a small business in, and would like to have a hand in your development

So how do you go about finding an angel? Well, they certainly aren't listed in any directories or web sites. If they were, they'd be getting harassed and probably wouldn't be angels for very long. There are "angel investment groups" listed online, but be wary of them. From my experience investors like to market themselves as angel groups when in fact their criteria is almost identical to that of venture capitalists. Angel investors will most commonly be associated with you somehow through family and friends. In fact, when you first start your company, your immediate friends and family may be your angel investors. For those of us like Mat and I, who do not have immediate friends and family who are wealthy, you probably will have to expand your search in order to receive sufficient capital.

Before stepping outside you inner circle, think carefully about who in your network of friends, friends of friends, family of friends, etc. might be a possible angle. Many angels aren't aggressively looking for projects to invest in, so it's up to you to interest them with the right idea at the right time.

Once you locate a potential agent, tact is of utmost importance. No one likes to be aggressively solicited, even if you are some how associated with them. I found the best method was to schedule a meeting with the person for coffee or tea as an information session about your project. When you meet with the person, provide them with your copy of the investor oriented business plan. Display your passion and enthusiasm for not just the game, but the business. Be direct but not pushy about your intentions to raise money. If you have raised money already, make sure that they know that they are not the first to invest. Nobody wants to be the first one to invest. Whether or not they show interest make sure to follow up with them and keep them posted of your progress. It was often the case with us where people who did not want to invest initially became more interested as more people began to support us.

If you are meeting with someone who has a background in business or the industry which might be helpful it is best to use the same strategy, with a slight twist. Indeed, you should be direct about your intentions to raise money, but if they are not interested in providing capital they may very well be interested in advising you. Part of the way we managed to raise so much money was by having a strong board of advisors, ranging from the former vice-president of Ben and Jerry's to a leading professor of entrepreneurship at Babson College (the number one school in America for entrepreneurship).

Remember sometimes people will say yes and sometimes they will say no, but no one will not resent you for trying. Once you have people who are interested I strongly advise not to accept everyone's offers. We turned down money on more than one occasion Good reasons for not accepting venture capital include:

1) Not wanting to take money from someone who can't afford it

2) Avoiding individuals who will be exceptionally overbearing

3) Steering clear of people who were not in touch with the fact that this was a high risk business.

Staged Financing

When preparing your business plan's financial statements you will always integrate a contingency cash fund. However, no matter how accurately you try to project your figures so that you don't have to raise money more than once, there is a high probability that you will have to. There are a number of reasons why you would find yourself in this position. Development may lag, you may decide to upgrade, a team member may bail, costs end up being higher than you thought, etc. In total we went through four rounds of fund raising.

Our initial seed capital came from our immediate family and friends. When these funds proved insufficient, we only slightly expanded our search, looking for individuals who would be interested in investing only a few thousand at a time. Mat and I were vehemently against sharing equity at the time, so we devised a profit sharing system based on "points." Each point represented a percent stake in the game. Points have been an exceedingly useful financial tool as they have helped us both raise money and leverage our co-worker's efforts by giving points in lieu when we could not afford higher wages. We felt that using our point system all we needed to get through the development of our 2D isometric engine was a few thousand. It wasn't much, but it was all we were asking for. At the time we were perfectly content bootstrapping in lieu of giving up any share of the company. Our complacency living on ramen noodles would only last for so long.

Raising small amounts from a lot of people was both time consuming and inefficient. So for our third round of financing, we decided to raise in the range of the tens of thousands from fewer people. We successfully did so.

Once we had the prototype of our 2D isometric engine, all of us felt that it would be a good idea to upgrade Prelude to have a full 3D engine. The decision to make Prelude 3D required hundreds of thousands of dollars more in capital, which we were subsequently able to raise using the same methods of angel financing. In my experience all investors have the same general criteria. In fact, it usually took the same amount of effort to raise two thousand dollars from an individual as it did to raise 100,000 dollars from another. To that end, I would recommend trying to meet all of your financial needs early rather than trying to do it piecemeal. As I said, you will probably have to go out and get more money eventually, but the less time you spend doing that the more focus you can spend on your business and your game.


I hope this has helped those of you who are really determined to start your own video game businesses. With determination and hard work you can do it! These methods don't apply only to video games, but I am a huge advocate of independent developers and would love to help anyone in anyway that I can. If you have any questions or concerns with regard to developing a game business such as finance, business plans, marketing, etc. please feel free to post to my blog at (NA - will be available next week). If you haven't played Prelude to Darkness yet, and enjoy Role Playing Games, download it for free at (NA - will be available next week). Any posts regarding Prelude should be posted on our official forum at