Taking the Money and Running

Getting Funding

Now that we've planned our company and decided on it's structure, we can work on the most important part of the process. Money. Without money, you can't hire anyone, including yourself, and you can't buy the tools you need or the resources you need to complete your project. There are a lot of ways to get the funding you need, some of which will dictate a specific structure, so it's important to consider all the options before deciding on one (or more) in particular.

Bootstrapping

This is self-funding. You are your own investor here.

Pros	Cons
Control	Limited Resources
Easy Transfer	Slower Growth
Easy Payback	Personal Financial Risk
Focus on Profitability and Discipline	Limited Networking/Mentorship

If you can afford to do it, this is a good way to get started. You control everything, because it's your money. It's easy to get money into your company, and easy to get it out. Because it's your money, you are also likely to focus on profitability and not hiring random people you don't need... keeping your team lean and efficient.

Keep in mind, that because this is your money it is limited in nature... unless you have millions stashed away. Because you only have such a limited pool, it's harder to grow your company. Also, because this is your money you are putting yourself at personal financial risk... if your company loses all it's money, you've lost all your money. Lastly, you won't get mentorship from anyone here unless you seek it out yourself, where a lot of other options will build that in to the deal.

Friends and Family Loans

Have a rich uncle? This is his time to shine! These types of loans are usually more flexible, and can have better interest rates... and usually they don't even want/need any ownership in return!

Pros	Cons
Flexible Terms	Lack of Formality
Fast Access to Funds	Can Strain Relationships
Relationship with Lender	Limited Funding
Additional Drive	Dependency
No Ownership Dilution

You'll generally get very flexible terms here. Need to be a few days late on a payment? Usually family would understand and not charge a fee. Usually, you get fast access to the money here... just like if it were your money, there isn't a long, drawn-out, approval process you have to wait on. Generally, hopefully, you have a good relationship with the lender, which makes the process easier and faster. And because they typically don't ask for any ownership, you don't see any dilution in your ownership.

On the other hand, the lack of formality in this type of loan can cause issues. Because it's your uncle, you may not get all the normal paperwork signed... and this can lead you to misunderstandings and arguments with family... which will lead to strained relationships with those family members. Just like how you won't have a bottomless pool of money, your family is unlikely to have an unlimited supply of money as well. Lastly, some additional funding sources may not work with you if you have an outstanding loan... which can lead to you depending on that family source for more funding.

Credit Cards

You can always put everything on credit cards right? Don't do it. This is not a good way to get funding.

Pros	Cons
It's easy	High interest rates
	Every alternative is cheaper
	Hurts your ability to get other funding

The only real pro here, is that it's easy. You're going to get a ton of offers in the mail, so it would be pretty easy to rack up a ton of debt financing everything this way.

The negatives on this one are huge. You'll have high interest rates compared to every other options... typically double or more the interest rates of other options. That makes every single other options cheaper for you, in both the short and long term. Just like when you rack up credit card debt personally, doing so as a business will hurt your credit and make getting any other type of funding more difficult.

Bank/SBA Loans

This option is for getting a loan from a traditional bank, or a loan endorsed by the Small Business Administration.

Pros	Cons
Easy Repayment Schedule	Difficult to Qualify
No Ownership Dilution	Collateral
Builds Credit	It is still Debt
SBA are fair with low interest	Restrictions
Longer Repayment Terms	No Mentorship

These loans will have a regular repayment schedule, just like any other loan you have (like a car loan). They don't ask for partial ownership in return, so you still own the same share you did before. Making your payments on time will improve your credit, making it easier to get additional funding in the future. The SBA Loans tend to have low interest rates and fair terms, and they offer long repayment terms which can keep that monthly payment amount low.

The problem with these types of loans is that they generally don't give money to people that need money. They will also likely request collateral of some kind, which puts your business' assets at risk if you cannot repay the loan. Just like with credit cards, this is debt you'll be taking on... so while not as risky, it's still not great to have a ton of debt as a new company. The terms of the loan can also put restrictions on certain business activities... like borrowing more money, which can negatively affect your ability to stay funded. And like the previous types of funding... they don't offer mentorship, so you'll be on your own to find that.

