Investment crowdfunding has not only fueled innovative game concepts but has also reshaped the business side of the gaming industry. By providing alternative funding, crowdfunding has enabled companies to take creative risks, retain independence, and build sustainable growth models outside the constraints of traditional investment. For many game companies, this funding model has been crucial in transforming small teams into successful studios with dedicated fanbases. Here’s how crowdfunding has empowered gaming companies, allowing them to grow, innovate, and connect directly with their audience.
What is Crowdfunding?
Crowdfunding is a method of raising funds from a large number of people, typically through the internet. It allows individuals, businesses, and organizations to raise money for various purposes, such as starting a business, financing a project, or supporting a social cause. Crowdfunding platforms provide a space for fundraisers to create a campaign, set a funding goal, and share their project with a large audience. In return, backers can contribute money to support the project, often in exchange for rewards or equity.
Types of Crowdfunding
There are several types of crowdfunding, each catering to different needs and goals:
Reward-based crowdfunding: This type involves offering rewards to backers in exchange for their contributions. Rewards can range from products or services to exclusive experiences, making it a popular choice for creative projects and startups.
Equity-based crowdfunding: In this model, backers receive equity in the company in exchange for their contributions. Equity-based crowdfunding is often used by startups and small businesses to raise capital, allowing backers to become part-owners and share in the company’s success.
Debt-based crowdfunding: Also known as peer-to-peer lending, this type involves borrowing money from backers and repaying it with interest. It’s commonly used by small businesses and individuals to raise funds for specific projects or expenses.
Donation-based crowdfunding: This type is focused on raising money for social causes or charities. Backers contribute money without expecting anything in return, driven by the desire to support a cause they believe in.
Crowdfunding in the Gaming Industry: Driving Company Growth and Independence
Crowdfunding has created a way for game companies, especially independent studios, to thrive in a competitive industry. By relying on backer support rather than publisher funding, companies can fund game development on their own terms. This approach not only provides financial security but also allows studios to maintain complete creative control over their projects. Crowdfunding investors play a crucial role in supporting these gaming companies, often receiving equity in exchange for their investment and fostering long-term relationships.
For companies, crowdfunding in the gaming industry is more than just a way to raise money; it’s an opportunity to build a community, validate ideas, and set a foundation for long-term growth. Additionally, angel investors, who are high-net-worth individuals investing in startups in exchange for equity, offer another valuable source of funding for gaming companies.
Key Benefits of Crowdfunding for Gaming Companies
1. Financial Independence and Sustainable Business Models
For many companies, crowdfunding provides a chance to secure funding without giving up equity or creative control to outside investors or publishers. This financial independence allows studios to focus on long-term growth rather than immediate returns, fostering sustainable business models. Initially, equity crowdfunding was limited to accredited investors under the JOBS Act to protect against potential fraud, but later provisions allowed non-accredited investors to participate, broadening access to crowdfunding opportunities.
Larian Studios: Known for the Divinity series, Larian Studios used crowdfunding to bypass traditional publisher funding. By going directly to players for support, Larian secured the funds needed to develop Divinity: Original Sin 2 on their own terms. This approach allowed them to expand their team, invest in technology, and produce a game that ultimately became a commercial success. Crowdfunding helped Larian prove that player support could drive high-quality, financially sustainable projects, setting them up as a leading independent RPG developer.
2. Freedom to Innovate and Take Creative Risks
Crowdfunding allows gaming companies to pursue unique ideas without the limitations that traditional investors or publishers might impose. With backers focused more on the creativity and potential of the project rather than strict profitability, companies can take more experimental approaches to game development. Unlike traditional funding sources such as venture capitalists, who often prioritize financial returns and may impose stringent conditions, crowdfunding democratizes the investment process, enabling small entrepreneurs to secure capital based on the merit of their ideas.
Obsidian Entertainment: After the commercial failure of Alpha Protocol, Obsidian faced financial struggles and almost closed down. Crowdfunding offered a lifeline, allowing them to directly pitch their next project, Pillars of Eternity, to their fanbase. Backed by over $4 million in funding from Kickstarter, Obsidian was able to create an old-school RPG that appealed to fans of classic RPGs, and the success of Pillars of Eternity revitalized the company. Crowdfunding empowered Obsidian to reestablish themselves as an RPG leader while expanding their creative freedom, which later attracted interest from Microsoft for acquisition.
3. Building Community and Brand Loyalty
Crowdfunding fosters a direct connection between companies and their fans, creating loyal communities that stay engaged with the studio long after the campaign ends. This community-driven approach builds a base of dedicated players who are invested not only in the game but in the success of the company itself.
Crowdfunding investments play a crucial role in building community and brand loyalty by allowing fans to contribute financially to early-stage projects, fostering a sense of ownership and deeper connection.
Double Fine Productions: Double Fine Productions, led by Tim Schafer, used Kickstarter to crowdfund Broken Age, one of the first major success stories in gaming crowdfunding. The campaign raised over $3 million and demonstrated that a passionate community was willing to support creative projects directly. By consistently engaging with backers, Double Fine was able to nurture a strong community, building a reputation as a fan-driven company. This brand loyalty has allowed Double Fine to continue experimenting with unique games, further establishing their position as a creative indie studio.
