Austin GDC: Funding online games

Online Alchemyâs Craig Fryar outlined alternative funding sources for online games at the Austin Game Developers Conference.

âI can feel your pain if you are going through the financing process right now,â said Fryar. âThe good news is that funding is happening. There is a lot of activity out there.â

Fryar pointed to numerous MMOs and MMO-related projects that were funded this year, including Funcom (USD 30 million), Trion (USD 30 million), K2 Networks (USD 16 million), Emergent (USD 12 million), Curse.com (USD 5 million), Conduit Labs (USD 5.5 million) and Riot Games (1.5 million).

The biggest problem in obtaining funding, Fryar said, is that most venture capitalists still have the âHollywood hitâ mentality. They are looking for a return on their investment of 40 times over four years, expecting a failure rate of 95 per cent.

âIf you take EA out of the mix, 74 per cent of professionally-run MMOs were profitable,â Fryar revealed.

As game content does not appeal to most investors, developers continue to rely upon publishers as the venture capitalists of videogaming.

Nevertheless, Fryar outlined alternative funding sources that included the â3Fsâ (friends, family, and fools), âAngels,â digital media funds, government grants, and new or existing MMOG publishers.

Each source has its own benefits and drawbacks. For friends and family, for example, Fryar said you have to decide if the risks are worth potentially damaging relationships. Angel investors are looking for a lower return, but they are unpredictable and tend to invest in herds.

Digital media funds, a relatively new phenomenon, include groups such as Ingenious Media in the UK and Spark Capital Media Fund or Brash Entertainment in the US. Government grants may also be a great way to get started if core tech is part of your planâ¦and if you can handle the bureaucracy involved.

Venture capitalists are still a viable source of funding, but developers need to understand their agenda. In most cases, they could not care less about your product.

âThey have one goal: to find something they can flip in a 3 to 5 year period, earning [a return on investment] around 40 times,â Fryar explained. âIt is not for the faint of heart, nor is it a fast process.â

Developers ought to develop what Fryar calls a âfunding toolkitâ consisting of a pitch, a prototype, projections, and a prospecting plan, followed by persistence and patience.

The idea that you will be able to retain complete control of your game while receiving a sizeable amount of money is a fallacy.

âThe minute you take one dollar from anybody for an investment, youâve given up your control.â