Wed 24 Aug 2011
Since posting my original outline for setting up an indie game incubator, I’ve gotten a deluge of feedback (over 50 comments on the post and FB thread, along with 100+ emails, etc). It has all been a bit overwhelming to parse, but definitely encouraging! The original model I outlined had a few unique twists, but was largely inspired by existing incubation/acceleration programs out there in the tech world.
Then I met Ben.
Ben is a co-founder of Year One Labs, an early stage accelerator in Montreal, which actually had a game project within their first cohort. He’s written extensively about the meta aspects of running an accelerator, along with thoughts on how to revamp the traditional model. Going back and forth extensively with Ben has allowed me to refine some of the ideas and challenges that came out of the flood of feedback.
My thinking is now evolving beyond just the incubating aspects and really thinking bigger picture about how to unlock talent and put them in the driver’s seat with the goal to generate original/owned IP and successful new studios to grow around that talent’s new IP. It would still involve incubation and acceleration, but there wouldn’t be a cliff after a developer completes the program.
So, there are three main parts this: The Incubator, The Studio and The Commons. This super awesome diagram roughly blocks out what’s described below (click on image to see larger version):
Much like with the original proposal, things would start with the incubation side. Talent would come into the incubator and would sign a standard deal for the 6-month program: $2k/month of seed funding, basic resources (office space, wifi, computer gear, tools/licenses, etc), weekly demo nights, mentoring from industry experts and business coaching, access to business contacts, follow on deals and funding, etc.
During the incubation phase the goal (in addition to important stuff like gelling as a team, learning via the mentors, etc) really is to build and validate your project. That can mean different things for different types of games or platforms. For example, in the social space, that could mean releasing a minimum viable playable and starting to collect basic user metrics.
Based on some objective metrics/filters, after the incubation program, there are several possible outcomes:
- Complete failure: team doesn’t gel, game sucks, no validation, etc… you pack up and go home
- Promising but needs more baking: now you move to the Studio side…
- Massive success!: Your stars align and your game is a success right out the gates so you spin out into your own company
(I suppose there’s a fourth scenario where you are not a complete failure, but not quite promising enough to be invited into the Studio to continue baking. But, the team wants to stick at it anyway. Hmm, I guess in such a case, you could spin off as well and give it a go.)
In the case of complete failure, there would still be options for the individuals, like choosing to join a team that is ramping up, re-entering the next incubation phase to start something new, getting a job at one of the other studios in town, etc.
In those cases where a team completes the incubation program, but are not quite ready to spin out (either because the game is simply not ready yet, or the team don’t quite have a grip (yet) on being business owners and entrepreneurs) – and the game is showing promise (in some yet to be determined objective manner), they can opt to jump to the Studio side.
Being on the Studio side would entail a modified deal that would look like:
- Same $2k/month seed funding per team member
- 70% share of revenue in your project (Studio keeps 30%)
- .5% equity share of Incubator/Studio itself (earned after recouping seed funds)
- Same resources as before (wifi, gear, space, etc)
- Ownership of IP (see below)
Aside from gaining a bit of extra time to complete a promising project, teams will still be pretty motivated to hit revenue generation quickly since seed funding of $2k/month for more than half a year is likely going to start hurting… The equity share in the Incubator/Studio itself is a way to reward teams to be an active part of the family, supporting each other, sharing knowledge with the younger cohorts in the incubation phase, etc.
Also, by having the Studio side, this is where pre-existing indies/teams that are established but haven’t quite hit it with their project (and don’t need the incubation process per se), could come directly into the Studio under the same deal. This would allow them to be a part of the collective, get some guaranteed survival funds, benefit from the mentoring/coaching and gain access to the Studio’s business connections, collective marketing muscle, funders and so on.
The outcomes of being on the Studio side could look like:
- Complete failure: despite the extra time to bake, it just doesn’t work… you pack up and go home (or reintegrate as noted above).
- Massive success!: Your stars align and your game is a success so you spin out into your own company
- Games is selling comfortably (but not massively), so just stay put in the Studio for now…
In the last option, it is reasonable that if your game is doing well and you are happy hanging out within the Studio and you like the 70% of revenue + $2k/month deal (and/or you are completely terrified at the idea of running your own fully fledged business), you could choose to simply hang out in the Studio. And, to clarify, you could hang out as long as you want (assuming you are generating at least as much revenue as you are costing the Studio to host you). Also, I could see a situation where your project in the Studio is on cruise control and you are not needed day-to-do, so you decide to jump into the next Incubation cycle to start another project (while still collecting your share of revenue from the first game).
Longer term it is reasonable to think that housing a bunch of talented developers with reasonably successful games all under one roof would be more valuable (via economies of scale, shared resources, communal vibe) than forcing each team/project out the door to fend for themselves.
In the case where you are succeeding and want to spin out, either right after the incubation phase or with some extra baking within the Studio, the project would get transferred to a new corporate entity especially formed to house your game IP. The team takes control/ownership of that new company, with a 20% share in the equity of the new company given to the Incubator/Studio (along with an ongoing share of revenue, but reduced down to 20%). [Side note, I’d say these percentages are not set in stone as I’ve yet to fully model the financial implications. Side, side note, wherever revenue sharing is mentioned, the cut for the Incubator/Studio comes AFTER Apply or FB or whoever take their share off the top.]
Ideally, the Incubator/Studio would actually maintain an extra reserve of cash as a “sidecar” fund that we could choose to double down on the especially promising projects/teams that spin out. But, perhaps that’s getting a bit ahead of ourselves ;)
The final part of the system, The Commons, would be a space where developers could come hang out, jump on free wifi, work on their own projects, mingle with incubatees or folks in the Studio, take in a mentoring session, etc, etc. This could be helpful for really green indies or students just starting out, and could also represent a more casual way to find/foster fresh talent. Stephen Johnson’s insights on the environmental aspects of innovation, and the effect of building spaces for ideas to collide, weigh heavily on my thinking here…
Regarding IP ownership, the feedback was loud and clear that owning/controlling your IP is a must. So, I will commit to making that happen. There would likely have to be some contractual language that would allow the Incubator/Studio to benefit from the sale/proceeds of the IP it helped to incubate, but regardless, the IP will always be owned by the developers and in theory they could walk away with the IP at any time (though rev share, etc, would still be in effect). I still need to discuss with the lawyers and figure out how it would all work legally, but that would be the intent.
OK, wow, that pretty much covers the new hybrid style model. Still lots to figure out. And, sigh, gets a lot more complicated to budget this, and model the potential financial outcomes due to all the different entry/exit points. Hmm…
And, the biggest question remains: If we build such an Incubator/Studio, will the talent come?