In theory, a game incubator can be funded by its game start-ups. It can be funded by the collection of rent, fees for mentoring, etc. In practice, this model would be hard to carry out. Especially if the incubation programme is aimed at those who rely on the stability and patience of a long-term business development service.
The Reality of the Industry
Considering the need for experienced and therefore expensive mentors, these expenses would be relatively high for the individual start-up. This would mean that only few start-ups would be able to finance their participation in the programme. Even if that turned out to be case, building a sustainable incubation model would be difficult. The reality is that many start-ups fail. Especially in an industry as competitive and flooded with hundreds of new titles across distribution platforms each day. If start-ups do fail, the incubator’s source of income goes too.
Missing text: question of royalties, equity, brokerage fees etc. from the start-ups for financing the incubator
Examples of Revenue-Based Financing
STING, the Swedish incubator, supports start-ups – including game start-ups – using “equity” as one of few streams of revenue. Start-ups at the “Sting Incubate” stage give up to 5 % stock, at the “Sting Accelerate” stage up to 2 %.
Polish game accelerator ARP Games is funded by a public agency as a joint-stock company. For their support (training and funding), ARP Games can take equity of up to 25 %. When time will come ARP Games and the incubated team set up a new company in an LLC legal form.
How is Dutch Game Garden doing things? We have asked the DGG team about brokerage fees and their approach. Here is what they said: “We take 5 % on successful lead generation on the development side. Dev to publisher, dev to investor, dev to project, etc. There is no endless payoff as we cap on 50 000 EUR per case. We service all Dutch game companies who want to, not just our incubators. Recently, we made this deal by introducing Triangle to the publisher. We’ve been doing this since the summer of 2016.”