How to get funding to set up a games company in British Columbia

we're moving away from kind of investment funding thing to government funding and obviously this is something that Canada is very as a whole as very it's very famous for has been very successful as a strategy and and bc in particular and to to welcome to the stage to lead off this panel is is the lady who's responsible for in many ways for us being in the first place so I'd like to give a warm a warm welcome to stage two to the amazing Nancy mart of the VC so Nancy thank you very much for inviting us here and thanks for I'll lead you to your power now thank you very much so we'll just gonna be up on the panel I think we're just Lance's disappeared so we'll start without him

but I think I'm gonna move to the chairs I think it's gonna be a bit easier have a conversation then maybe one more of these Lance is coming to all right that's true so if make it quickly with what we can do is just introduce ourselves quickly while we wait for Lance so I'm Nancy Mont from the Vancouver economic commission we are the economic development agency for the City of Vancouver and my particular file there's Lance come on is digital entertainment interactive so I work with film visual effects animation games NVR which is kind of tying in all those things so we're very excited that PG connects came has come to vancouver we did a delegation to London for PG connects in January and it was a fantastic experience for for our local companies so we're here to talk about a bit more about governmental financing

options for companies who are BC based companies this could also apply to international companies who set up companies here and I would just like everybody to quickly just go down the line and do a quick introduction to themselves thank you sorry for showing up late but better late the number my name is Lance Davis and I've been consulting into the technology realm for over 25 years now I with focus on video game development and my services into the realm are in the area of virtual CFO services and by that I mean I can fly into small nascent or medium-sized operations and provide them full service and help them to get ready to raise money and do the business plans cash flows and such things so I've worked with just about everybody in town and have familiarity with just about every type of money there is hi my name is Alex Mandl of I run a company out of Victoria BC called tiny mob games we

make mobile social games we're about to launch a game for steam as well we were founded in 2013 we have raised three million dollars to date in private capital and we are a lucky current recipient of the cmf which brings the conversation over to me i'm katherine lee i'm with telefilm Canada so telefilm Canada is an agency with the Department of canadian heritage and the unit that I work with administers accounted a media fund so we're called the Canada media fund program administrator that's why you see my title with the Canada media fun officially I'm with telefilm Canada I'm a development analyst at this point I also work with incoming clients as a coordinator and we can set up pre-application consultations with you to work with you on your incoming funding applications to the fund cool

I'm Eric Jordan I'm the CEO of code name entertainment where a video game studio like Alex based in Victoria so we've got like strong Victoria representation on our panel we are 15 people we've got we started out doing web games flash web games there's still money in flash and we launch the game on steam our first game on steam last year which is done really well for our state in the top 2% most played games on Steam we have a deal congregate to publish our first mobile game which actually soft-launched in Canada right now but officially launched next week so and if you come to the bc vancouver booth that they have the little cards to give out right i have we got codes codes for free chess free and game good for Gideon that's awesome well since Alex started the cmf conversation I'd love to start with Catherine on on that actual fund because I know that there's a couple of ways that games

companies can apply for some funding for that crap sure yeah can I just get an idea of anyone in the audience who does have some familiarity about applying to the counter to media fund yep a few people so it's it's an agency that has been set up by Canadian broadcasters satellite providers and they essentially have two different streams of funding one is broadcast related so that we have a television and often a digital media component combined and the other stream that probably will be of most interest to people in the audience is called the experimental stream experimental we have three stages of activity we can fund you when your project is in what we call development which is essentially concepting prototyping research that

type of pre-build activity and the second type of activity that we fund is called production and when you think of a waterfall model of building it's typically the build stage where you have already gathered all your assets you figured out you know your market strategy and you're working on building your project for launch and the third stage we fund is called marketing is fairly self-explanatory this year we've just introduced a pilot program called the commercial pilot program and that is aimed at projects that have a high probability of commercial success in the marketplace so what we have now is called innovation that's our existing experimental development production marketing activity and in our pilot commercial program we fund production so we still have a couple of deadlines in

the fall if if anyone would like to get in touch with us and find out more about the programs we're happy to discuss that should I get into like the breakdown of funding financing go up there may be approximately the dollar figures for each let each of the three stages that they can expect sure so an innovation in development we're looking at a cap of 300,000 dollars or 75 percent of your projects eligible costs that's Canadian costs so whichever amount is less so you're looking at coming in you know asking the cmf for up to 75 percent of funding for your development stage project and then showing that you have twenty-five percent of funding that you have from other sources whether it's your own investment your sweat equity from the owners of the company and so forth the second stage of of activity

