What is crowdfunding?
refers to the process of raising finance from the public typically through an
online platform that will charge a commission based on the amount raised.
Almost all types of crowdfunding involve the creator of a project (or the
company seeking the finance) creating an online “campaign” page on the chosen
platform which sets out details including a description of their project or
business, how funds will be used, timing of when products (such as a game) will
be completed and background on the individuals behind the project.
What are the main types of
currently broadly three types of crowdfunding:
crowdfunding (e.g. Kickstarter, indiegogo) – this is the
most popular form of crowdfunding where the individual providing the finance to
the creator of a project is technically donating its money to the project by
way of a gift. No contract is formed
between the project creator and the project “backer”. However, it has become
almost standard for projects to offer rewards to their backers such that
despite the legal position, the platforms generally offer a pre-order system
where the backers only provide finance in the expectation of receiving their
reward. For games studios, the rewards typically range from a downloadable
version of the game itself to DLC, exclusive art books, posters or other
physical merchandise to the chance for a backer to have something they submit
incorporated into the game in some way (e.g. having an NPC named after them).
- Equity crowdfunding
(e.g. Crowdcube, Seedrs) – in this form of crowdfunding, a company
seeking to raise finance offers shares in itself to potential investors at a
set price. This arrangement involves a much greater degree of formality and
paperwork for all involved including investment agreements between the company
and its investors, disclosure of business plans and budgets and long-form terms
and conditions between all parties including the platform. Compared to
donation-based crowdfunding, the audience is typically much more focussed on
the financial development of the company and the chances of a sale of its
shares to a third party at a higher valuation within a number of years.
crowdfunding (e.g. Funding Circle) – debt crowdfunding is
similar to equity crowdfunding because the people providing the finance are
looking for a return on their investment. In this case, as a loan, the company
would be required to pay interest out to the investor over a defined period
before repaying the loan at the end.
is also worth mentioning Fig, which
is a US based crowdfunding platform that focuses solely on video games. Fig
combines rewards based crowdfunding with equity crowdfunding. Rather than
investing in the studio, backers invest in a Fig entity and receive Fig shares
that relate to a particular game title. The Fig entity then pays distributions
based on Fig’s right to the title’s sales receipts under its licence agreement
with the studio.
How can crowdfunding help your studio
and what are the main considerations?
poses particular issues to think about including the following:
- Organisation and planning – despite the informal looking nature of many
platforms and campaigns, the reality is that the most successful fundraisings
are achieved by the companies that invest the most time and energy planning and
implementing their crowdfunding campaign and product. Many companies now plan their campaigns six
months in advance and for a games company having something more than concept
art or a design document is frequently required.
- Marketing –
as a crowdfunding campaign relies on its exposure to an audience that needs to
be brought to the webpage, an effective marketing strategy should form a
critical part of the planning process. Discovery of the campaign through the
online platform will invariably be limited so many companies now invest money
advertising their campaign on relevant sites and affiliate links.
- Public nature
– the online and open nature of the platforms means that although a successful
fundraising can bring in positive publicity and attention, the details of a
negative fundraising will be forever freely accessible on the internet. This
“public trial” of your business or game idea raises the stakes of any
fundraising campaign which can add, not insignificantly, to the stress of a
- Managing your backers – whichever type of platform you use, any backer of
your project will become a stakeholder in your project. It is therefore
important not to underestimate the importance of managing the relationship with
your stakeholders both during the campaign and after.
- Is your game suitable? – certain games lend themselves more easily than
others to crowdfunding. For example, a game that is based on established IP
(e.g. a previously successful game, a film or a stage play) that has an
existing fan base.
- Pledge threshold – on most crowdfunding platforms you are
required to reach your specified threshold of pledges and, if you do not, you
may not be able to receive any of the funding. For this reason the trust and
confidence of would-be backers has taken a knock and it may be wise to consider
whether you are likely to hit your investment target using this fundraising
Where can I find out more?
to contact Mark Phillips or Edward Lane for further information about
Specialist Finance Providers / Velocity
What is velocity capital?
is a type of funding that allows mobile game
studios that have games generating revenues
to borrow against those revenues in order to utilise the revenues they have
earned before they are paid out by the App Store.
velocity capital benefit your studio?<b></b>
is a cash flow tool which means you will only have to wait 7 days or less
instead of 30 to 60 days to receive the revenues earned from your mobile game.
also offer other services such as advice on a studio’s user acquisition
strategy, which may be an additional benefit.
How does it work?
the typical App Store payment terms are 30 to 60 days, velocity capital
providers will verify the revenue data produced by a mobile game and pay out to
the owner of that game within a shorter period (usually within 7 days). The
payment usually takes the form of a loan. The game revenues, once paid out by
the App Store, will be used to repay the loan and any interest or coupon
What are the key terms of the funding?
the velocity capital provider will often charge a fixed fee of around 5% (this
rate may vary) of the revenues to be paid by the App Store.