AEV ASOCIACION ESPANOLA DE VIDEOJUEGOS Financing video games Guide prepared by Guide prepared by

Contents 1. Investment agreements 5 2. How to structure the investment 5 3. Analysis of investment agreements in relation to other investment models 6 4. Clauses that are usually included in investment agreements 7 5. Conclusion 8

AEVI | FINANCING VIDEO GAMES Introduction to the Guide Author: Financing a new project is one of the main chal- Jordi Farrés (Pérez-Llorca) lenges faced by companies in the video game [email protected] sector. In the following sections, we will provide a practical overview of how to do this, focusing on the main elements that developers and publishers who wish to obtain external financing for their projects must consider. In this guide, you will find different possible investment structures so that you can choose the most suitable one for your project. We also explain the essential criteria that video game developers seeking alternative sources of funding besides their own or traditional resources should take into account. Specifically, this guide will be useful to: Learn about the different ways of financing your project: What financing options are available in addition to bank credit? Choose the best financing option for your video game: How are investment deals structured in the video game sector? Draft appropriate clauses in your project's financing agreement: What options are available to maintain control over my project?

1. Investment agreements In addition to traditional sources of financing, such as bank loans, through which a bank lends the necessary funds in exchange for repayment of the principal plus interest, there is a third option for publishers and developers: investment agreements with third parties. In this regard, in recent times, the use of shareholders’ equity, namely, the financial resources available to companies, and debt, has been supplemented by other hybrid and more imaginative solutions that allow for greater flexibility and, in many cases, a clear competitive advantage. The range of options available to developers can be summarised, depending on their nature, as follows: ABC Shareholders’ Equity Debt Hybrid Either as a result of the entry of A studio can turn to the markets This approach involves a more flexible investors (who pay an amount to obtain financing from private structure in which there is normally in exchange for a percentage operators, to whom it would have a an agreement by virtue of which the of the share capital) or through debt that it has to repay. investor provides the video game the contribution of funds by the developer with financial resources shareholders themselves. so that the latter, in turn, develops a video game in exchange for a share in the proceeds or the profits generated by the commercialisation of the video game. 2. How to structure the investment

ideo game the contribution of funds by the developer with financial resources shareholders themselves. so that the latter, in turn, develops a video game in exchange for a share in the proceeds or the profits generated by the commercialisation of the video game. 2. How to structure the investment Although these types of instruments could be implemented in different ways and through different Amount of the investment mechanisms, it is common for investment agreements (“IAs”) to be used for this type of project. % Investor's percentage share of profit These agreements must address the following issues, both in terms of the investment and its execution: Investor's management and control of the company Duration of the agreement Conditions for exiting the investment t

AEVI 2025 The relationship between investors and developers, also known legally as a “synallagmatic contract”, is the economic basis on which IAs are founded and generally follows the outline below. Although there may be variations on a case-by-case basis, a common scenario would be as follows: 1_ An investor makes funds available to a video game development company (the “VDC”) to finance the development of said video game, either through a single payment or (as is often the case) through partial payments of the total investment that will be linked to the achievement of different milestones in the video game development project; 2_ In return for the funds made available to the VDC, the investor will receive a fraction of the financial proceeds of the commercialisation of the video game; and 3_ In addition, and at the same time, the investor will reserve a series of political and economic rights (including voting rights at meetings, decision-making rights, and rights to participate in the distribution of dividends) within the VDC (to secure their investment and potential participation in the future project). The parties involved in the IA are as follows: ABC Investor VDC VDC Shareholders Provides the capital in ex- Carries out the video game Sign the agreement to guarchange for consideration development project antee control of the deal