As the gaming industry continues to see significant growth across all areas, investments and the increasing amount of interest from investors matter more than ever to gaming studios.

According to Beauhurst, the UK's gaming industry was worth £7.82 billion in 2023 - which was a net rise from 2022. In addition, Beauhurst confirms that as of 2024, the gaming industry has already seen an investment totaling at £207 million after a two-year hiatus before the global pandemic and a significant increase post-pandemic. These post-pandemic trends show that there is surge when it comes to consumer demand and investor interest within the gaming industry.

In our previous article, which focused on how gaming studios can navigate investment deals, we referred to report from Beauhurst which confirms that gaming companies are enhancing their collaborations with other industries such as film, television, music, and technology. These collaborations enhance the narrative and visual quality of games, as well as appealing to a wider audience, so it's easy to see why the gaming industry is an attractive one for investors.

Based on the amount that the gaming industry is worth in 2024 and Beauhurst's confirmation of there being 7,000 active UK gaming companies in 2023, it's clear to see that the investment outlook in the UK gaming sector is flourishing and opening a window of exciting opportunities for small studios. But with exciting opportunities comes the need to strategically and correctly navigate an investment deal for your business to reap its long-term benefits.

Being able to secure an investment is an important step for small gaming studios that are seeking growth and innovation, so finding the right financial support for your business to help drive your studio towards greater market share is crucial. This ranges from having access to cutting-edge technology, to having the ability to upscale your business' operations with increased resources and a chance to expand to a wider audience.

It's important that you prepare and gain as much understanding of investment deals as possible, through expert guidance, and the potential significant risks that negotiations pose before entering a deal.

Potential risks can consist of:

• Gaming studio owners finding themselves locked into deals which don't align with long-term vision.
  
• Misaligned goals under restrictive terms.
  
• Gaming studio owners risk losing creative control of their future work.
  

As a gaming studio owner, understanding the potential risks and carefully planning your approach towards an investment negotiation will help you have a clear vision to negotiate terms based on what aligns with your long-term business goals.

Understanding Investor Motives: What They're Looking For

Before engaging with potential investors, it's crucial to understand their motives. According to a paper published by Creative Industries Policy and Evidence Centre, there are various reasons that foreign investors choose the UK when it comes to creative sectors rather than other countries. These include:

• The opportunity to gain prestige and a greater reputation
  

• Tax incentive
  

• The use of local regulatory systems
  

• Having access to resources
  

• Being able to experience the structure of the local labour market.
  

Investors looking to financially invest in gaming studios are typically drawn to studios that demonstrate strong growth potential, innovation as well as those with a unique intellectual property (IP). A studio that has a strong IP will be seen as a scalable model in the eyes of an investor in addition to having the ability to adapt to emerging industry trends.

Any investor will enter a negotiation with the intention of supporting studios that are able to demonstrate scalability and the ability to stand out in a crowded gaming market. Ensuring that you can present your business' value proposition, that aligns with these expectations, is crucial when entering into an investment deal.

Being able to demonstrate to investors your gaming studio's creativity and its ability to generate returns is important as this will show that your studio can expand and able to enter new markets - increasing its valuation as a result. Collaborating with other industries, such as partnering with educational or healthcare sectors to use games for therapeutic services for example, will show investors that you are willing to branch out into different markets and tap into recent industry trends.

In Beauhurst 's [https://www.beauhurst.com/blog/the-uks-emerging-gaming-companies-2024/] latest article, the top 10 up-and-coming- gaming companies features Bristol-based gaming company 'Meaning Machine' which develops generative AI for producing real-time and dialogue for characters within games. Despite the company only existing since 2022, it has already raised £250k in just one fundraising campaign.

Seeking investment for your business involves the task of finding the right investors that share the same visions and values that you have for your studio, which is essential when building a productive relationship. The task involves carefully vetting investors to ensure the objectives they have in mind won't steer your studio off course and away from its long-term goals.

When preparing your pitch ahead of investment negotiations, it's important to keep these points in mind and highlight them to investors. Establishing your gaming studio as a valuable business, that aligns an investor's expectations with your own long-term business goals, will position it as an attractive investment.

Preparing for Negotiations: Key Considerations

Negotiating an investment deal requires thorough preparation from a business owner, with one of the first steps being to understand and familiarise yourself with your studio's valuation. Knowing your business' valuation ahead of time will greatly influence how much equity you are able to exchange for capital, particularly in terms of ownership and control.

