Partners, Incorporation and Working Capital

[Michael Hopcroft]

I'm thinking of aquiring some additional working capital by changing the structure of Seraphim Guard. This is more a matter of not wanting to run it as a sole properietorship anymore than anything else, as well as bringing in even more monetary capital and even more intellectual capital.

Basically there are two ways to reorganize a company so that more than one person is involved; either form a partnership (with any number of members) or form a corporation and offer shares. In both cases I would surrender some control to my investors. Would that make me no longer an indie publisher and get me kicked off the Forge?

Also, how would such an arrangement work in this buisiness? If my prospective partners or shareholders are in another state, would I need to form the partnership in that other state? Can I form a corporation without hiring a lawyer to draw up the papers?

[Valamir]

DO NOT consult amateurs with a question like this Mike.  
If you are even remotely considering it go directly to an attorney specializing in such things.  To even consider not doing so is foolish...beyond foolish.

Personally I find capital overrated.  As John Wick's game design journal showed even a long time professional can burn through an obscene amount of cash with little to show for it.  Meanwhile others can operate an ongoing self sustaining operation with a fraction as much.

Running your business well is more important than access to more money.  If you have a quality product that people want they will buy it.  You will then use that money to fund additional projects.  If stuff isn't selling...merely raising more money to publish more stuff that won't sell isn't going to get you anywhere.

Publish at whatever pace you can afford to publish at...not at some perceived need to keep up with some ridiculous release schedule.  Be sure you are seeking partners for the right reason before you move ahead.  And if you decide to...go directly to a good attorney.  Start with your local chamber of commerce, and or your county clerks office to get the names of several and then interview them to find the one you're most comfortable working with.  No one here is qualified to answer these questions (least I'm unaware of any practicing corporate attorneys on the site).

[Gold Rush Games]

I think you're putting the cart before the horse, Mike. You need to bring something to the deal in order to attract investors. That means building up your brand equity and IP value.

 And regarding restructuring, you do not have to incorporate or form a legal partnership to get people involved with your company. Although there are advantages to each, they are not required.

 Lastly, don't rely solely on the advice of any person who is not a licensed professional with expertise in the relative field. And yes, that means not relying on my advice, either.

 If you're serious about investigating your options then you need to contact a professional attorney, CPA, credentialed business adviser and the like.

 But for heaven's sake, stop asking such important and in-depth questions in a forum like this. You might come away with a few gems of advice, but for good, professional advice you're better off consulting someone who gives such advice as part of a licensed profession.

 There's a lot to learn about venture capital (personally, I would stay far away from it!), incorporating and the like. And truthfully, with as much as you seem to vascilate between enjoying publishing and saying you should quit it and become a hermit, I think incorporating is the least of your concerns right now.

 I would focus on building and improving what you already have before you start thinking about giving up control of your company. Unless you're just going to give it away to someone. But that's just my opinion.

 And my last piece of advice, as a friend, is the same advice I have given you before. The next time you are feeling down yet feel compelled to post a comment in a public forum, run your post by someone privately first. It will help keep you from posting things that you may letter regret.

[Dav]

Mike,

This may come off as... well as me being something of an ass.  That would be fine, I'm used to it.  However, I am trying to be clear and email is horrible for getting across tone-of-voice.

1) This is role-playing. While it is fine and dandy that people want to be official and shit, it is role-playing.  You don't need to go to a bank to try to attract foreign investors.  You don't need a broker for a clearinghoue on your own stock.  You don't need to know the difference between a s-corp, sub-s-corp, and c-corp.  I'll tell you what, you make a game, tell me your budget, and I'll get it published for you under your own name and everything... no problem.