production we have a cap of 1.2 million it also happens to be your project cap so if you happen to be successful at receiving funding for all three stages you can only get at max 1.2 million for your entire development production marketing combined so 1.2 million you can spend it all in production if you want to again it's a 75-percent or 1.2 million whichever is less and then when you come in for marketing it will be a four hundred thousand dollar cap or seventy five percent whichever is less there are different recoupment models that are also attached to those should touch on that too or I'll let other people how we talk but I'm curious um Alex having gone through the process do you have any advice for people on the application process because I know it can be quite a lot of heavy lifting a lot of information yeah I mean it's a it's a owners process to apply because

the competition is pretty pretty tight there are a lot of people applying for for the kinetic media fund from all over Canada and there's a limited amount of funds that are available and distributed every year i believe for the experimental fund for last year was forty million dollars that was distributed and so you know my advice would be certainly start applying early it took us I think we've applied three times we were successful once this last time and each time it probably took us about three weeks to do the application and that's including weekends with multiple people so it's uh it's not easy the application focus is very heavily on innovation and so you need to pba be very good at distilling and understanding what is really innovative about the game that you're about to make and then be able to put it in a night for Matt whether that's that's palatable to the people that are going to be judging your application and like I said

it's very competitive so definitely give yourself a lot a lot of time to is um if they seem like big numbers you know 1.2 million for production if you've made mobile games before you understand that you know million dollars is not a tremendous amount of money to make a mobile game so keep that in mind in terms of the scope of your project but also if you're applying for a project where you're expecting that the CMS can give you a million dollars that means you need to have you provide twenty-five percent less fun so you need to be sitting on something like three hundred and ten thousand dollars at the time of the start of the project so that's going to be important because they will check and you will not get your funding until it that that happens yeah and so I believe it comes to a bit of a point system so when you're doing the application depending on what you're what you're submitting you get points for you know your team so you want to have a really strong team you have to have a good

business plan a monetization plan so there's a lot of things that you kind of have to think about and it's really the cmf really gets you thinking so that you have a solid foundation actually for your business so if you're using other forms of funding it just is helpful for that is that right yeah so also another thing as part of the cmf application you can actually use the interactive digital media tax credit as part of the money that you're putting into the skin in the game Lance are you able to talk a little bit about that tax credit Thanks yeah I don't think the nice thing about both of those programs in particular Nancy is you're not intended to stand alone they're not silos necessarily in fact I think cmf welcomes other investment in you it just goes to show the credence to your your business plan and so on if you have other investors the I dmtc is a great tax credit I'm not sure how many of you are familiar with it out there

how many people have applied for it and or received any funds not an overwhelming number but good Pete some familiarity it is administered by bc at the moment there is a cap on the funds eric and i are sitting on the public policy committee at digi bc we're lobbying for higher rates we did GBC were responsible for bringing the credit in but fundamentally here's how it works if you're into interactive product and there is a heavy emphasis on game then you're fully qualified and things in your office that might not qualify would only extend to administrative marketing those kinds of functions so i think i find on average that we end up with about eighty to eighty-five percent of your labor spend qualifies and the tax credit currently is 17.5 percent so it's good money back and you file it along with your corporate tax return it gets peeled off upon submission and sent to a different division in fact it's film division at CRA that administers it

now and those people aspire to if you can get it in with your tax return about 120 day turnaround so keep that in mind okay and on the side without revealing too much we have been lobbying quite heavily we've had a lot of great conversations and I'm pleased to say good reception from the province lately about possibly extending that credit that maybe even raising the rent fingers crossed or the rate sorry it's not right but good things coming forward right so Eric you have used the IDM tax credit um in absolutely yeah yeah yeah it's a great program if you are going to file for it a little sort of thing to know is like between the time that you finish your year and before you actually file you want to submit because you need approval for the ministry finance saying that you actually have like something that qualifies so you actually make games or something like that and if they haven't visited you then sometimes they like to come out and check and make sure you're not making pornography or

