When Vancouver resident Ted Nugent found himself out of work, he did what many entrepreneurially minded people had done before him: He launched his own business.
“I guess it was a bit of a blessing in disguise,” he says about being laid off from a small Vancouver gaming company last fall. Mr. Nugent had worked at game giant Electronic Arts Inc. for more than a decade before taking a job with ACRONYM Games in October, 2007, with the goal of gaining business expertise that would help him launch his own company one day.
That day came sooner than expected when he was laid off last September. The following month he launched Genius Factor Games.
In April, Genius Factor launched its first game, Gravity Well, which he describes as a cross between pinball and mini-golf. It can be downloaded on Apple's iPhone and iTouch for $3.99.
Mr. Nugent faces a typical startup challenge – a lack of money.
He has funded Genius Factor with personal assets and loans to the tune of about $100,000. He has had no luck finding external investors to carry the company forward.
“The economy and the nature of our business have made it difficult for me to get support. We're seen as high risk,” he says. Banks are hesitant to lend money because gaming companies typically don't have capital assets they can mark as collateral, he says.
“And government programs that I've looked at with a startup component lean toward brick-and-mortar businesses,” he says. Some lenders won't consider a loan without first seeing a product. “It's a bit of a chicken-and-egg problem,” he says.
He has approached venture capitalists, but the amount he's seeking – about $500,000 – is too small to pique their interest.
Genius Factor will launch two more games this summer, but without an injection of capital, Mr. Nugent fears there won't be many more beyond that. “Our future is at stake,” he says.
He needs money to hire the talented people who have been working on a contract basis or for a nominal fee. He also needs to purchase equipment and pay marketing costs, which he estimates will eat up 40 per cent of his budget. “To be successful we must be visible and that means marketing.”
***** ***** ***** ***** *****
What the experts say
What the experts say
Mr. Nugent's challenge isn't solely a lack of money, says Warren Currell, president of Toronto-based Sherpa Games, a business development consulting firm for video game companies.
“I think his challenge is bigger than what he's identifying,” he says. “His challenge is the market space he's in.”
iPhone users can choose from among 30,000 applications and games. “He's competing for attention against all of that,” Mr. Currell says. Mr. Nugent might reconsider his platform, perhaps choosing Microsoft's Xbox, Sony's PlayStation 3 or the personal computer.
The most promising route to financing, he advises, could be through Telefilm Canada's New Media Fund.
“It's the most advanced alternative financing tool out there and is world famous for financing independent game developers,” he says. And unlike investors who would provide financing in exchange for part ownership, Telefilm simply extends a loan with repayment terms that hinge on future sales.
Pursuing banks and venture capitalists (VCs) isn't going to get Mr. Nugent anywhere, says Dan Mothersill, president of the National Angel Capital Organization and a serial entrepreneur.
“In terms of raising $500,000, that's not the space VCs are in,” Mr. Mothersill says. A more promising possibility would be angel investors, who are open to making small investments.
Publicizing the success of the games could help Mr. Nugent's case, Mr. Mothersill says. “If it's flying off the shelves, so to speak, that will get their attention.”
Beyond that, he must demonstrate how his company stands apart from the competition.
“He needs to define the company he's building,” Mr. Mothersill adds. “What is the unique position that he holds in this very crowded space? If he positions himself as just another company that's doing the same thing as everyone else, there's no appeal.”
Something that is appealing to potential investors is a board of advisers, Mr. Mothersill says.
“This is a team of seasoned people who plug holes in the management team,” he says. “At least 60 per cent of decisions to fund or finance a company are based on the overall strength of the management team, and an important part of that is an advisory team.”
Many senior executives will agree to participate in this capacity at no cost in the early days of a company, and they often end up becoming investors, Mr. Mothersill says.
Another tactic, Mr. Currell suggests, is accepting work from other gaming firms. “Lots of companies out there make website applications and they need someone to convert them to the iPhone,” he says. This strategy could help Mr. Nugent get a few people on his payroll and create a viable working business.
He could also consider offering shares of the business to some of the people he's working with in exchange for accepting no pay initially. “Once the business takes off then they are, of course, part owners,” Mr. Currell says.
The task ahead is challenging, both experts agree. “It's not impossible, but it is difficult,” Mr. Currell says.
Above all, Mr. Nugent shouldn't forget why he went into the gaming business in the first place, Mr. Currell says: “It's all about having fun.”
***** ***** ***** ***** *****
In a nutshell
- Consider the platform: With more than 30,000 applications and games available, the iPhone space is a very crowded one in which to compete.
- Apply for Telefilm Canada's New Media Fund: The government loan program is designed to help companies such as independent video game developers.
- Find an angel investor: Unlike venture capitalists, angel investors will consider smaller sums.
- Assemble a board of advisers: All investors want to see a solid management team at the helm.
- Seek out work from other developers: Generating baseline revenue could help get the ball rolling