Video game capital is out there, but developers need to get creative

Leverage Canadian content for government support, mirror the film financing model and mitigate investment risk are ways the Canadian video game industry can increase funding. That was the advice from international investment and gaming veterans speaking at the first ever GameON Finance summit in Toronto last week.Robert Shoniker, principal at Courage Capital, said there was only about $300 million in total VC funds available in Canada in 2007, very little of which was invested in the gaming sector. Instead, he said, companies need to look to individual investors for capital.Jon Walsh, CEO of Toronto-based gaming company Groove Media, concurred. "We raised about $30 million from the Toronto investment community," he said, noting that to access funding, "you have to build a case that proves you can mitigate their investment risk in your business model." Fortunately, added Walsh, game development has proven to be a cooperative industry when it comes to financing. "Even our competitors shared advice - we're all in this together."But the VC community shouldn't be ignored entirely, even if the chance of securing funds is limited. "We met dozens of VC firms, and the earlier you see them, the better," said Asi Burak, co-founder of Pittsburgh-based ImpactGames. "Even if they don't invest in your company, if you get their interest, you can build connections."Panellists also explored the possibility of transposing the film financing model to the gaming sector, weighing the similarities and differences between the two sectors. Independent consultant Richard Wah Kan pointed out there are technology risks in gaming that don't exist in film. "The gaming industry has to figure out a way to underwrite risk to attract investment," he said. "In film, the investment risk is spread over many financial organizations. The time is right for gaming to develop a similar approach."But Tim Gatland, CEO of UK-based Funds4Games, said unsuccessful attempts have been made in Britain to create an investment pool for gaming. "We didn't get a big enough pool," he said. In the more mature film industry, investors have some assurance that one film out of 20 will probably be a blockbuster that recoups their losses on the other 19 box-office bombs, he explained. But gaming is a new industry, and the probabilities and loss ratios haven't been computed yet.On the upside, there are also some advantages in the gaming sector compared with film. "All media is going digital because it's easier and cheaper to distribute," said Scott Steinberg, managing partner at DigitalTrends.com. "Stores like Wal-Mart may sell CDs and DVDs, but it's just buying time until people get accustomed to digital distribution." Courage Capital's Shoniker added that digital distribution mechanisms are very attractive to the VC community. In addition, the gaming sector has a large number of tech-savvy and devoted consumers. "Unlike other industries, gamers want to be involved in creative development. It's like a giant beta-test community," says Phil Giroux, VP of business development at Magmic Games, a worldwide developer and publisher of games for Research in Motion's BlackBerry device."Lighter" sectors and platforms are also available in gaming development that can help companies test and evolve games over time if they attract audience interest, said Shoniker. "Companies can develop games for mobile devices: it's easier to control the intellectual property, costs are lower, and publishers can be cut out of the process. Gamers can trade up to a better experience later."Leveraging Canadian content was also examined as away to attract government funding. McMullen said the incentives in place for the film industry in Canada have historically been driven by the desire to develop and promote Canadian culture. "The challenge to the gaming industry is to make the case to government with cultural content if it wants more financial incentives."But an audience member pointed out that financing organizations may not understand what really constitutes Canadian content in the gaming context. "A Ford plant in Oshawa may produce cars in Canada, but the intellectual property is owned in the US. But with a Canadian-owned game, the intellectual property is here."

Video game capital is out there, but developers need to get creative

Broadcast | January 25, 2008

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