Case Study

A fictitious company, Specimen Games including accounts, was created as a platform for roundtable discussions between games companies, investors, lawyers and accountants in order to understand the difference between the investor and lender perceptions / requirements. The outcomes formed the basis of the IP Manifest.

Company Profile

  • Established in 2012 with own working capital from redundancy settlements and a few pieces of contract work in the bag. Their first FY (2012/13) was characterised by virtually all contract work revenues and left them a small profit after modest drawings.
  • Founded by two well-respected FTEs with 15 years combined experience in development of successful titles for console platforms, one being a programmer and one a producer with an arts background. Neither founder is a natural hustler / entrepreneur though one has stepped up to take on and develop this aspect.
  • Now employs three FTEs (one of whom has been previously recognised with a BAFTA young talent award) and occasionally outsources to contractors with expertise in programming, art and audio.
  • The company aims to grow to ten FTEs by Q4 2015-16, primarily to work on new IP, subject to securing working capital.
  • The founders have significant growth ambitions and hope to generate a hit franchise leading to acquisition/exit for early investors

IP/Project overview

  • The company is continuing to work on one proprietary IP (Woodland Warriors) which has been supported by the Prototype Fund and self-published on the iOS market. It has also worked up a few concepts for new IP but don’t have the resources to work on development presently. The game was featured in the ‘Editor’s Choice’ section of the iOS marketplace in both the UK and US.
  • Revenue from early releases of the original IP has been lower than anticipated. The primary source of revenue for the Company still comes from work-for-hire contracts – essential to keeping the company going. However, the fulfilment of contract work reduces the time available to develop speculative IP.
  • Options for increasing working capital include selling or licensing the initial IP development and the company is actively approaching publishers, brands, other games developers with complementary IP and platform holders. One of the platform publishers has indicated some interest in the original work but won’t provide advances for the further development necessary.
  • The company is actively approaching investors also to secure seed funding of £150,000 to allow them to make additional hires to focus on own IP development. They have discarded one potential investment opportunity which was an SEIS fund that required creation of new IP in a SPV company feeling that too much of the funding was eroded in management fees and unsure about issues regarding inter-company revenue flows if they were to maintain a growth ambition for Specimen Games Ltd.


  • Released game on the iOS market in February 2014
    • Over 50,000 downloads, primarily in English speaking territories
    • Lower than anticipated revenue from sales
  • Game is based on own IP
    • Trademark for "Woodland Warriors" in both UK and US
    • Concept artwork and game world development assets beyond what was actually used in the released game (back story, etc.)
    • Short 6 page web-comic freely available on the company website (originally used for promotion)
  • Game assets
    • Built with a popular cross-platform game engine, licensed outright with no royalty share - however the licenses are non-transferable and can't be resold, or even given away
    • The team built their own technology for open-world streaming tilemaps – MapTech
    • MapTech may be suitable for resale to other developers, but is un-documented
    • Some code technologies also licensed in on top of the core engine from separate third parties, with a variety of licenses (per seat, site license, etc)
      • Video playing code
      • Cutscene construction kit
    • The game features a generic fantasy setting in a popular cartoon-like art style
      • Some low detail art assets relating to in-game characters, enemies, props, and environments
      • High detail versions of key characters and enemies for use in promotional materials
    • Some music and sound effects were created specifically for the title, with a typical fantasy style (sword swings, magic noises, tunes for the bard to play in a tavern setting)
    • To save time other assets were purchased and put into the game - both music and artwork, with a variety of licenses applied
    • Some code and other assets specific to the game (such as level designs) are unlikely to be useful to a third party, except through a sale of the overall IP
  • Version control and asset management
    • Code assets and the game build are version controlled, as is much of the in-game artwork and audio
    • However some of the other assets were produced by third-party contractors and are primarily stored on DropBox


