Funding Fundamentals – From GameON Finance ’09

The 3rd annual GameOn Finance organized by Interactive Ontario wrapped up in Toronto last week – after two days of various sessions and panel discussions on the gaming industry which brought together game developers and investors alike.

Scott Dodson, Chief Executive of Divide by Zero Games and a serial, wait..”chronic” entrepreneur (in his own words..) gave a presentation on what budding entrepreneurs need to know about the whole funding process. Now he mentioned he wasn’t a MBA, CPA or an attorney, but he simply had a keen sense as a gamer himself and learned about the financial aspects with that as the base. Here are some key points from his talk:

Making a company fundable involves:

  • Structuring it properly – from filing for incorporation to setting up an initial “cap table”.
  • The team. Single-founder companies often get ignored. And its good to have a balance of technical and business co-founders.
  • Defining the market and what pain your company / product is going to tackle.
  • Getting your documentation in order – business plan, executive summary, financial plan.

Structuring an offering:

  • Equity – Preferred Series A, where types of preferences could include liquidation, conversion, voting, dividend and dilution.
  • Or..debt – Typically a convertible note. No argument over valuation, lower risk for investor

Sources of capital:

  • VCs: Typically make investments of $3M+, with 7-10x return expectations. Entrepreneurs need to be aware of the VC fund lifecyle and focus. VCs want opportunities which can be very big and prefer working with people they know and trust and strong, veteran leadership.
  • Angels: Earlier stage source of capital – investment size $10k – $500k ($25k – $50k avg per angel), with 3-10x return expectations. Raising funding from angels would require many closing conversations as the amount each angel invests is often a fraction of the total amount which needs to be raised. Angels also want to work with people they trust (no surprises there..), to be excited about the business / be a part of something and of course, to understand how and when they can get a return on their investment. Listing of angels:

Other tips:

  • Focus on the business, not the product.
  • Practice your pitch.
  • Remember that investors are investing in *you* – have to be willing to put yourself on the line!