$25m Australian games VC fund announced

Stan Beer
Friday, 04 November 2005 10:00

IT Industry - Market

Australia's first venture capital fund for the local electronic games industry, worth $25 million over five years, will be launched early next week.

Designed to push much needed funds into what is now a fast growing and lucrative $100 million sector, the Electronic Games Investment Fund (EGIF) will be launched by Senator Helen Coonan, Federal Minister for Communications, Information Technology and the Arts, on Monday 7 November, 2005.

The EGIF will kick off with the support of $47,000 from 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. The Board will be supported by an industry advisory panel and 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.'

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.