If indies are looking to retain their creative independence and still access funding, there's a different path that they can walk.
When indie studios decide that it’s time to “level up,” there aren’t that many options open to pursue. If a studio’s first game enjoys meteoric success, they have the option to capitalize on that hype and newfound industry reputation with a crowdfunding campaign for their second title. But those glory days on Kickstarter are almost entirely behind us. Studios can decide to enter into a publishing deal with an indie publisher like Raw Fury or Devolver Digital, or embrace the AAA-indie relationships that we’ve seen with major publishers. They could even look toward being acquired.
But if indies are looking to retain their creative independence and still access funding, there’s a different path that they can walk. Interactive Gaming Ventures (IGV), a small fund managed by PlayStation-alum Jack Tretton and Doug Kennedy, formerly of Nvidia, is taking the traditional developer-publisher relationship, including revenue-sharing, and flipping it on its head. In theory, this allows the developers to maintain creative autonomy, access funding, and build their networks.
It was a very rainy day in San Francisco when I sat down with Tretton to talk about Interactive Gaming Ventures. Tretton’s contribution to the game industry is as vast as it is varied. Many know Tretton best from his years as SCEA President, as he personally hosted the Sony press conferences at E3 during his tenure. He’s devoted the entirety of his professional career to games and gamers. He stepped away from AAA in 2013, but he didn’t go far.
Tretton’s love of games drove him to work with indies instead.
“I think the indie space is probably the most exciting thing to happen to the industry since its creation,” Tretton said when I asked him why he shifted focus to indie developers. “I think, with the indie space, you don't have to worry about being part of a big development studio. You can do something that's really far afield, creatively, because you don't have to attract millions to ultimately have financial success on your title. You've just [got] to tap into an audience that really enjoyed the experience, and hopefully [there will be] enough of them to at least cover your development expenses, if not leave you with a bit of profit.
“I think it gives you this tremendous canvas to paint on that allows for more creativity, and more of a direct relationship with gamers, than at any point in the history of the industry and, you know, that really energizes me, because I think it's a great time to be a gamer, and it's a great time to be a developer. So, I want to facilitate that relationship as much as possible.”
A major factor in Tretton’s spinning up Interactive Gaming Ventures was to get better venture capital investments in front of indie developers that have promising projects. Convincing traditional venture capital investors to put their money in games is as much an exercise in proof of concept as it is managing expectations with timelines, deliverables, and ROI.
“One of the big challenges in the development community is getting people that understand the industry, and are interested in investing in it, and are willing to have the patience to let a game ultimately reach its full potential,” Tretton continued. “I think there are a lot of people that are like, ‘Okay, here's the money, when do we get our money back?’”
It’s important to recognize that investing in games is playing to the long-term, but it’s not as simple as just handing over a check to the studio and saying, “Have at it.” There’s a fine balance to be struck between impatience and complacency in the investor relationship. That’s where Interactive Gaming Ventures comes in.
“I think you have to understand development to realize that, on one hand, if you give somebody unlimited time and unlimited funds, the game may never be done,” Tretton said. “On the other hand, if you don't allow for bumps in the road, in changes in innovation and development, and you're just beating on them, trying to shake the dollars out of them, that you may get a percentage of your money back on time, but you're not going to get the return that you would have gotten if you married into the development process and really gave them, you know, the [support] to do the job effectively, and I think that's what we want to do for them.”
Tretton’s approach wasn’t to start big and hope for the best. Instead, he spent the better part of a year gauging interest in the financial community in starting a smaller fund that would target a few games a year. Some of the pushback he dealt with was people trying to get him to go big.
“We were told, ‘You could raise $100 million in a fund and you could have 20 projects a year, and wouldn’t that be great?’” Tretton said with a wry smile. “And what I realized through that whole experience is, number one, you'd spend your time doing administration and communication with uneducated investors, and you wouldn't be spending time on the development projects and in the industry itself, and that wasn't appealing to me. And number two, they just don't understand the business.”
If HBO’s “Silicon Valley” has done anything, it’s shown people outside of tech and venture capital that investment isn’t all about taking the high-risk ventures. Sometimes VCs lay out big bets (based on a number of trend markers) and sometimes the ROI is astounding. But most of the time, it’s a series of smaller bets and smaller investments to ensure diversity in the firm’s portfolio. VCs aren’t risk averse, but they need assurances that things are moving along and they won’t be left holding the bag.
“If managed correctly, and if the talent is there, chances are pretty good that you're going to have something that's successful at the end of the day, and that's what we're looking for,” Tretton noted. “And I think especially in our first few projects, we have to be extremely selective, because, you know, it's going to pave the road for future projects, both financially and from a reputation standpoint.
“So, if our first two or three projects fail, then it's going to make it very prohibitive financially and from a success standpoint to be able to follow that up. Our most important relationships are going to be our first relationships. [The projects are] always going to feed off of each other. Even if we have great success initially, if we want this fund to be what we think it can be over the course of seven years, the last project is just as important as the first.”
Tretton doesn’t want to consider IGV as a “kingmaker,” because the ideal projects and studios are the ones that would have seen success regardless of IGV’s investments, even though it might have taken them longer to get there. IGV is far more interested in building relationships with studios that are constantly looking to the future, instead of putting up their blinders and only focusing on the project at hand.
“[The indies we want to work with] have a one-, three-, five-, 10-year vision of where they want to get to, and they see partnering up with us as [getting] them where they want to be sooner. I think Blue Isle is probably the perfect example of that. They had two games that they self-published, they had commercial success, but I think they would have been successful regardless.”
Securing funding and raising capital for video games isn’t exactly new. Plenty of companies have done it and more than a few venture capital firms have seen success from these investments. But when indies think about the ways they need to raise money, unless they prioritize business development alongside game development, it’s unlikely that VC funding is something they’ve considered.
“We're not the first people to start a fund. [And] we're only going to be a resource for two to three games a year,” Tretton was quick to remind me. “So, I don't know that we're going to dramatically change the investment world for the indie community. We're just another source for a small group of developers, and over the course of a body of work, over a seven-year period, I mean, I hope we're in mid double figures, or at least, you know, upwards of 20 projects that we've worked with over the course of the five to seven years.”
In that way, IGV isn’t necessarily looking to level the playing field, but having someone as recognizable as Tretton attached to it does grant visibility to this option where perhaps it didn’t exist before.
IGV’s model is similar to how publishers strike deals with developers, minus any creative governance that publishers may exercise during the development process. Tretton and Kennedy are looking to help indies grow, after all. And growth only happens when you give a projectsome breathing room. That isn’t to say that there aren’t constraints on time or capital, but there isn’t the constant pressure to deliver a completed game before it’s ready, either.
“We're not looking to buy a studio,” Tretton said. “We're not looking to buy IP. We're looking to make a royalty-based investment in a developer's project, so we're going to take a percentage of the revenue that's generated from the IP that we invest in, and, we're going to have that percentage in perpetuity as long as it's making revenue, or if the studio got acquired we'd have documented some type of buyout based on what our percentage of the IP was worth as a percentage of the total studio.”
The video game industry is notoriously risky. Rapidly shifting trends, emerging technologies, and a perpetual hype machine create a pressure cooker atmosphere. Tretton and Kennedy are looking to be a release valve for some of the inherent anxiety, using their experience to shepherd studios who need a bit of funding and the nudge of a mentor to stay on the path of success.
“I'm a capitalist like anybody else,” Tretton said. “I like making money, but there are a lot of ways to [do that]. If you can make money, and entertain people, and help other people be successful, to me that's the best way to [operate].”