Business & Production

Financing your indie games development studio - part four: Due diligence

Financing your indie games development studio - part four: Due diligence

In this series, Game Dragons consultant Philip Oliver addresses the serious issue of how to take your indie games development studio to the next level. This is part four, you can read part one herepart two here and part three here.

You can meet with investors and publishers yourself through Investor Connector and SpeedMatch at Pocket Gamer Connects Seattle on May 13th and 14th.

This is the final article in raising finance for your indie studio. If you’ve got your game and studio to this point - congratulations! You’re almost there.

Your investor or publisher just needs to double check everything before committing ink to the contract, after which you’ll receive the money that you negotiated for your game development.

Preparing for the due diligence

The publisher will give you fair warning and may even provide a list of everything they need to see. The number of people who visit will likely be proportional to the amount of money invested and the perceived risks. We had around eight people on one occasion!

If you’ve got a good track record and been in business for a while then this will all be fairly easy for both sides; but if this is your first time, then it’s a big job and could be quite daunting.

If you’ve made it this far then your publisher or investor wants this to work, so as well as looking for weaknesses they will also be looking to help you solve them.

What would kill a deal at this stage is if you’ve been lying, e.g. claiming you have a team when you don’t, or that the company owns the game when it doesn’t, or if there are other ‘interested’ parties you’ve not declared who have a financial interest in the game or the company.

Some over-keen entrepreneurs also feel it’s clever to have multiple companies, each backing different ventures. This can get complicated and spook potential investors as they want your attention fully focused on the game and company in question.

Due diligence can be divided into five broad areas: technical, creative, management, finance and legal.

Your workspace

They’ll want to see the office and understand the lease terms, to ensure you’ll have the offices you require into the future. They’ll want to check the security, the area, the doors and windows, etcetera. You probably won’t even know they’re doing this when they walk in, but if you’re in a shared workspace then there’ll be more questions.

They will want a tour of the studio to see the kind of environment and culture you have established. The office needs to be tidy, look efficient, everyone engaged in making games, with a quiet buzz – not lots of people distracted with non-work things on their screens.

Other business interests

If you have other clients, or other games in development, they’ll want to know how you manage everyone’s priorities to ensure you deliver what’s been agreed.

It’s best to have named team members per game project. A little help between teams is expected, but those who you say will be on this game need to be on it for as long as you’ve said.

If you’ve made it this far then your publisher or investor wants this to work, so as well as looking for weaknesses they will also be looking to help you solve them.

If you’ve said someone is only on their game 50 per cent of their time that’s okay, as long as you’ve made this clear. You may have issues surrounding confidentiality between games and clients, too, if you are working on licensed brands, or on a title for a new or unreleased platform.

Your team

They’ll want to meet the team members, get to know them a little and understand how committed they are to the game and studio.

Small independent studios don't have the luxury of having excess staff, so a risk for the publisher, investor and you is that key people leave before the game is complete. You need to reassure them that you have mitigated this risk and explain how the game will continue if anyone leaves.

The game

They will want to see the latest build of the game and the pieces that are in progress. They will want to understand the development pipeline and see how you manage work schedules, sign-offs and the internal QA procedures for delivering milestone builds.

There may be technical challenges in the game, like online multiplayer server issues. You need to de-risk these challenges as much as possible prior to their visit and have a plan for anything outstanding.

They should check your backup processes and ensure that in the event of machine failure, theft or fire that the game’s source assets are securely backed up and off-site. With cloud storage, this is so much easier than it used to be of course.

Hardware, software and licenses

Whilst the hardware and the software running on it are visible to see, they may ask to see the evidence of your purchase and license agreements. They may also ask to see proof of insurance, such as public liability and office content.

Additional due diligence for investment

Depending on the amount being invested, you can expect your investor to dig a lot deeper into the legals and finance. They will want copies of all your accounts, bank records, and all signed documents, including office lease, employment contracts, outsource and supplier contracts.

You should have a list of what's required before the meeting so that during it they can just ask questions surrounding areas that concern them.

Addressing the concerns

Chances are that you’re not 100 per cent squeaky clean and that you’ve overlooked a few things - that’s okay. The important thing is that there aren’t too many issues and that you work with them on a plan to address their concerns.

Chances are that you’re not 100 per cent squeaky clean and that you’ve overlooked a few things - that’s okay.

The issues raised may possibly be of great enough concern that the contract needs some tweaks to reduce their risk or cover unexpected oversights on your part.

Hopefully this isn’t the end of the road and there aren’t any show-stoppers. Certainly they won’t want this to be the case, since they’ll have spent a lot of time and money getting this far.

A new chapter for you and your studio

With the creative, technical, production, legal and financial due diligence complete, both sides should be in a good place to sign and exchange contracts. Now it’s time to knuckle down and make an awesome game!

There’s still lot of work ahead, but you’re now a team working to solve problems together. It won’t all be plain sailing, but hopefully it’s the start of a great, mutually beneficial working relationship.

I hope you’ve found this information useful, whether just for understanding the process of raising finance or because you intend to pursue investment to take your game development studio to the next level.

More challenges ahead

Look out for more advice on running a game development studio from Andrew and me over the coming months, available on our website.


This was part of the MGU course Mobile Games University: Guide to financing your games studio. For more articles in this course click here.

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