Financing in Action

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After a couple of weeks working on the prototype, Dusty and Alex report to the group that most of Defunct's ex- artists and developers are still unemployed and not relishing the thought of relocating. They suggest that some of these folks might be interested in working on the pitch materials for free in exchange for the possibility of a good job in Podunk should Double D get off the ground. Dana, Pat, and Jean agree that this would be fantastic and would increase Double D's chances of getting worksince they would look like a company fully staffed by a team that had shipped productbut it also raised some financial and HR issues that Dana would need to talk over with counsel.

Meanwhile, the group started a time chart for its prototype and supporting documents that looked something like

Dana wanted to have the pitch ready so that she could set meetings for two upcoming big conferences: GDC and E3. As a new company, albeit one staffed by an old team, she knew their pitch needed to be airtight. She could rely on her cofounders to make a great playable proto type, and Jean and Alex could assemble an AVI file that would show some of the gameplay features that Dusty and company couldn't include in the playable.

She knew that the real decision about their game would be made by a committee they would never see and who might not speak English as a primary language, so her responsibility would be to assemble a sort of executive summary business plan for the game. She drew up a list of items for the document and the person responsible for completing that item:

• A one-sheet as the cover page, giving the vital statistics on the game ( genre , platforms, release date, target demographic, two- sentence synopsis of game, competitor games ); (Dana)

• The team bios (Dana)

• A stripped down design specification (Pat)

• A short technical specification (Dusty)

• A budget and schedule (Dana)

• "Screenshots" and representative art for every section of the document (Jean and Alex)

New staff or not, the group was recognizing that its initial $25K would probably need a boost to cover costssoftware, travel to pitch meetings, rent, a network, and maybe even stipendsuntil a deal came through. A big staff would probably decrease the amount of time required to build the prototype and pitch materials, but it might mean getting an office, a real network, more software, and maybe even computers if everyone didn't have her own.

As Dana presented it, the group had two options: either forgo a fundraising and do everything by the bootstraps or scratch up some money and give away some of the company. Bootstrapping was a definite possibility, but would probably add a lot of time to their develop ment schedule. "Furthermore," she noted, "we'll have to have some kind of office and network for a publisher to look at when they come around for due diligence." Raising money would take time and attorneys ' fees and would probably mean giving up a chunk of the company, but it would give them breathing room and the ability to focus on the game.

It was decided that Dusty and Alex would talk to their old staffers to see if they wanted to come to work on Double D's prototype, with the understanding that they would be paid a small stipend until the company got a deal. Dana would come up with a budget based on the assumption that they would have a staff of 15 working in an office and that Double D wouldn't see a check for another 8 to 10 months.

She and Michael discussed Double D's funding options. Because the amount of money needed by the group was relatively small, friends and family seemed like a good option. An angel investor would be great, but no one in Double D knew any. Michael said that he knew of a few people who might be interested in funding Double D, but Dana would have to draft a good business plan to show them. Dana mentioned some of the game industry's financiers, but said that she would just as soon stay local and simple.

As she was leaving Michael's office, her mobile phone rangit was Cokie Totenberg. Cokie had been an external producer on a Defunct project managed by Dana and was now in product development at the same publisher. They'd gotten along very well and had stayed in touch.

"I hear you've taken over Defunct."

"Bad news travels fast, huh."

"Only the worst. Is it true? I hear you've got everybody back together in your garage."

"I don't have a garage."

"Yeah, whatever. Anyway, I don't know if it's true or what, but in case it is, we've got a GBA shooter port that we're going to need done pretty soon. Are you interested?"

"Definitely not. Revenue? That sounds like a terrible idea."

"Good. Expect a call from us next week and make sure you can show a decent engine and set of tools."

"Oh. Um right."

"And one day, your godfather will come to you with a request, and at that time, you are expected to honor your godfather's request."

Dana put her phone away and considered Cokie's offer. This put Double D in a strange posi tionthe port would enable them to get up and running, but all of the software and tools they had created over the years would be gathering mold as the property of Defunct. Dana quickly called a close friend of hers, the CEO of another development studio, and got the phone number of Jamie Kells, their IP attorney.

Dana called Jamie and explained the situation to the attorney, who worked in Northern Pacifica. "Our old company just closed down. I don't think that the owners have any plans for the IP, since most of it is pretty useless without the people who created itthat's us, by the way. I don't know if they're in debt, or even if they're still in the country, but what we want is to buy all the rights to certain tools, and preferably to be able to pay it over time."

Jamie asked Dana if she had a good relationship with the owners of Defunct. "Yeah, very good." "Well, you can have me contact them first, or you could do it, or we could do it togeth er. Let them know what you are interested in doing. If what you are saying is correct about the asset not having value to anyone else, they probably won't want an outrageous amount of money. You will need me or another lawyer to handle the transaction, not just because it's a pretty specialized contract but also because you'll need to do due diligence on the toolsdoes a publisher have any rights to them, for instanceand make sure that the company is legally able to enter into the transaction."

Jamie continued , "If they are in bankruptcy or about to enter it, you'll need to have your transaction blessed by the court to be sure that the bankruptcy court won't unwind the sale in the future." Dana fretted about her tight timeline, "These port people are going to be sniffing around in a couple of weeks." Jamie commented that odds were good that Defunct's owners would also be motivated to close the transaction quickly.

Dana and the rest of the founders decided on a price they could pay for the engine and the tools, and agreed that an installment plan would be best. They agreed too that they would be willing to borrow money from friends and family for the interim if Defunct insisted on a lump sum payment. Dana took Defunct's owners Malachi and Edward out for dinner, where they told her that they had decided to move to Hawaii to teach scuba diving and to an ashram in Oregon, respectively. Dana told them about what Double D was trying to get together, and they seemed genuinely enthusiastic and concerned for her health. Dana mentioned Double D's inter est in buying the old IP from Defunct and the price that she could offer. Malachi and Edward said that they would think it over and call her in the morning.

The next day, Malachi called to say that he and Edward, as the sole shareholders of Defunct, would approve a sale of the IP to Double D for half of the cash Dana offered and 10 percent of Double D's equity. They would even give her first choice of the remaining office equipment. Dana ran this idea by her cofounders and Jamie and Michael, all of whom agreed it was a sound arrangement (pending due diligence). Michael warned Double D that research into Defunct's financial condition would be required to make sure that any sale wouldn't be undone later by a bankruptcy court.

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