Experts share experience about how to see warning signs when you are going into relationship with the investor.
A panel session at GamesIndustry.biz Investment Summit which took place alongside EDX 2017 (a trade fair for video games held annually in the United Kingdom) gathered IT industry experts. The problems of investment were among the discussed issues.
Financial experts tried to have a look at the problem on behalf of developers who sometimes may stampede into the deal being little aware of what the investor-developer partnership is like. The difficulties always start arising when developers make rash decisions about investment proposals. So what hampers the process and how to detect a bad investor?
Mike Hayes, an investment director at Mercia Technologies, a proficient UK investment group, explains what the partnership is based on and why people fail to reach it. He says that all starts with the first impression and ability to establish a good rapport with the investors. If it’s it, it indicates that you will work together.
He backs up his thought by a variety of examples he’s encountered during his long career at Mercia. He says that there’re no two partnerships which are the same. Some developers support the idea of everyday communication; others keep investors at a distance.
Hayes gives advice not only rely on business plans but switch from a business model to human attitude at least a bit. Thus, you’ll manage to see whether you think equally or whether you’re able to learn useful things from each other. Plenty of partners he invested are his friends now. He can’t imagine which outcome they could achieve if they hadn’t developed a trustful relationship at the beginning.
Saad Choudri, CCO at Miniclip, expresses his own vision of the deal. He reminds developers that game development business often implies the work with more than one investor. So it’s better to focus on networking when it comes to seeking finance.
The problem of many developers is that they seek not only for financing but also for supporters, for people interested and knowledgeable about the game development, forgetting about how beneficial the relationships with people from other spheres could be. They might not be precise concerning game development part itself, but if you can connect with them, they may share their valuable experience with you. It will obviously give you a fresh insight and inspiration.
He explains that developers often face the need of choice between smart money and dumb money, and if the funding is the crucial issue for the developer, why not to just take this money? This material part of the game production deal frequently misleads as inexperienced developers tend to think that it settles the matter.
Saad Choudri hurries to alert that it’s only the first stage and the hard work begins after that. He supports Mike's point and gives advice to consider whether this relationship is mutually advantageous.
Paul Sulyok, CEO at Green Man Gaming isn’t so diplomatic about ‘angel’ investors who don’t have even a basic idea of game development.
He prevents developers from working with business sharks who made a fortune on the cash equities trading desk from Goldman Sachs. His main idea is that such kind investors are very selfish and suspicious, which may result in overcontrolling the process. Even if you've become involved in an unfair relationship, remember that you have the right to quit.
He points out that developers should investigate investors’ previous projects to see whether they have required expertise in dealing with investments and particularly in game development startups and only then make a decision. If they haven’t invested previously, it increases likelihood that they will stay nervous about their investment till they return their money. It means that they may continually bother you without paying attention to the fact that they persistently distract you from the development process.
Sulyok reveals a secret how to detect a good investor: "A good investor can afford to do ten investments and lose nine of them. They're only going to make a winner out of ten, but they could make 10, 20, 30 times their money in that case. That's the approach they need to take, a bulk thing.”
The most beneficial part of any work is to collaborate with interesting people. Giving an example of his company’s shareholders, among which are Harley Street doctors and shipbrokers, Sulyok stresses that these people are able to contribute not only financially but also teach you the things which may become of use for running your own business.
The financing and production consultant Ella Romanos inspires developers to be realistic about the terms of their investment contact. She says that there will always be issues to negotiate and you will also have to make some concessions but if you feel like the investor is not taking any risk, be cautious. If the investor is going to get involved in your business, he has to trust you and believe in you. If he refuses to take responsibility, it’s a bad sign.
“If they want you to live of £10,000 per year and take 70% of your business, they're not in it for you, they're just in it for a quick buck," warns Romanos.
KapKan Games’ development team is open to getting into a trustful partnership where everything is transparent.