Post GDC – Essential Tips For Indie Game Developers – Gaming

TLDR: Aspiring game studio founders should engage competent
counsel as soon as they start their venture to best position
themselves for success, otherwise they risk falling into common
pitfalls.

Last week, I had the pleasure of attending the 2024 Game
Developer’s Conference in San Francisco. It was an exciting
experience, filled with reconnecting with familiar faces and making
connections with new ones. One of the highlights of my time at GDC
was the privilege of speaking on the Frankfurt Kurnit panel:
“Building, Investing In, and Selling Your Game Company”,
alongside industry experts Scott
Rupp (BITKRAFT Ventures), Justin Berenbaum (Joystick Ventures, Xsolla),
and Kartik
Prabhakara (Aream & Co.), where we delved into the issues
developers must navigate when establishing, expanding, and
ultimately selling a video game company.

Throughout the panel and my week at the conference, one question
resonated above all others: “What are some of the most
common legal issues developers need to be mindful of when starting
their own indie studios?” It’s a question that
illustrates the thoughtful concerns of today’s developers and
their recognition of the critical role legal considerations play in
the journey of indie game studio development.

Given how often this question came up, I want to share more
widely three important legal considerations that developers should
remain vigilant about when embarking on the journey of building
their own studios.

1. Procrastinating on Incorporation

One of the biggest (and easiest to address) missteps aspiring
developers make is delaying the establishment of a formal legal
entity for their studio. Forming a corporate entity not only
provides a solid framework for organizational structure but it also
offers a number of other benefits that can profoundly impact the
studio’s trajectory.

By incorporating early on, developers can ensure that the
Company owns all of the work product being created for the venture.
Forming a legal entity also allows developers to properly document
ownership stakes, including establishing who owns what and how
decisions are made. In addition, doing business through a legal
entity eliminates personal liability for most activity, shielding
individual founders’ personal assets from financial risk.
Finally, incorporating facilitates capital raising efforts, as
investors generally prefer to invest in entities rather than
individuals, and investors can typically take advantage of special
tax advantages by investing in startup corporations.

Delaying incorporation can lead to complications down the line,
including ownership disputes and unfavorable tax consequences that
could have been avoided with proper planning from the outset.
Founders should engage counsel to assist with the formation of a
legal entity at the beginning of their venture.

2. Failing to Secure Intellectual Property Rights

Ensuring clear documentation of intellectual property rights is
critical. Consolidating intellectual property rights under the
studio’s umbrella enables the studio to safeguard the creations
of the founders and other developers working on the project, and
also provides for the most efficient path to exploiting the
studio’s IP.

By diligently vetting and documenting IP ownership, developers
can fortify their legal standing and enhance their prospects for
long-term success, while mitigating the impact that disputes could
otherwise cause with respect to the studio’s IP assets.

Failure to properly document ownership rights can spell disaster
for a studio, jeopardizing its ability to commercialize its
creations and navigate future partnerships. Disagreements can arise
as to who contributed what to the game, and without proper
agreements in place, these disputes can end up fracturing the team
and clouding legal ownership of the studio’s games and other
assets. Founders should work with counsel to prepare appropriate
agreements with all parties who contribute to the studio’s
IP.

3. Unusual Financial Arrangements

In their pursuit of obtaining financing (particularly when
fundraising environments are tough), founders may find themselves
tempted to agree to any terms presented to them by potential
financiers. While such arrangements may offer temporary relief and
opportunities, they sometimes include unconventional or onerous
terms that can have long-term repercussions, including jeopardize
the studio’s stability and growth trajectory.

For example, arrangements with unusual or overly rich terms may
deter subsequent investors, and may strain the studio’s cash
flow, leading to operational challenges and hindering its ability
to grow beyond the stage supported by the initial financiers.
Another area where founders sometimes run into trouble is
establishing unconventional financial arrangements with employees
and other contributors. For example, game profit sharing plans that
are not designed with proper advice and structuring can result in
obligations that undermine the studio’s ongoing viability
and/or fail to appropriately compensate the game’s various
contributors.

Whether through aggressive investment terms, unfavorable
revenue-sharing models, or other complex financial mechanisms,
unusual financial arrangements can erode a studio’s
profitability and impede its ability to thrive, and so founders
should exercise caution and seek guidance when implementing such
arrangements.

Conclusion

These are just some of the common issues that developers run
into when starting a new studio. Aspiring developers should engage
competent counsel to advise them from the earliest stages to help
maximize their chances of success and avoid missteps.