Taking on funding from external sources can be a great way of supercharging the growth of your business, although, depending on the type and provider of funding, there may be strings attached and there will be a number of issues to consider. It is important to consider what type of funding may be most appropriate for your business, given the stage it is at and what you plan to do.
For example, many larger equity investors will not be prepared to invest in a very early stage business that does not yet have at least a testable product, e.g. a vertical slice. Things may be different if you have a decent track record from previous studios or other games businesses, but equity investors may expect you to ‘bootstrap’ to a certain extent before they consider investing, such as self-funding through work for hire etc. This may have the advantage of creating more value in the business before issuing equity thus minimising dilution of the percentage of the company you will retain post-investment. Other funders, such a project finance or debt providers, may require a financial track record or some form of valuable security before they agree to lend.
Therefore, businesses at a very early stage will need to be creative when it comes to funding. You may find angel investors are willing to invest, particularly if you can qualify for SEIS / EIS. Alternatively, grant funding can be invaluable: provided you qualify and are selected, your business can benefit from what is effectively ‘free’ or ‘inexpensive’ cash, which may be enough to get to the stage where other sources of investment, e.g. angels or venture capital, become available. However, you may not be lucky enough to receive a grant or perhaps the funding is not enough. In this case, it may be that personal savings, family & friends and work-for-hire is what is needed to carry you through to the next level. In fact, many funders will approve of the significant personal commitment this requires as it shows them you are prepared to have your own investment in the business, whether financial or in kind: what they call ‘skin in the game’.
Even if you do have interest from equity investors at an early stage, you should always think carefully before giving away equity in the business: the later on in the life cycle, and the more valuable your business, the less equity you will need to give away to investors and the more of your own company you can keep (in both senses).
We hope this guide is helpful, not just as a directory of possible sources of funding, but also as a handbook of hints and tips to refer to when you’re in the midst of it all.
The information in this section has been provided by Harbottle and Lewis, a Ukie Partner Member, as of February 2023. Contact the membership team if you have any follow-up questions for them.
This guide has been prepared by Ukie Partner member, Harbottle & Lewis. This document is intended to be used as an introductory guide only, is not an exhaustive review of the subject matter and does not constitute legal advice from Harbottle & Lewis. You can download the full guide here.