THE PROCESS
Stage 1: The Business Plan
The process begins with the difficult task of
translating the bright idea or vision into a well
structured and readable business plan. The body of the
plan should ideally be no more than 15-20 pages long,
with appendices for the financials, management CVs and
any specific game or technology design proposals. A
typical plan will cover:
a. the 'uniqueness' of your proposal;
b. why you consider demand for your product exists;
c. the scale of the market opportunity;
d. why no-one else is doing the same thing; and
e. why you possess the skills to make a success of
the proposition.
Management: provide brief CV details of the
key management players, focusing on their successes
and demonstrating that you have a balanced team of
proven managers.
The business plan and funding requirement:
set out clearly how you are intending to execute your
business plan, illustrating how and when the funds
that you are looking to raise will be deployed to
maximum effect.
Financial summary: for existing businesses
looking for growth capital, set out summary historic
P&L, cash flow and balance sheet for the last three
years (or for as long as you have numbers). Then
provide similarly detailed projections for the next
three years, based on receiving the necessary funding.
Start-ups will clearly only be able to provide the
latter.
The summary financials should be supported by a much
more detailed financial model set out in an appendix.
This will need to go into nauseating detail, with month
by month breakdowns for at least years One and Two and a
comprehensive note of the assumptions underpinning the
plan.
Remember that most investors will receive tens or
hundreds of business plans each month and won’t read
beyond the executive summary. The challenge is to get
yours to the top of the pile. By all means employ ‘eye
candy’ in abundance to grab attention, but recognise
that ultimately substance - not form - will provoke the
meetings you want with investors.
Stage 2: Contacting Investors
Do your market research to identify a short list of
investors - of whatever variety - who have a track
record of investing the same amounts of money you need
in opportunities with similar characteristics. This is
an area where a corporate finance adviser or specialist
lawyer may be able to provide you with a quick and
reliable insight into the right institutions.
Most institutional investors regard the professional
corporate finance community as a helpful quality
thresh-hold - advisers will only invest time in
opportunities that they regard as fundable. Therefore,
if an adviser is ‘sponsoring’ a deal, a VC is more
likely to read the business plan.
Contact should ideally be made over the telephone,
having worked out who is best for you to speak to in the
target organization. Many investors - in particular the
high tech ones - are increasingly only responding to
e-mailed opportunities. Be ready to e-mail the Executive
Summary section of the business plan - perhaps glossed
up - if you are having no luck on the telephone.
While, traditionally, VCs have been prepared to sign
NDAs before receiving business plans, this is
increasingly not the case. You will therefore need to
take a commercial view and perhaps be more willing to
send the executive summary but make sure that its
contents do not prejudice your business.
If an investor is interested, they will request the
business plan and/or may request a 60 to 90 minute
meeting. This is your opportunity to hone your ‘elevator
pitch’ skills.
Stage 3: Meetings with Investors
As mentioned previously, investors back managers first
and foremost. However good the business proposition, if
an investor does not feel comfortable with the managers
that it meets, it will not back the proposition. First
impressions are vital and a significant time investment
needs to be made in getting the initial presentation
right.
While cutting-edge game or technology demos can be
very persuasive at presentations, investors will want to
spend as much time as possible on the hard-core business
case. Interactivity between investor and management
should always be encouraged and therefore any
presentation should be restricted to 30 minutes, with
the rest of the meeting open to questions and answers.
Stage 4: Offers of Funding
Following the presentations, most investors will
come back quickly with a ‘yes’ or ‘no’. If ‘yes’, they
will generally come back with specific issues or
information that they need comfort on before submitting
a written offer of funding. A further meeting to go
through the detail may also be required.
The key objective for a management team should be to
obtain more than one offer of funding from investors. By
placing investors in a competitive environment, you can
be more confident of getting the best deals on offer. By
having several interested investors, you also have the
luxury of choosing the funder that you would most like
to work with.
Stage 5: Heads of Agreement
Having selected your preferred investor, you need to
resolve some of the more fundamental details of the
funding before entering into a period of exclusivity
with that investor. The face-to-face negotiations that
you or your legal advisers undertake should result in a
Heads of Agreement - a two or three page document
setting out the bare commercial bones of the agreed
transaction - which both parties then sign. This
document should also set out in some detail the extent
of the due diligence that the investor will wish to
undertake and a timetable for completing the funding.
(Editor's note: "Heads of Agreement" is a legal phrase
used primarily in British law. In the US, this type of
document is more typically known as a "Letter of
Intent." The purpose of which is to identify the
principal elements of the deal).
Stage 6: Due Diligence
Due diligence is the process whereby the investor and
its advisers independently verify the information
provided to it both in the business plan, and
subsequently. For a start-up, this will be a very
concise exercise, focused principally on taking
references on the management team, confirming that the
market opportunity exists and undertaking a technical
appraisal of any innovative technologies. For an
established business, it is likely to involve a thorough
investigation by the investor’s accountants and lawyers.
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Stage 7: Legal Negotiations
Once an investor is comfortable that the investment
makes commercial and financial sense, the lawyers will
swing into action in order to document the transaction.
Again, the amount of paperwork will reflect the nature
of the transaction - start-up or growth capital.
The temptation following Heads of Agreement may be to
‘let the lawyers get on with it’. This temptation should
be resisted as the lawyers need the close involvement of
their principals to move the negotiations swiftly
forward in a cost-effective way.
Stage 8: Completion
The moment you’ve been waiting for! Now the hard work
begins of delivering on the business plan and educating
your investor into the ways and means of developing
games.
TIMESCALE
The length of time that a fund-raising takes
generally reflects the quality of the opportunity in the
eyes of the investors, the time of year (avoid December
and August) and the complexity of the proposal. With a
fair wind, you should reasonably expect an institutional
fund-raising to take between four and five months from
beginning to end.
A business angel fund-raising may take as little as
two months, but fewer and fewer angels are prepared to
cut corners. A strategic investment could take one to
two months, depending on how important a deal it is for
the publisher or developer concerned. Either way, don’t
expect to turn up at a First Tuesday meeting and have a
cheque for £1 million three beers later - that only ever
happens to other people!
A typical timetable for an institutional fund-raising
exercise may look like:
Jeremy Furniss is the partner responsible for
Livingstone Guarantee plc’s dedicated Games team, the
UK’s only specialist team of corporate finance advisers
focused on the interactive entertainment market.
Livingstone Guarantee is the UK’s largest independent
corporate finance house specialising in unquoted
acquisitions, company sales and equity fund raisings.