Finding the right method of funding for your game

With mobile gaming on the rise, further expedited by COVID-19 lockdowns, mobile game studios are at a crucial turning point to step up their games and take the lead. The pandemic-induced increase in installs and sessions have helped lower user acquisition costs, making it the perfect time to invest in mobile games to scale them up to the next level.

Depending on what stage your team and your game are in, and depending on your needs and expectations, different methods may be suitable for you. Let’s go over some funding methods and compare them to find the right solution for your game.

Bank loan

The most straightforward method is to take loans from traditional banks. There are business loans available for self-employed individuals or private entities depending on if you are an individual developer or a game studio. If you take a loan from a bank, the bank will not take any control or shares over your game, giving you full freedom when deciding on how to spend this money on which stage or area of development.

However, this freedom is a double-sided sword as you cannot get any expert support or advice on the development process, licensing, or marketing. Moreover, loans are just another form of debt, so you will have to pay them back on a regular schedule regardless of how well your game goes. This may put a great strain on your finances if your game does not grow as fast as expected or if the whole economy hits a downturn. In extreme times like these days when the global economy is in a recession, it is harder to take out loans as banks cut back on lending while the demand for cash to sustain crashing businesses are high. Even without a crisis like this, traditional banks set out stringent criteria for borrowers to meet, such as how old the business is and how much profit they have been making.

VC funding

Some turn to venture capital funding from venture capital firms that are specifically interested in the gaming sector. With VC funding, you can raise various rounds of funding such as pre-seed, seed, series A and B, catering to the needs of your studio according to the stage of your evolution. As venture capitalists are experts in growing innovative businesses, they may be able to provide expert advice on business strategies or scaling up startups (but not necessarily ‘games’) and achieve high returns for you and themselves. 

Yet, it is difficult to raise VC funding to start with, as most VC firms have very strict investment criteria and high expectations on the ROI. Without existing knowledge in management and an excessive business plan and financial planning to support, it is likely that your pitch will not catch venture capitalists’ attention. Similarly to banks, VC funding will be affected by the macroeconomic trends at difficult times like this as well. Moreover, their support on management will come at the expense of partial ownership, meaning you will lose some control over your studio. VC firms would also require some board seats, which would have an impact on the operational level of your studio as well.

Publisher

One common option for game developers is working with publishers. Publishers are active investors who would not only help you finance your game throughout the development process, but also provide expert support in every stage including quality assurance, licensing, and localisation. If you are not confident about managing the publishing on your own and want someone to share the responsibility with you, working with a publisher may be a good choice.

The downside is that you will not only share responsibility but also your freedom and independence. Publishers, in return for the funding and the support, will take over your intellectual property and ownership. They will focus on creating good returns on their investment, regardless of your initial intent or vision. They will eventually take over the final say over the game, and as you need to discuss with the publisher through each decision, the development process will naturally become much slower.

UA funding

One rather new and niche method that hits the sweet spot is user acquisition funding. User acquisition funds help game studios self-publish their games and take full credit of their own intellectual property, while receiving low-risk funding.

In other words: User acquisition funding is the financing of a company’s growth activities through receivable-backed payouts. Because user acquisition funds like 1Up Capital understand the unique financial challenges game studios face in terms of revenue payout delay, these funds are able to help you out by providing immediate access to this cash.

On top of these, 1Up Capital goes one step further than other UA funds and provides expert support on marketing campaigns. 1Up Capital will guide you on how to reinvest this capital wisely on user acquisition campaigns to continue scaling up your game.

Because UA funds provide capital based on your performance metrics and actual revenue, the risk is low for the lender, resulting in lower rates for the borrower compared to other funding methods. The risk is also low for the borrower, since the money you receive is not debt, but an advance for your accrued revenue. UA funds will not take away any shares or control over the game, and will purely provide financing (and marketing services, in the case of 1Up Capital) for the game.

However, as UA funds take a metrics-driven approach to help scale up games, the partnership works best if the game is already launched and has gathered at least a couple months’ worth of data and proof of revenue. Therefore, UA funding will not be suitable if you are looking for early-stage investment for your game that is still under development. 

So which method of funding should you go for?

There is no one size fits all answer for this question as each studio is in an unique situation with different priorities. It is crucial to compare all available options for you thoroughly, as different methods can get you to different places. 

The table below summarises the main pros and cons of the available funding methods mentioned above to help you make the best decision for your game:

At 1Up Capital, we help game studios to overcome the financial and marketing challenges while self-publishing their games through user acquisition funding. With us, you get to keep full ownership of your company and stay debt free while we finance your growth. You will be able to track your returns on our real-time dashboard where we provide transparent information on your UA funding and cash flows. On top of that, you will receive expert support on ad campaign execution and optimisation, customised to your needs. Get in touch with us today to discuss your funding needs!