Having your gaming studio undervalued may see you needing to give up more equity than necessary, whereby you'll have reduced ownership of your own business, but on the hand overvaluing your business will often deter investors from your business. It's therefore crucial to have a realistic understanding regarding the risks of presenting the incorrect valuation of your business to investors, as doing this will not show your business as an attractive investment for long-term success.

Setting clear goals for the negotiation process is also important ahead of an investment deal. This can range from retaining control over the decision-making within your business, such as being able to protect your business' IP to securing favourable financial terms, so knowing what you need to benefit from the deal will help guide the negotiation process.

Keeping up to date with key negotiation tactics, such as anchoring and knowing when to compromise or walk away from a deal, will demonstrate your studio's worth and your level of confidence as a business owner.

Enlisting professional and expert advice from legal and financial advisors, who specialise in the gaming industry, will ensure that you avoid common negotiation pitfalls and instead accept a negotiation deal that is fair and supportive of your business' future. By seeking expert guidance, industry accountants and lawyers will help you navigate the complexities of the negotiation process and make sure that the final investment deal aligns with your studio's future goals.

Structuring a Fair Deal: Balancing Growth and Control

As a gaming studio entrepreneur, there are ways to develop and structure a sufficient investment deal to prevent potential long-term effects on your studio's growth while helping to maintain control of your business' core values. This will ensure a fair deal when it comes to the outcome of a negotiation.

Some of the key elements within a fair investment deal consist of:

• Equity distribution: Approaching this stage of an investment deal requires you to carefully assess how much equity you're willing to exchange for investment. Assessing this correctly will leave you in control of a sufficient and fair amount of your gaming studio business.
  

• Exit strategies: Another element to consider is exit strategies, as these play a key role in outlining the conditions in which an investor can sell their share of a stake in your company. If poorly constructed, this can lead to potential instabilities for your company. To assist you with this part of an investment deal, it's always worth researching previous successful deals within the gaming sector to give you reassurance and valuable insight into how to balance these factors and end up with a structure that's fair and supportive of your business' long-term growth.
  

• Your gaming studio's decision-making rights: The decision-making rights for your business are also important as this prevents investors from taking your studio in a direction that conflicts with the creative vision. These need to be carefully negotiated to ensure that you retain as much control as possible in every aspect as a studio owner, particularly when it comes to safeguarding creative decisions.
  

Post-Investment: Managing Investor Relationships

It's natural to think that securing an investment deal means that all steps have been completed, but in fact it's just the first step when growing your business.

Just like when securing a deal, seeking post-investment support and managing the relationship between you and your investors is just as important to ensure alignment with your studio's goals. Through this, you will be able to manage the investor's expectations of your studio and make sure their involvement doesn't hinder the operations of your business.

Once the deal is secured, the following steps will help you manage the relationship with your investors:

• Effective communication: Creating effective and clear communication with your investor is key for many reasons, especially when it comes to making sure your investors remain engaged and supportive without overstepping boundaries.
  

• Regular financial performance updates: Keeping investors informed and up to date with your studio's progress and challenges creates a collaborative relationship. This could be regarding project milestones that your studio passes and any challenges that may arise post-investment deal. Balancing your investor's input with the control you maintain of your studio, especially within a fast-paced and unpredictable gaming industry, will help prevent potential conflicts and make sure that the partnership remains beneficial for your business.
  

Empowering Studio Owners to Secure the Right Investment: Expert Advice from GS Verde Group

While small gaming studios may find navigating an investment deal to be a daunting task, it can also be a highly rewarding one. The key is to conduct thorough preparation throughout the negotiation, as finding the right partnership and support can provide your business with the resources it needs for long-term growth and help safeguard your studio's vision and values.

By taking a proactive approach and seeking expert advice, you can feel confident knowing you've secured an investment that helps drive your studio to success without having to sacrifice or compromise its future.

GS Verde Group offers expert and tailored advice to support your gaming studio throughout each stage of an investment negotiation. Our multi-discipline team will guide you through any potential challenges and ensure that the negotiation runs smoothly for your gaming business.

The GS Verde Group are business-focused experts in getting deals done. Combining all the services needed to complete a corporate transaction, including legal, corporate finance, tax, accountancy, and communications, GS Verde acts as a complete advisory team and provides a truly end-to-end service.