Angel Investors

These are your regular average, non-VC rich people. They have money and want to invest in stuff, but don't own and aren't a partner in a Venture Capital firm.

Pros	Cons
No Repayment Obligation	Equity Dilution
Mentorship	Conflict Potential
Increased Credibility	Performance Pressure
Flexible Terms	Mandated Exit Strategy

Typically, you aren't repaying an Angel Investor like you would a loan. You usually sell equity to them, and they get paid by returns from your success. They will usually come with helpful experience and expertise, or at least they will know people that can mentor you. Getting outside investments will give you more credibility and increase the chance you can get additional funding. And, unlike the loan options above, the terms are generally more flexible and permissive.

Now, because you sold some equity in your company to get this money, you've now diluted your ownership. You have to be careful with this, as if you sell too much, you could be ousted from your company! There is a chance that you will disagree with the investors on how to operate your company, which could lead to them pulling funding or selling their stake to someone else. Worst case, they could team up with others and exercise control. They are going to pressure you to make more money, especially if your company is performing worse than traditional investments. And you may be forced to operate in a way that would get them the exit they want, which could cause a shift in strategy for your company.

Venture Capital

A Venture Capital firm is a company that specializes in funding other companies.

Pros	Cons
Significant Pool of Capital	Equity Dilution
No Repayment Obligation	Pressure to Grow
Mentorship	Loss of Control
Focus on Growth	Complex Terms
Pre-Set Terms	Exit Expectations

These companies specialize in funding other companies, so as you might expect they have a lot of money to work with. Just like with Angel Investors, you don't have to pay them back directly... they will get their money through profits and their eventual exit. Because they specialize in funding, they will have access to mentors, partners, and others that can help grow your business. They make their money on your success, and they have a lot of money to throw behind it. The terms are going to be laid out, up-front. They have a lot of experience and know this works.

The negatives here are that this will dilute your equity. They will want as much of your company as they can get. There is going to be a lot of pressure to grow... remember that they get paid on your profits, so they will want as much as quick as they can get it. They will own part of the company, and they will want control. Their terms will likely dictate things like board seats, control over hiring C-Suite staff, and more. The terms are also likely to be complex, they've done this a lot so they know all the loopholes and tricks. They will dictate a specific exit, which will likely be either being purchased or going public.

Kickstarter

Probably one of the best known methods these days, is starting a Kickstarter campaign. There are other similar platforms, like IndieGoGo as well that would fall into this category.

Pros	Cons
Good Advertising	Rarely works with a realistic dollar amount
Popularity can get access to additional Tools	Need to create products and rewards
Popularity can get access to other funding options	Takes a ton of work to find an audience

If you do it right and can get onto Kickstarter's home page or become a featured project, this will be a ton of good exposure for your game. This popularity will trickle into more "wishlists" and people watching and following the project. One of the best results from that additional popularity, is access to tools you otherwise didn't have access to. This can include platform development kits and even publishers that previously turned you away could want to take a second look.

The negatives here are that this rarely works with an amount that would fund your company all by itself, so you'll have to combine this with another funding strategy. You will have to spend a lot of time and money creating the different rewards and products that backers of your project get. People rarely want to give money with nothing in return. Finding an audience is largely up to you, you'll be posting all over different social media and advertising yourself to hit that threshold where this really becomes useful for you.

Planning your Exit

Now that we've planned out our company and found funding, we need to plan for our exit. There are a variety of different strategies to use to make our exit, so let's go over them quickly.

Perpetuity

This basically means we aren't going to exit, but try to keep the company running forever. Generally, if you haven't thought about how to get out of a business, this is what you're really planning for.