something like that and so you want to make business yeah I don't think they need any tax credits in that industry I so yeah so you want to make sure that between you finishing your year-end then you're actually submitting your tax return that you've got that letter so that when you then submit your tax return you can actually go and do the digital media tax credit piece so like we had one year where we were like getting ready to finish next turn and KPMG who are working with were like do you have your letter like oh yes oh yes make sure you get that beforehand but and then and you can like you know Lance was saying it's on specifically development related expenses i mean the great thing is unlike something like shred is that it's you know not just sort of developers but artists and sort of other people associated that producers we allocate a fraction of our community management time into that and associated costs as well as marketing you know you want records and sort of

things to support that but basically things that still flow into your development decision making on your games is all allowable so yeah so it's a great credit and it unlike shred where which we haven't kind of got in too but there's you know scientific research and experimental development you know there's this test that goes on to make sure that what you're doing actually has some risk element sort of as CRA would like to define risk the digital mia tax credit doesn't have that really it's the only kind of audit piece once you've got the letter that says yes you're actually doing something so eligible the only kind of review audit piece that comes up is like well were these people NBC at this particular time so we've had to like track down sort of cable bills for coops who worked at us with a particular piece of time to say like yeah they were actually bc but so there's not that the kind of like well we're you really making a game or something like that it's just proving that those expenses actually happened to those employees and they really receive

the money and they're really bc employees it doesn't apply to contractors so if you're thinking about contractors versus employees i mean i think it's great to a message that i'm hearing also is that industry is highly engaging government because it's an ongoing process you can't just kind of hope for the best and then kind of put your head down you have to be active and you have to make sure that they understand the benefits to the government and most of our tax credits are labor base so there's a job attached to it and that's another incentive that the government has to keep these going and and also I you can use the IDM can you not for bridge financing with some of the banks is that kind of Lance have you come across that as with all things money under certain conditions it helps if you're a legacy filer that is if you've been filing for more than one or two years then you have your profile and you prove that you are credible and that what you're doing you know what you're doing but yes there are certain lenders and who comes to mind for most is the

Royal Bank they cut their teeth into film funding that model for underwriting the cost of films was actually underwritten here in and created here in Vancouver many years ago so they've graduated from that to their knowledge-based industries division and they understand game development they understand tax filings and credits they used to partner with EDC EDC would give them a guarantee and say Eric makes great games we know that he's good for it let's let's underwrite that is and the way this would work for instance you're halfway through your next year you haven't filed yet but you've got two years or three years of filing behind you with a profile let's say you traditionally get a hundred thousand dollar tax credit back cash in hand if you're halfway through the the fourth year the next year you might be eligible for 50,000 but you've not yet filed they'll bring in a third party someone like myself maybe who will assess you and say yep spends been made everything looks good and then they'll actually lend you against that as you go

so you got valuable working capital you can hire up people you can underwrite your project as you go and then when you file of course you'll have to repay it back to the bank but you've got the use of the money now rather than later that'll of course always come with a cost be fussed about who you talk to there are a couple of private firms in town that will underwrite it express what capital I know is one but there are more jumping into the fray because they're beginning to understand and it's more of a commonplace thing so talking about payments and recuperating recuperating why don't we talk about a little bit help with the cmf their expectations are as far as oh sorry oh just talk a little bit more so I think a critical part of like digital me a tax credit is so and we haven't talked about shred yet but on so there's two kind of elements that are going to happen for BC companies is that if you will have a choice you can take federal shred money and then for the province you can either take matching shred or you can take digital media tax credit you can't do both for whatever reason but you can't

do both should we say what shred stands for is every know what shred stands for scientific research and experimental development right so yes you can take one or the other and depending on kind of like what you're doing and where your flow of is that's kind of cutting edge do you have to be doing something different to get shred then or yeah well it has to be what CR is I sort of alluded to CRA considers experimental development which may not be the same was it's not the same bar as like publishing an academic paper on that but but another angle I was just going to sort of then lead over to alex is that if you take if you take money through the ebc so you take venture capital money then that means you will not be able to take the bc component of digitally attacks credit you can't take bc shred but you can take digital mean it yeah so there's a different program logic an ebc eligible business corporation program which incentivizes bc-based investors to invest into bc based companies and if