4. Reducing Dependence on Traditional Publishers
By crowdfunding, companies can avoid dependence on publishers who may impose deadlines, budget constraints, or specific creative directions. Crowdfunding allows companies to retain their independence, enabling them to make decisions based on player feedback rather than publisher demands. Additionally, equity crowdfunding platforms provide an alternative by reducing reliance on traditional publishers, though they often come with low liquidity and limited exit options for investors.
Red Hook Studios: Red Hook Studios, the company behind Darkest Dungeon, used crowdfunding to support their unique vision of a psychologically driven RPG. Free from publisher constraints, Red Hook could focus on refining the game’s mechanics, adding challenging gameplay elements, and updating content based on community feedback. The success of Darkest Dungeon positioned Red Hook as an independent studio with a distinct brand, allowing them to continue creating uncompromising, challenging games that might not have found support from traditional publishers.
5. Access to Early Market Validation
Crowdfunding allows companies to gauge player interest before fully committing to a project, helping them avoid the high-risk pitfalls of untested concepts. This early validation reduces the financial risk and allows studios to adjust their projects according to player preferences and feedback.
inXile Entertainment: With a focus on reviving classic RPGs, inXile Entertainment used crowdfunding to fund Wasteland 2 and Torment: Tides of Numenera. The success of these campaigns demonstrated that there was a strong demand for story-driven, tactical RPGs. By validating their concepts with player support, inXile was able to establish themselves as a company that caters to nostalgic RPG fans, leading to further investments and, eventually, an acquisition by Microsoft. Crowdfunding helped inXile prove the viability of their niche, which had previously been ignored by larger publishers.
How Crowdfunding Platforms Drive Industry Trends
Platforms like Kickstarter, Indiegogo, and StartEngine have provided companies with not only funding but also tools to better manage and engage with their communities. These platforms have evolved to meet the needs of game developers, offering features that allow companies to set stretch goals, communicate updates, and reward backers in unique ways. Crowdfunding platforms also present various investment opportunities, although Kickstarter does not allow projects to offer equity or revenue sharing, differentiating it from other forms of fundraising that may provide investment opportunities for backers.
Kickstarter’s Role: Kickstarter has become synonymous with gaming crowdfunding, supporting thousands of successful campaigns. By creating a space where developers can showcase their ideas directly to players, Kickstarter has empowered countless indie studios to establish their brands and gain visibility. Studios like Larian, Double Fine, and Obsidian owe part of their success to the platform’s structure, which allows developers to interact with backers, collect feedback, and generate excitement before launch.
Equity Crowdfunding and Long-Term Investment: Platforms like StartEngine are taking crowdfunding further by offering equity-based campaigns. Through equity crowdfunding, companies can allow backers to become stakeholders, helping fund larger projects or ambitious technological innovations. Equity crowdfunding is particularly useful for studios looking to expand into areas like VR or to create infrastructure for long-term growth. This approach appeals to serious investors who want to support a company’s vision for future success, not just a one-time project.
Crowdfunding and Its Lasting Impact on the Gaming Industry
Crowdfunding has left a lasting impact on the gaming industry, challenging traditional publishing models and giving rise to independent studios that focus on quality, creativity, and community-driven development. Many of today’s successful indie studios started with crowdfunded projects, and their success has inspired other developers to pursue similar paths. Crowdfunding investments have also fostered long-term relationships and financial returns for both developers and investors. Here’s how this model continues to shape the industry:
Creating Long-Term Stability: Crowdfunding success can provide studios with the initial push needed to establish long-term stability. By building a loyal fanbase and proving their concepts, companies can generate steady income from post-release sales, expansions, and future titles. Many studios, like Larian and inXile, have leveraged crowdfunding to establish themselves as self-sustaining companies.
Encouraging Market Diversification: Crowdfunding has encouraged the development of diverse games that don’t fit neatly into mainstream categories. With the ability to test unique ideas with backers, companies can develop projects that appeal to niche audiences or explore experimental genres, enriching the industry with a wider variety of gaming experiences.
Promoting Transparent Development: Crowdfunding requires companies to provide regular updates and maintain transparency with their backers, promoting accountability. This transparency strengthens the relationship between companies and their audience, as players feel connected to the development process and appreciate being kept in the loop.
Crowdfunding has become a cornerstone of growth for the gaming industry, empowering companies to achieve financial independence, take creative risks, and build lasting relationships with their communities. By offering an alternative to traditional publishing, crowdfunding enables companies to experiment with new ideas, validate concepts early, and engage with a loyal fanbase from the very beginning. For companies like Larian Studios, Obsidian Entertainment, and Double Fine, crowdfunding has not only supported individual projects but has helped establish sustainable, independent brands with a reputation for creativity and community-driven development.
As more studios turn to crowdfunding, this model will continue to drive the gaming industry’s growth, encouraging innovation and enabling smaller studios to compete on a global scale. The role of crowdfunding in gaming has proven invaluable, creating a space where players and developers come together to bring unique, out-of-the-box ideas to life.
Featured photo by John Schnobrich @ Unsplash.
