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Why Public Sector R&D Funding for Game Developers

By on December 6, 2011
FlickrCC Dave Toussaint

This is the first of a series of three guest posts about R&D funding for games companies, by Andrew Richards, CEO and founder of Codeplay Software, a company providing acceleration solutions that optimize performance for graphics semiconductor designers and AAA game developers.

Funding for a Software Company

You know the scene: you’ve all seen Dragon’s Den. You pitch your idea to a funder. We were just 2 programmers wanting to fund the development of our technology for a next generation of games hardware. We didn’t have much marketing skills, or many customers. We were losing money fast. We’d been through these funding rounds before and they had all said no. Apart from Jez San, of course, but we all know how much he likes funding new technology from total tech-heads like us.

This time we had tried really hard to make sure we came across professionally. We talked about routes to market, and cash-flow projections, and business models. Yes, we were trying to do something crazy (parallelize video game engines for what was going to be a big leap at the time: multicore games consoles). People had tried and failed at this for decades. But we showed that we had some experience of working in this before. We did have customers, just not enough to make a profit yet.

The reply, when it came, was a shock. It just wasn’t in any way what we had expected. “The problem with this plan, is that your technology development just isn’t risky enough.”

We were stunned. How do you answer a statement like that? Eight years later, in the words of Nicholas Lovell, “Codeplay aren’t just still here, they’re actually doing quite well”. We are profitable and hiring. And we are still signing public-sector R&D projects. Here’s why.

Public Sector R&D Funding for Game Developers

Funding game development is hard. There is little public sector funding support for developing games, and investors generally shy away from funding individual games titles. But there is funding for R&D, if you know how to get it. For a game developer, R&D may seem to be a diversion away from the core business. But I don’t think it has to be. Public sector R&D funding can really help stabilize a games company from the severe volatility in income that games companies have to suffer from. This can lead to greater job security for the staff and company, while at the same time giving a game developer a technological competitive advantage. Those 2 features: longer-term stability, and technological advantage, could really help game developers keep costs under control and sign new business.

Codeplay is a technology company in the games business, not a game developer. But I do think game developers (as well as games technology companies like us) can follow our approach to help fund their business. In this article, I will show you how we do it.

How R&D Funding Helps Codeplay’s Business

Like games businesses, Codeplay signs contracts for relatively large projects. Those projects require specialist skills, are complex to sell to customers, and require us to have internal technologies to help get us there. It also takes us a long time to sign a deal: 6-12 months is not uncommon just for our sales process. We have an added difficulty in that very few people do what we do, and so it is very hard for us to find experienced staff. Instead, we mostly hire very smart graduates and train them in the skills our customers need. Then, when a project ends, our staff costs are no longer covered by income from customers. Given the size and complexity of the projects, we can’t just instantly move a programmer onto a new customer project.

One solution is to hire very quickly when projects start, and fire very quickly when a project ends. For us, this option is completely unavailable. We can’t hire experienced people and it would not fit with our valued company culture to just get rid of people when we don’t need them anymore.

What we do is put people on R&D projects when they start here, so they learn the skills we need, and put people back on R&D projects when customer contracts end. Because R&D projects are part-funded by the public sector, we have to part-fund those staff and any associated costs. But our alternative is to fully-fund those staff, so the public-sector R&D funding is a big gain.

We end up being a small company with a lot of useful IP, the ability to plan long-term, and staff with a lot of experience across a lot of projects who we can quickly put on new customer contracts.

Why Would the Public Sector Fund Games R&D?

You might think it inappropriate, or unlikely, for the public purse to fund a game developer to develop new games technologies. But in fact, games developers tick a lot of boxes for public-sector R&D funders. When organizations like the Technology Strategy Board, Scottish Enterprise, or the European Commission announce new funds, they get a lot of the same organizations coming back to them again and again. They get universities (who are unlikely to do anything commercial with their research) and they get certain large companies (who are unlikely to put their real important research through public-sector funding rules).

This creates a problem for public-sector R&D funders. Their remit is to fund research and development that will lead to job creation. The theory is that a small investment early on in the development of a new technology can have a big impact on new business and growth for the economy. European rules block or limit countries subsidizing businesses. But those rules have special exemptions for risky “pre-competitive” research and development. This allows European governments to fund commercially-directed research, as long as they are not subsidizing the final development of a competitive product. But what often happens, is that the funding goes into research that never ends up in products, because the large organizations that take part in many of these funding schemes use them for other purposes.

Funding smaller companies doing R&D is different. Small companies have to try to commercialize the outcomes of their R&D projects, because what other options do they have but to try and sell their technology? Small companies can take on R&D projects with lower costs and dedicate some of their smartest people. But these companies often can’t release products because they are too small. Game companies are interesting because they are constantly developing new technology and they are constantly releasing products commercially. And, even better, games companies are usually exporting. This is all of the targets that a public-sector funder has to tick in each project.

The risk that exists in game development is actually a bonus for some R&D schemes. The rules of the schemes state that they can only fund risky projects! There is no good reason for the public purse to fund development projects with a low-risk outcome, because if the outcome is good, and low-risk, why wouldn’t the private sector fund it?

Summary and What’s Next?

Back to the story I started with, when we were told our project wouldn’t qualify due to lack of technical risk, we left it. Then, with just one week to go until the deadline, we decided to just go for it. We worked really hard on the proposal, with loads of cash-flow-forecasts, and project plans, and promised to cure everything with our technology from global warming to third-world hunger. After some more work, and some more negotiation, we got it. We’re still trading on the outcome of the research we did back then, and it really helped us to bring in the right customers and employees to get to profitability. So, in the next article, I will explain how we did it.

About Andrew Richards