2) Answering your questions:
-You don't NEED a lawyer to incorporate.  Depending on the state and country, you don't even need articles of incorporation.
-The state in which you and you investors reside has NO bearing whatsoever on what state you incorporate within (see Delaware).  However, for a company as small as an RPG company (and I mean that, White Wolf may as well be a basement operation), the state of residence for a company is really pretty minor (with some exceptions... like KY or TX).  For small businesses (meaning under $10 million working capital): Illinois, Delaware, Michigan, and New Jersey are the big draws.  For micro-companies (working capital under $1 million), no one cares.
-In this business, ownership stands as the same right-to-title that it does in any other business. Sell some of your stock, they own part of everything you do.

3) Stop.  Don't go to a lawyer, don't go to a CPA, hell, screw going to a CFP/CFA.  Work on your game.  Get the game ready, get it done.  Then, once it is ready, draw a budget of available cash, cash you can get through angels ("hi mom, remember how you said I had a gift for words?"), and cash you can work for monthly by socking away $50 to $100 per paycheck.  Then, my friend, I will help you in every way I can.

4) If you every have anything even remotely similar to a "Mission Statement" for you company, I am getting in a car to administer a smackdown...  I'll buy you breakfast afterward, but I will still administer a smackdown.

5) People have a tendency to get out of control as soon as the idea of becoming an entrepreneur sails into the picture.  I know, I do new venture consulting for a living... this is not what needs to happen.  You can run a successful, lucrative publishing company without losing your mind, soul, or bank account.  I promise.  Don't go overboard, you'l kick yourself later.  

Feel free to emil me or reply here or whatever if you want me to spew more...

Dav

[samdowning]

4) If you every have anything even remotely similar to a "Mission Statement" for you company, I am getting in a car to administer a smackdown...  I'll buy you breakfast afterward, but I will still administer a smackdown.

Ignoring the supposed typo, you have a thing against Mision Statements?  Why? Our Mission Statement helps keep our designs on track and jiving with our original idea for the company and its products.

Also, is it somehow bad to have a business plan?  I found that the business plan helped us to keep on track and to understand where the money we spent was going and where it should go.  I am one of those people that believe you can't run a business without a plan, and I've run plenty of businesses.  ALL of the ones that went under DIDN'T have a business plan.  The ones that did were much more successful.  I feel a business plan gives you insight into things you never would have thought of before.  Our Small Business Association had free software that asked all the pertinent questions.

Now, I agree with you to skip the CPA and the lawyer.  We did consult with a lawyer fresh out of law school and wanting to prove that he could do it, but only because we wanted to ask a couple of legal questions.  Our old partner wanted to pay half the world for all sorts of things we didn't need and I had to talk him out of it.  No point in paying for what you can do yourself.

[Dav]

The reason I have a problem with mission statements, business plans, and the like for something as micro as rpg publishing is due to a few reasons:

1) It takes a long time to effectively develop a good business plan (a few months at the least).  This is time that doesn't need to be spent.  The overall concern of the game company is straightforward, has little research into the gaming market, and seeks penetration on any level it can get it.  Therefore, the overall strategy is what Shaw would refer to as "spray'n'pray"... this is not a strategy, per se.  

2) A mission statement is pretty bunk anyway.  I've always felt that the whole "rally behind this!" team stuff was the weakest part of business.  Sure, you put up with it (because of the paycheck), but a mission statement is always kind of disturbing to me.  Whatever happened to "the sole responsibility of any company is to maximize its profits within any given market in which it participates"?  Enough of the "We intend to make high-quality ice cream without sacrificing our concerns for the environment, both locally and globally, and to work to correct such social imbalances as we may through our charitable programs"... and where are they now?  A mission statement always says one of two things: we want to do X (which would be the whole shebang of the company, y'know widget-making), or we want to do Y, but we make X for money (these are companies that tend to have big restructuring deals as soon as they start to get noticed by the general public... see Ben&Jerry's).

3) Overall, I think a production schedule, a general outline, a list of contacts, and a central location to distribute information is all any small publishing business needs.  A business plan is too much, I mean 60-70 pages of "here we are" is a bit excessive.  Besides, a good portion of the purpose for any business plan is use as a propaganda tool for gaining investors... and no micropublishing company should be seeking investors in this manner, period.  

