The Venture Capital market in Australia has long been a woeful hindrance to commercialising innovation – the successful game development business has never fared much better.

There could be some opportunities on the horizon soon, however, with a new VC launched to dole out some cash for struggling gaming start-ups.

The Electronic Games Investment Fund [EGIF] will kick off next week thanks to $47,000 kicked in by the Queensland Department of State Development and Innovation. The goal is to raise at least $5 million a year over the next five years to attain $25 million in share capital with a minimum investment of $100,000 initially.

Evelyn Richardson, President of the Game Developers’ Association of Australia [GDAA] welcomed the fund launch saying; “local funding for Australian game development has long been an issue and now we have an opportunity to fundamentally change the face of the industry”.

Richardson called on the investment community to back the fund saying it is a chance for savvy investors to become part of one of the fastest growing industries in the world.

“Globally, the industry is experiencing double-digit growth, with a recent 2005 report by PricewaterhouseCoopers estimating the 2004 market for interactive video game software at $34.5 billion, compared with film takings of $33.2 billion.”

Under the traditional publisher-funded development model, the risk is primarily borne by the publisher as the advance is non-refundable but assigns all future rights over the intellectual property for spin-off games and sequels to the publisher.

EGIF will be headed by a board comprised of Chairman Tom Parkinson, and Directors Stephen Copplin, Jeff Jones and Peter Dowling combining an impressive balance of skills including accounting and commercial strategy, fund raising, software and games development, film and television production, marketing. The Board will be supported by a carefully selected industry advisory panel and an experienced fund manager Ashley Munro Corporate Services.

The fund initially plans to invest in development of games designed for handheld devices such as Playstation Portable, Gameboy Advance and Nintendo DS. The typical development cost for games in this category is $500,000 – $1 million with a 12-18 month development timeframe.

Once a track record has been established and further fundraising completed, EGIF will extend its funding offering to the more expensive and lucrative PC and console games market, which cost as much as $10-15 million and several years to develop.

Tom Parkinson, EGIF Chairman, said with little government financial assistance available, developers have traditionally relied on funding from family or friends or in the form of an advance from publishers, where the publisher’s investment is reimbursed as a priority payment from future royalty streams.

“As a result of EGIF funding, developers will be released from the onerous constraints publishers impose, retain their intellectual property and be able to negotiate higher royalty rates from publishers,” Parkinson said.

“Australian developers will now be in a position to retain their talent pool knowing that potentially funding will be available and this will aid in the growth of the industry in Australia.” 

“EGIF will support the developers in negotiating the distribution agreements prior to committing to funding. Publishers will be supportive of EGIF given that their risks are mitigated through the non-provision of development funding. Their money will not be tied up for the years in development and can be spent on Marketing.

“Through EGIF’s investment, all sides in the Games industry can increase their profits, EGIF will share in the gains and provide franked dividends to its shareholders.” EGIF is a registered Pooled Development Fund. As such, the shareholders will receive generous tax benefits available under the PDF Act.

Parkinson says EGIF will seek a stake of 20% to 80% of project-specific development companies. Upon delivery to the publisher, EGIF will receive a significant payment for the provision of all contracted delivery items, with a balance of its investment and return on investment (IRR of 30-40%) being generally received within the next six months.