  • The value of the company’s IP to prospective purchasers is dependent on several factors: market demand, investment already made, revenue generated and market comparisons. There is no direct relation between the creation cost of the IP and the market value for the company. Negotiating around the “cost to create” has not yielded any interest. The company also feels exposed to being driven to accept any price should contract work dry up. There is frustration that the investment in IP creation to date can’t readily be defined as an asset and a value attached to it.
  • The company does not carry out rigorous housekeeping checks as regards the IP as this is seen as “not viable nor efficient”. Standard QA processes and employment / contractor housekeeping procedures are in place, however. The company recognises that this may be something that investors/buyers/licensors want to look at as part of any due diligence. Also, the time it may take to ensure the code/art/audio is documented etc. to a sufficient level to allow due diligence may hinder the investment/sale/licensing.
  • Should the IP be infringed the company could not guarantee it would be able to act; the financial cost and cost to the business of time away would have to be outweighed by the potential impact of the infringement. The company is not able to monitor every possible IP infringement (this is not logistically feasible for an SME) but is aware of any general challenges from competitors, contractors, etc.
  • If the IP were to be sold outright the buyer may want to consider contracting/hiring some of the talent behind the creation of the IP. The digital assets themselves may not represent the full opportunity available to buyers/licensors as the work could be intrinsically linked to the talent of specific individuals. The loss of key individuals would be a body blow to the company in terms of potential to continue with further new IP development.
  • The company is investigating the possibility of using a licensed-in brand in the IP for a further release. However, the company has limited funds to license any big name brand and little practice in the negotiating skills needed to secure a good deal.

 Management Accounts

Specimen Games Company Ltd
to 31/5/14  
      12 months
Revenue: 116,133.23
  Gross Sales
52,367 paid downloads at 69p
Contract work
  Less: Sales Returns 0.00
Cost of Goods Sold: 123,177.32
  30% platform revenue share 10,839.97
  Staff Salaries   112,337.35
Gross Profit / - Loss     -7,044.09
Other Income: 24,977.62
  UKTI Grant 1,000.00
  Prototype fund grant 23,977.62
Gross Income     17,933.53
Financial expenses 187.00
  Bank Charges and commissions 187.00
Personnel expenses     3,230.00
  Contractors 3,230.00
Other Operational Expenses     13,705.00
  Depreciation 1,250.00
  Insurance 430.00
  Professional fees 1,320.00
  Marketing 340.00
  Miscellaneous 89.00
  Office Expenses 136.00
  Software licences 2,440.00
  Rent   4,220.00
  Telephone 220.00
  Travel 3,260.00
  Utilities 0.00
  Vehicle Expenses 0.00
Total Operational Expenses     17,122.00
Net Income 811.53
  1. These are simply management accounts produced by one of the founders using a free downloaded income statement template and after reconciling bank statements. No attempt has been made at creating a balance sheet. PAYE payments to HMRC are up to date.
  2. The founders have been required to put some drawings through PAYE in order to claim the prototype fund grant. They have drawn no dividends and otherwise lived on their original cash injection of £122,000 via directors’ loan accounts and some other modest family funds not introduced as capital.
  3. The total development budget for their IP to date is approximately £180,000 and they are continuing to refine it as the launch title on mobile was seen more as a Minimum Viable Product to gauge interest. This figure includes pre-foundation work and an estimated value of “unpaid” work by the founders.
  4. They plan to apply for Games Tax Relief for work post April.
  5. Cumulative downloads since launch 6 months ago have exceeded 90,000 but only 52,000 have generated revenues and a steady flow of refreshed content and periodic free offers has been necessary to sustain this. Analytics have shown a fairly rapid drop in engagement without new content.
  6. Contracting revenues in the in the period have been c. £80,000 and a lower rate was negotiated to allow for monthly advances subject to milestone delivery. The beneficial cash flow this brings makes it hard to turn work down (and hard to set aside in order to ramp up on original IP development)
  7. They occupy relatively low cost shared working premises at an all-in rate and a lease allowing a simple 1 month notice period.