Tadhg Kelly writes: “Games Are A Difficult Investment Proposition, But Crowdfunding Could Change That”
Typically this is because of the conservatism of European investors. A speaker at an event like Games Invest might sound a high note of ambition (such as following blue-ocean strategies or lean-startup thinking), but in practise they tend to be terrified of risk.
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They’ve overcome this problem in the film industry using mezzanine and convertible-debt rather than venture financing. This involves essentially loaning money to the producer in exchange for the intellectual property rights, which are then bought back through earn-out clauses. Some people have thought to apply the same model to games, but it rarely works well.
Tadhg outlines what he thinks is a better model (looking at games IP in terms of the scope of a franchise) and the possibilities of crowdfunding but he falls short in actually delivering the answer.
My hope is that game investors everywhere realise that, through crowdfunding, their fears of risk can be mitigated.
Then, finally, we might see a funding structure for games that actually makes sense.
With crowd-funding, the risk is greatly reduced. What is the point of an investor if not to take a risk?
I may just be a small town turkey, but from what I’ve seen of ‘Investment’ Agencies, they appear to be a tool that packages private risk, hands it to the public to hold on to, and if it blows up, the public loses, if it succeeds, private wins.
But on a serious point, since the late 80’s and the increasing computational power related to capital risk markets, gave even the smallest investors the image that the market is a ‘knowable factor’ that can be modeled and have ‘rules of thumb’ and stopped being a near-random force, requiring bet-spreading and going out on a limb.
Today, most investors are little more than weathermen and will only back something if their models say that it’s pretty much guaranteed. So if you put in the magic numbers to an application that goes into their ‘models’, be they computational or psychological, you’ll get money.
The fact that any of these magic numbers can be
a) massaging the truth,
b) downright lies, or even worse
c) set first and a business built around those targets
appears to make no difference to the investors.
Can we make ‘investor’ a controlled notation? So that you have to have x% ‘failing’ businesses in a year to qualify as a real speculative investor? That would encourage fast failures and wide spreads…