4) I've seen quite a few game companies come and go, but the ones I see make the most of it are the ones that don't concern themselves with the organization, the "how"'s, as much as the "what" (meaning the game).  I mean, take Adept Press... while Ron and I had discussed his strategy a few times, I don't think he ever took the time to make a formal business plan.  It wasn't complex enough to require it.  He knew what he wanted, how he wanted to do it, and did it...  BANG!  In the black as soon as Ron gets to face the public.  Apophis has been the same way.  I know a few companies that try the formal approach, but they always seem to fail, or at least struggle.  The problem is that being micro-sized has advantages, as does being a sole proprietorship, or a small enough organization that you effectively are an s-corp or sub-s-corp without really getting into it...  that advantage is flexibility.  This is something that a business plan inherently takes away.  Once you codify and quantify, you really have less places you can move to.  Hell, with Apophis, we do most of the shit on the fly... when we started dropping distributors (because many of them think they can get away without paying you, or at least paying you on time... and boy, you should see their reaction when you call them and let them know that after the first 30 days, you started applying the juice to them at 24 points per year).  It helps us.  We can do things that a larger company could never do, such as drop major distributors, or piss them off by charging interest, which you showed you would do initially in early conversations and agreements, but they never really considered because they are "big bad distributor" and have the power in this industry... right?  Now picture one of the bigs doing this... it would have to be a whole production.

Therefore, I say leave the business plan out of it.  Sure, jot down a few notes and a rough schedule of "be here by this time", but an actual formal plan is completely unnecessary.  

As for a Mission Statement, I don't know your situation, but Apophis has 4 full-time employees, Unfortunate Destinies has 1 (possibly 2, soon).  Of all the businesses I run, the largest has an employee count of 26, and not even that is bothering with a Mission Statement... it's a grant-writing company, it writes grants and takes a cut...  that's all.  I could care less what the grants are for, they exist solely to make me money.  My mission statement: "Write the biggest grants you can, because we own 8-13% of that bitch."  Dunno, lacks a certain something...

Anyway, fun aside, unless you have so many employees you can't name them all or think of what they do, a mission statement seems kind of unnecessary.  Especially if there is only a few of you... you can just tell each what you want out of the company and how you want it, no need for the ten commmandments approach.

Anyway, back to the front...

Dav

[Malcolm Craig]

Admittedly, this will probably only apply in the UK, but our first port of call was our local enterprise company (in this case, Forth Valley Enterprise). They have access to professional advice and masses of resources. The person you initially have contact with is also an experieced businessperson, generally with a good track record in business start-up and/or assisting people to do the same. If you can find such an organisation in your area, it's certainly wothwhile speaking to them. It certainly helped in our case.

Cheers
Malc

[Dav]

The closest thing that the US has to this is the SBA (Small Business Association).  However, their advice tends to be pretty cookie-cutter, and much of their rigamarole doesn't really apply to microcompanies.  However, in Chicago we have the CES (Chicago Entrepreneurial Society), which is rather helpful.  The society is made-up of entrepreneurs who routinely get together for booze, chatting, and mutual support.  Most of the companies are those that gross less than $500K per year, and therefore have a much more practical and applied view of business theory.

I'm not certain if there are organizations such as this in other areas, but I have found that smaller, private organizations have much more relevant information to share than those that (depending on your point-of-view) have been coopted by governmental concerns.  My problem with the SBA is that they have an inability to think outside the box, mainly because they are terrified of being held accountable if someone screws the pooch.

You can try this, or head down to a local university and try to sit down with an entrepreneurship professor or grad student... you'd be surprised how quick these people will be to help you, and it's likely free.  In fact, I had help by one of my professors working on his doctorate in entrepreneurship when starting several of my companies because the consulting he did for me directly applied to his thesis.  

Dav

[Gold Rush Games]

As for valuable resources for small publishers, I can also recommend the Game Publishers Association. Info at http://www.thegpa.org.

 (For full disclosure, I am a co-founder and current director in the GPA.)