you're part of that program which is a very easy application process and the investors part of that program through the BCC program I think then upon them placing capital into your company they get thirty percent back on their tax return the following year which is really valuable right and so that sounds amazing when you raise around but when you've spent your round on creating games or whatever he's creating and you really want that tax credit that seventeen and a half percent that you get with just saying that we make games your get to have that if you're part of that program so be believe it's five years from the last time you've used it as an investment so that's another thing with sir lance ort of interfacing with governments as we're talking about this is another thing that we've been discussing about you know how do we rationalize those two programs together so yeah it it shouldn't be long and as

we discuss these programs are going to be little nuances to them right the recoupment for instance could get in the way of a shred claim depending on what the terms of recoupment are as long as it's actually defined as repayable and i see really good progression towards really well defining that it allows the feds what they call stacking provisions so let's say you have some ID MTC's some federal shred some cmf some i wrap some NRC good for you right but how does this all stack up so that you're not double-dipping and they'll actually carve away the fundamental claim for the elements of those other pieces of funding that actually overlap and there is a way to do it don't be afraid of it but you do need to talk to your accountant and your tax advisers a little bit on this one just to make sure that everything is lining up nicely but there is a way to do it that's the good news so can we talk about this cmf and what the expectations are sure the cmf funding is dispersed as recoupable so

it's all repayable the development financing is attached to recoupable advance so say for instance you do your prototyping and the you decide not to come back to the cmf or you you're not successful at getting production financing then you enter production with a different set of finance ears that development financing that you get from cmf is repayable on the first day of the start of production however the advance can be rolled over into your production financing say you're successful in coming to the cmf for production financing and you're rewarded funding for that then what the production financing terms are is called recoupable investment so the cmf will recoup the

full amount of its original investment in your project and it will participate in profit from sales so there's no IP ownership in terms of the cmf taking any ownership of the company or of the project itself it only participates at a percentage of what it has participated in terms of the financing into the project so it breaks down depending on I can get into the details but it's all online and I can answer questions later as well but so you can take a percentage off of the gross sales for your expenses you know of course there will be marketing expenses your web-based expenses your personnel and so forth and the cmf will look at participating in the profit sharing the profit that's left over from those amounts in

marketing what happens is the cmf participates in a wreck full loan again so once you pay back the full amount of the original input that the cmf has into your marketing financing structure then you're done there's no profit participation attached to that you should also add that there's a seven-year expiry period so say for instance you're you know hopefully your sales take off like a rocket but you know say for instance you don't manage to pay back the cmf within that seven years span then it's gone into the ether so there are no did I say there are no interest terms attached to it aside from that profit participation within the production financing and it's great to that the cmf does pre-application consultations for people who need once a bit more information so that's really

helpful making sure you're getting as much information in the application as possible yep we're happy to look at say for instance we wouldn't be able to steer you in terms of your creative material we can talk about whether or not it is eligible and raise any you know potential sticky areas if you have a particular financing that you want to put together and you want to see how that affects your recoupment we're happy to set you up and you know talk with you through that so that you know what you're coming in with and your other investors also know what's happening and what what's expected in terms of repayment and has anybody used the i wrap program should we talk about that Eric do you want to talk about how that worked for you so that's the industrial research assistant program yeah so that's a one of the federal bodies so national research council NRC runs the i rep program within that we've used it I

guess sort of to two things within I wrap one is they'll help fund the sort of experimental stuff that you're working on or things that are adding kind of unique sets of talent into the business so I mean we've done a a couple of smaller ones so smaller being like twenty thirty thousand dollars each of them the amount of paperwork you have to go through sort of tracks to how much it is and so you know at the twenty thirty thousand dollar it's a relatively simple and pretty like process as you move up it becomes a lot more so we sort of stayed in that they also have this program that not everyone knows about which is a fantastic program called the this youth program they call it like why projects and so what that is is it provides it's a different amount of money each year depending on kind of what their budget allocation is I think this year it's 17 or 17 and a half thousand dollars to help you in hiring a

recent grad the interesting thing about it is even though it's NRC and dominantly kind of you know programming and development sort of focus the why program as long as you are an in RC client so anyone making games would be an inner see client the why program can be used for any position that you would hire so it could be used for an executive assistant it can be used for an artist can be used for a community manager actually we've used that we've used it twice once for a community manager and once for a artist the trick is they have to graduated from a legitimate program so it has to be a post-secondary program it's actually like a real program thats related to what you're hiring them for so if you're hiring an artist and they just graduated with a writing degree that wouldn't work but you know we hired artists graduating with an art degree and that works so so that's a great program and it's like it's seventeen seventy nine thousand dollars my tax is a bit different right there's my tax program for master students I don't think it's I don't think it's for hiring we did on my tax

