Since becoming a full-time business angel at the start of the year, the scale of the funding challenge for smaller games companies has been eye-opening. There is a real lack of understanding between the investment world and the creative one. If we are to give our talent the opportunity to flourish and make sure more of the future Indie hits are from the UK, we need to do more to solve this.
Creative start-ups often have little commercial experience, let alone fundraising experience and it can be a bewildering minefield. You don’t know what you don’t know and there is a real risk of being taken advantage of. Getting good advice is key, but this then brings us back to the funding issue.
On the other side, in the finance industry, it has surprised me just how little knowledge is out there. Acknowledgement that the games industry is even an industry is often the first challenge and many are genuinely shocked at the size of the market.
One thing is clear, there is no shortage of capital in the market and no lack of creative ideas in our industry. The challenge is educating both sides and then connecting money to opportunities. We have had some great recent events that directly connected investors and studios, but we need more of them, as well as events focused on educating each side.
Funds are a way to curate opportunities and diversify risk through a portfolio. There are specialist investment funds that focus on gaming, but these tend to have larger deal sizes ($1m+), meaning there is a funding gap for earlier stage companies. It makes sense, when you realise that the amount of effort you put into a $100k investment does not differ much from a $1m. There is also the theory that investing in bigger deals means companies are further along the path, with a more solid capital base and reduced risk.
This does not help the problem of raising a $100k round to bring your ideas to fruition. Most publishers want to see a prototype or demo, but then how do you get the funds to build this? This is traditionally the realm of business angels, but some funds, such as Ascension Ventures, are also now getting involved, using tax-efficient schemes and a portfolio approach to mitigate risk, while also running events to educate investors.
Awareness of tax efficient schemes has also been surprisingly sparse, such as the Enterprise Investment Scheme (EIS) and its more lucrative cousin SEIS. These provide attractive tax incentives for people to invest in risky early stage companies.
I have only just scratched the surface of the issues here. Suffice to say, we have huge creative talent and potential as an industry and one of the world’s largest financial centres on our doorstep. There is still a lot of work to be done to foster links and better understanding between them.