How Much Money Do YouNeed to Raise?

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How Much Money Do You Need to Raise?

There is bad news, bad news, and good news about financing a start-up development shop. The bad news is that, unless your team has worked together before on a successful release, you are

The author would like to thank Li Reilly of Morrison & Foerster LLP ( www.mofo.com ) for her heroic assistance in preparing this chapter. unlikely to get a publishing contract without a playable demo or prototype. The other bad news is that you can expect to spend $50K to $200K putting together something good enough to get a deal. The good news is that most of the "cost" of building this demo is labor, which is a lot easier to get on layaway than, say, manufacturing tools.

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Plan carefully . If you're smart, the work that goes into your demo/prototype can be used as the basis to build out the entire game, saving you time and money.

A start-up developer needs to figure its costs in two tiers:

• What it will cost to build a demo to get a deal

• What it will cost to make the entire game

What You Will Need to Build to Get a Deal

Because of the skyrocketing cost of development and publishers' sensitivity to releasing games in the revenue quarter for which they are scheduled, unknown development teamswhich can include an experienced group of developers working together for the first time need to prove their ability to execute. The days of getting a publishing deal based on a design document are all but gone, and new teams will find it difficult to sway publishers and investors with a simple, non-playable demo.

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NOTE

For purposes of this chapter, a demo will be defined as a sample of the game that is more graphically developed and less functionally/tech nologically developed. The demo will use animat ed mock-ups to show planned functionalities. A prototype will be defined as more technically ori ented, using placeholder art to demonstrate func tioning technology and gameplay. A "pitch build" is defined as whatever you build to shop around to publishers, whether a demo or a prototype.

Art usually takes less time than technology, but technology is likely to be more impressive to a publisher. This must be weighed against the talents available to you. Do you have financing and the money to hire complementary talent? Or are you working with what is available to you for free? If the latter, adjust your goals to your team: work on a prototype if you have a lot of technical talent; concentrate on a demo if you are art-heavy.

If you are building a demo, feel free to create animations that show features you plan to implement, but program in a baseline playability to allow a publisher to understand what the gameplay is like and what the fun factor is. Publishers have seen too many eye-popping features in demos that have no prayer of actually getting built into the game.

Figure 3.1. A startup team should look to the talents of its members in choosing to make a demo or prototype.

To organize yourself, draft a budget based on what everything would cost if you could pay for it. Example (with no bearing in financial reality):

Item	Cost	Total
Programmer x 2	(100/month x 6) x 2	1200
Designer	100/month x 2	200
Artist	100/month x 6	600
Office rent	50/month x 6	300
Office equipment and overhead		100
Computers and dev kits	20 x 4	80
Professional fees (lawyer, accountant )	100	100
TOTAL		2580

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Every member of your founding team should have 12 months' worth of expenses in the bank (or another way to feed himself for that time).

Of course, you may not have your full budget at your disposalthe point of this budget is so that you and your co-founders can point to each need and say, "Hey, my cousin Harry has a basement office in his pizzeria that never gets used. He'd give it to me for $400 a month, and we won't have to worry about feeding ourselves " and "I've got two decent workstations at my house that we can use, but we'll need to get a decent monitor for the art station," and so on. It's a strong possibility that none of you will be earning any income for around 12 months. However, it is perfectly reasonable to write up employment agreements with salaries, on the assumption that the company will essentially owe you this money until it can afford to pay it back.

How to Budget for a Product

The number one developer error cited by publishers, agents , and developers alike is underbudgeting the time and money a product's development requires. Understanding your budget for a project is somewhat simple in theory: who will you need, for how long, at what salary, and what equipment and outside technology will it require? Unfortunately, it takes years of experience to even start getting the "for how long" coefficient correct, let alone the "who will you need."

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When pitching your project to publishers, keep in mind that they are evaluating you, not necessarily for the project you pitch, but for your suitability to develop other titles they need. (Example: you pitch an original IP fighting game; the publisher has recently purchased a box ing license; it declines your IP but offers you a work for hire developing its boxing license.) A big piece of that evaluation is whether you have a realistic understanding of a budget and timeline for a given set of fea tures.A dramatically underbid project will raise flags for a publisher that you don't understand scope and that you will need additional financing mid-project.