one with director off it was specifically around a project and basically from our perspective we ended up getting labor so we have we found a profit you Vic and we worked with them they actually did all filing so we do with all that and there's a student who worked with us it's similar there's a different thing called now so in serc has a program called you Sarah his undergraduate student is the industrial undergraduate student research award and four and a half thousand dollars and it's towards coops and stuff like that and then they've also got an engaged grant through insert again everything seems to be labor base its kind of building the talent pool and i think that's that's a really good thing to do to support that it's something that we work really hard on trying to make sure that people know that there's jobs that going to the high schools things like that so oh yeah there's a lot of focus between like post-secondary and trying to collaborate like trying to incentivize industry to collaborate with

postal exactly so as far as so there's one more fun that I've heard that's quite good as the creative bc interactive fund and that was one you can get up to fifty thousand dollars for working on prototypes and things like that has anyone used the created bc fund at all yeah okay and that worked on there yeah so they they do that they help you fund some development or interactive projects but they also help you go to conferences passport to market the passport to markets yeah so that's how we use them and so what they do is they have a schedule of industry events kind of worldwide that they support and then if you want to go to those events that you apply and then they will fund a portion of your trip including travel and and kinda hotels yeah and it's usually up to $1,500 that they will fund so in government affairs canada also just announced that too so you can also

there's a there's a fun where you can apply for i'm doing collateral travel things like that to get into different markets so that's good that we're in it in terms of going to conferences there's a canada bc jobs grant that you can also use so i got like our GDC tickets this year and stuff we got money i think it's it doesn't cover teeny but it covers three quarters i think or two-thirds of your actual admission for the conference that's great that's great so um I have a question for you Lance about somebody who's starting out a company so either they've wanting to start a company or maybe come from another country you want to start a small company would eat what are the funds that you recommend because obviously there's so many and they don't always apply to two starts a start-up situation that's a good question that's a very good question because the ones we've been talking about all pretty much with the exception of these last few are predicated on you

having incurred your labor costs so and it's implicit in there that somehow whether you paid for all that so now now you're about to open your doors and that's a whole different scenario the the venture capital fund would be a good one if if you have connections and you know you're opening your studio people that might be interested in you because for instance you have a valuable IP or something that could attract them I think that would be a great one there's a there's a little bit of an unsung hero in the background here too we talk about all these institutional funds and so on and applications that you need to make but from the day you open your door you're going to need to know your banker and so many people take the bank for granted and you're going to run your payroll through them and and your various expenses and so on and hopefully to as you sign contracts and you raise revenues you'll be funneling those through the bank and they honestly do have a very serious interest in you and your profile and something that I tell people is it sounds a little unusual but you should get to know your banker and as a technically oriented company you

should go through the knowledge based or technology division of the head branch of a bank don't waste too much time at a branch bank they're lovely people but they don't understand business and so you would go to the head office branch and introduce yourself to the technology side of them and just tell them that you're going to be making shred claims and you're going to be doing I wrap applications in such things and that you might need a line one day and sure that's far off in the future but if you meet these people and I always say to people if you don't know the name of your bank manager your branch manager there's something wrong you should know them you should be able to send them an email say hi or just asked questions about financing they they can sometimes get very creative with you and they might be the ones who call you one day and say we've been watching for the last six months eight months or whatever things seem very solid over there we have this program with EDC we might be able to couple up with them and help you so don't forget the bank manager side of it right the rest of the program so yeah much predicated on bending already in advance but no from the day that you start your qualified

right and they all by the way we talked about we alluded to it every single one of them has great websites but we don't necessarily love CRA but they try really hard I've just spent some time with them several times over the last three months and they want to give you shred money and they run seminars and they do have webinars and you can ask them questions online and you can get predetermination from them and if you want on an anonymous basis the I dmtc folks i've been i've been spending a ton of time with them lately and they're trying to unfortunately they're a little bit overwhelmed a lot of people don't know this that division now reviews natural gas credits so they had a small number of people and now they're getting spread too thin sir did they want to move it into creative bc cuz creative pcs song on games now right ask me after next week when we talk to some people and i think there's a move afoot to streamline the process ok it is getting stuck in its getting blocked yeah because it should be a part of the entertainment side yeah no I know um so