Pros	Cons
Easy to understand	Only possible with some business structures
Long term mindset	No payout for investors

This one is very easy to understand, its essentially the default for starting a company, and it is a growth opportunity. You'll spend your whole career growing this company and your direction.

The flip side here, is that you can't do this with certain structures because they would dissolve automatically with your death, and you'll have more difficulty finding investors since you'd be relying on profits to pay them out instead of a big payout.

Acquisition or Merger

With this strategy, the point is to build a company that another company wants to buy. You can do this in many ways, like specifically targeting a genre or attempting to duplicate another companies structure.

Pros	Cons
Instant Payout	Requires history of success
You can negotiate to stay on, and work on your games	Loss of control
	Redundant employees laid off
	You have to go through negotiations
	Brand Loss or Dilution

You can get a big payout with this exit, and might even get to stay on and keep making the games of your dreams.

On the other hand, you have to have had some success before anyone will try to buy you, you're going to lose control of the company, all the employees with redundant positions are going to be laid off, you're going to have to go through a ton of stressful negotiations, and after everything they may just completely axe your brand.

Going Public (IPO)

Going public can be a very good way to raise enough capital to exit your company. This is essentially making your companies stocks available for purchase on the market, like Microsoft or Google do.

Pros	Cons
Access to money	Regulatory and Reporting Requirements
Possible retention of control	Loss of control
Stock-based compensation	It's a lot of work
	Costly

This will give you access to money, since you get money for each share sold. If you retain enough stock, or have a good enough relationship with the board of directors, you can retain some control of your company if you choose. This also lets you start offering stock-based compensation to employees, which can make working for you more attractive to top talent.

The cons here, are all the reporting and regulatory requirements... you can't just sell all your shares and leave... it is more complicated than that. You lose control to a board of directors, meaning you can be ousted at any time. It's a ton of work, so much that you won't be working on anything other than going public, and it costs a lot.

Management Buyout

This strategy is more about exiting investors than your own personal exit, but this is when you (or the management team as the case may be) buys out the investors to get control back.

Pros	Cons
You own it again	No payout for you
Lets you pick a longer term exit for yourself	Hard to find investors

The best boon to this exit strategy is that, you own your company again. This gives you the leeway to decide on a different exit later if you choose to do so.

The major con here, is that you don't get a payout... because you are the one paying everyone else out. It's also difficult to find investors willing to fund you with this type of exit planned, since the ones willing to do so won't believe in your company but the investors you want are the ones that do believe in your company... but as they believe in your success they are unlikely to accept a buyout.

Employee Stock Ownership Plan (ESOP)

Very similar to the management buyout, but instead of buying everything back yourself, you sell it to your employees and let the money that would be their paycheck (or a portion of their paycheck) be what pays out the investors.

Pros	Cons
Buyers know the company well	Limited payout
	Investors don't like it

The best part of this exit strategy, is that your buyers are the people who know your company and your product the best. That would make them arguably the best people to have to answer to.

The negatives here are that you aren't going to see a big payout, because your employees likely don't have the millions of dollars needed for you to get a big payday. And, investors aren't going to like this either... they typically want the biggest payout that can be had, and this is unlikely to be the best way to get that.

Wind Down and Liquidate

This exit strategy is typically one of failure. You weren't able to make the sales needed to keep going, or you need to pay back investors due to a contract and can't. It could be that you just want out, and don't want to deal with the complexities of the other options.

The only option left is selling everything off.

Pros	Cons
You get out	Have to fire everyone
	Who gets the IP?
	Who wants to buy a failed company?
	Regulatory issues

The only real pro to this exit is that you are done, you're out. The company is gone and you are no longer responsible for it (beyond paying any final taxes out of the business' money that is).

There are some major downsides here. You have to fire everyone, you have to deal with any legal and regulatory issues before you can finalize and shut down, and if you couldn't sell your company due to success... you'll probably have a harder time finding someone to buy a failed company and the IP of that failed company.

Further Reading

• US Small Business Administration: Close or Sell your business
• Kickstarter: Start Your Project