If you are a developer, you are probably optimistic by nature; budgeting is a good time to get in touch with your darker side. Ask your technical and art leads to come up with the absolute most they could possibly imagine the product requiring, in duration and manpower. Factor in every last detail you can imagine, from per-employee phone use to taxes (don't forget taxes!). Then add in a profit margin, at least enough to let you pay everyone, keep the lights on, and quickly build up your cash

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CAUTION

Developers have been known to get carried away with product love and spend their last dollar of margin to develop the very best game, figuring "we'll make it up in royalties." While that is a possibility, it is a dangerous risk to take with your company's life. As one seasoned executive put it: "No one misses what didn't go in."

reserve of a few months' burn (total monthly expenses). Then add a margin of error (most advocate between 20 percent for the more experienced and 35 percent for the less experienced).

Budget = [(Time x Salaries) + Equipment + Technology + Overhead] x (1 + profit margin) x (1 + error margin)

Scalability

Your budget is based on certain assumptions: how long tasks will take, how many people will be needed to achieve them, and so on. When those assumptions need adjustment, your budget (along with the scope of your project) needs the flexibility to adjust along with them.

Example: Your original budget called for level 10 to have eight beasts created by an art team of five working with 21-inch monitors. You have four scalable elements in that assumption: number of levels in the game, number of beasts on the level, number of artists , and expense of technology. Depending on how far behind budget/schedule you are, you can make smaller (19-inch instead of 21-inch monitors , six beasts instead of eight) or larger (four artists, nine levels) adjustments.

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This budget bears very little resemblance to an actual budget and is provided as a structural template, not an example of what a project's actual costs are.

Example of a budget structure

Developer's budget worksheet
Dev Team	Months	Involvement(1)	Salary/yr	Salary/mo	Costs
Lead Programmer	16	100%	$90,000	$7,500	$120,000
Programmer 2	16	100%	$70,000	$5,833	$93,333
Programmer 3	12	100%	$67,000	$5,583	$67,000
Programmer 4	5	100%	$64,000	$5,333	$26,667
Programmer 5	16	100%	$64,000	$5,333	$85,333
Programmer 6	13.6	100%	$62,000	$5,167	$70,267
Programmer 7	16	100%	$62,000	$5,167	$82,667
Programmer 8	12	75%	$57,000	$4,750	$42,750
Programmer 9	16	100%	$57,000	$4,750	$76,000
Programmer 10	16	100%	$57,000	$4,750	$76,000
Lead Artist	16	100%	$73,000	$6,083	$97,333
Artist 2	4	100%	$62,000	$5,167	$20,667
Artist 3	3	100%	$60,000	$5,000	$15,000
Artist 4	3	50%	$57,000	$4,750	$7,125
Artist 5	8	100%	$57,000	$4,750	$38,000
Artist 6	10	100%	$55,000	$4,583	$45,833
Artist 7	10	100%	$52,000	$4,333	$43,333
Artist 8	12	100%	$52,000	$4,333	$52,000
Artist 9	12	100%	$52,000	$4,333	$52,000
Sound Effects		$200,000
Software/Hardware		$75,000
Sound engineer	1	75%	$50,000	$4,167	$3,125
Game designer 1	4	100%	$50,000	$4,167	$16,668
Game designer 2	6	50%	$50,000	$4,167	$12,501
Level designer	9	100%	$35,000	$2,917	$26,253
Producer	16	100%	$85,000	$7,083	$113,328
Line Producer	16	50%	$75,000	$7,083	$56,664
Total personnel costs		$1,339,847
Overhead		20%
Profit		20%
Total		$2,906,725
Rounded - final bid		$3,000,000
Note: This budget is radically simplified to provide a simple illustration of one method of budgeting a release. It does not include many required line items and should not be thought of as an accurate model of costs. (1) Involvement reflects whether an employee is dedicated to one project or shared across one or more teams. Special thanks to Tom Sloper for his help in drafting this sample

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