Catherine I have a question for you about VR because we're seeing a lot of the rise of VR are you seeing more beer companies applying force EMF and do they is are they part of the innovation side are they part of the commercial side yeah definitely definitely we are in the last couple of years we are seeing VR proposals coming in through the doors and it's really exciting I mean I i sat in on the track one track to panel whichever one was in the other room you know talking about the future of you are looking at the challenges and we're very interested to follow that type of innovation innovation is taught most in terms of as Alex was saying in terms of the scoring so when a project does come in through the doors we look at an evaluation grid and what we have now we've set up a system so that when you get your decision when the analysts have looked at it when the jury has looked at

it then you get to look at the evaluation profile for your project so you get the feedback on to in terms of you know how well it ranked in term of your team makeup in terms of your experience the history of of your team the innovation profile of your project your business your business planning your marketing and distribution revenue structure that type of thing how did I get here I was talking about VR so yes we've been seen VR across the country you know largely we've been looking at studios in in Toronto and in Vancouver proposing via our projects so but but it's coming through the door and we'd like to see a lot more it's an exciting development unless it's the IDM tax credit does that apply to VR and error the other ones we spoke about pins they're very hung up on the game elements I doubt this is a nice segue though i would i would say cautiously

yes it can certainly qualify and and again if you're not clear about it and you're wondering you can actually reach out to them online and ask the people in the eye dmtc department the segue here is at one time I think Bob Wong was a potential member of the panel and he wasn't able to be here creative bc he know i don't administer much in the way of film tax credits but our very good friends in that realm IE through Bob asked me to reach out to you and if you are in the VR space the film credits can be available to you and he wants to hear from you and he's available and he said if you're just not sure call me and ask me which is kind of a nice gesture I think but as you may or may not be aware those are very generous credits so if you're in VR anyway attached to film perhaps providing some kind of effects get on to those guys right away because that's a very nice rate I guess so we only have two minutes left so I thought maybe we should open up for questions if anybody has any questions yes

relation to shred imaginable free termination is that you think it's it's actually been around for a short while it's been around for a few years they are stepping it up though they're making a move to advance those seminars and / discussion that i had only yesterday with CRA watch the online site for what it tells you will qualify and how you file and so on they're going to split it out into separate segments so it's even more streamlined but take advantage of it absolutely over there actually that um when when you apply for editing and given provisional approval real quickly so in the context of the ID MTC the BC digital tax could and $100,000 is the minimum spend and right now there's a

criteria that it must be your principal business as my good friend alluded to so but here's a little tidbit if you're ready to file and you haven't done your homework and you haven't got your registration number the guys in Victoria tell me to fill in and lieu of the number bc 00000 and file anyways at least your taxes and any shred that you might have would be going through process and and well the guys in Victoria are deliberating and getting ready to give you your reg number as soon as you get it you can literally phone it into CRA and they also to notify CRA right away so that the rest of your return can get handled bc triple zero bc quintuple zero yeah yeah and CRA will go what the hell is that and we can't process this but they're processing the rest of it because it could hold up your shred shred unfortunately those 2 1 department and I dmtc goes to another and CRE is working on that as well but and on unfortunately I've had clients with seven-figure shred

claims held up by the fact that the ID MTC is not ready yet and that's horrific that can be horrible so easy to avoid anybody else one more there's a bias aw sweetie well what if you're one like what are your chances sure we we do see projects from new companies and small agile teams definitely if you can demonstrate the type of experience your own development history you know point to any examples and your you know published titles list and that type of thing that can show that you know how to

build what you're proposing to build and that you're able to manage the level of budget that you're proposing as well so we look at you know your timeline for your build so is that realistic there are a number of factors that we look at so you know your relative experience your own history with you know what you've delivered in the past you may have worked for a triple a company in the past and then you've decided to come out on your own that's that's fine as well we we take that all into account and for smaller teams the the creative bc interactive fund up to 50,000 is a really good place to start so thank you all very much hopefully we'll see you at the shindig tonight and maybe if you have any more questions we can answer them