Fundraising for your VR Escape Game business

How to fund your growth into the next VR unicorn

VR Escape Games and VR Escape Rooms have come of age.

They are widely being discussed as the next big thing in the Escape Room industry.

So, raising funds to start your own company is not as difficult as it was even a few years ago. You can even get started with the help of an escape room franchise.

Private investors and wealth managers are more aware of the potential of VR, governments have been taking notice and even the large tech companies will frequently grant VR game development.

So, what is the best way for you to raise the funds you need to establish and grow your own VR Escape Game company?

Here are your options:

Self funding/Bootstrapping

You can invest your own money or ask your family and friends for funds.

While you may not be able to raise the entire money you need, self-funding can help you get started and develop some products or prototypes that you can use to showcase your business potential when you make a pitch for more formal fundraising later on.

Pros

No drawn out negotiations.
The money does not come with legally binding conditions like what kind of games you need to develop.
You do not face a constant pressure to present data and stick to a repayment plan. That being said, you should not waste other people’s money; you should make every effort to pay back whatever you have borrowed even without legal obligations.

Cons

Whether you can raise any funds at all from bootstrapping is far from certain.
It is certain that you can’t bootstrap your growth into a large VR Escape Game company; sooner or later you will have to tap formal funding sources.

Equity funding from angel investors or venture capitalists

Both are forms of private equity capital.

An angel investor is someone (or a group of someones) who will invest their own money into your VR Escape Game venture.

A venture capitalist is a professional fund manager who will invest other people’s money into your VR Escape Game venture.

In either case, you will have to show them some kind of business plan and prototypes of your VR Escape Games; nobody is going to invest based on your say-so.

As an example, James Murdoch invested $20 million in The VOID in July this year. Sandbox VR received $68 million from a group of investors in January.

Pros

Private equity funding can give you the funds you need to build, say, the next Avatarico (operating in Europe, South America and Asia), or the next Entermission (operating in the North America and Australia).
Both angel investors and venture capitalists provide mentorship to the companies they invest in; you can benefit from their advice and expertise.
Risk is an inherent feature of equity funding; which means angel investors and venture capitalists would be more willing to fund risky ideas and ventures.

Cons

Equity means ownership and control. In other words, you would have to share ownership and control of your company with your investors.
You may find it difficult to keep up with the demand for results and data.
You may have to accept some of their advice that you don’t agree with.
Private equity investors usually sell their stake after a certain period of time and you may not agree with who the stake is being sold to.
Venture capital firms, since they invest other people’s money, look for some signs of business stability like a large office and/or workforce; a VR Escape Game startup may not have either of those.

Funding from business incubators or business accelerators

An incubator will help a completely new VR Escape Game startup grow.

An accelerator will help a new VR Escape Game company scale up.

Typically, funding is not the main focus of incubators and accelerators. They can provide a company with office space, training, advice, and even in building connections and networking.

However, with some searching and luck, you may be able to find one that does provide funding.

Pros

You can get a lot of wholesome help in the form of advice and networking.
You’re part of a startup community (the community of all the startups being helped by the incubator/accelerator)
Some incubators and accelerators have high brand recognition and this might give a boost to the startups they’re helping.

Cons

Typically, these kinds of programs run for one or two years. You may find you need hand-holding for longer.
Any funds provided will be through equity which, once again, means sharing ownership and control.
A lot of incubators and accelerators will ask you to go for further fundraising, which may be difficult, depending on your particular circumstances.

Hackathons

A lot of the time, institutions runs contests (‘hackathons’) where participants compete with each other to create a product. A prominent example is the VR Hackathon.

They do this to tap the enormous innovation potential that lies buried in communities.

The winner of the hackathon can get a whole lot of assistance including funding, incubation, marketing, licensing and so on.

Hackathons can be organized by a whole host of institutions including universities like MIT, hardware companies like Samsung, and maybe even VR companies.

Pros

If an institution likes your work, it’s a pretty good signal that your VR Escape Game company will be a success.
You get a lot of assistance establishing and growing your company.

Cons

You have to be on the lookout for where and when they’re taking place.
It’s a competition and there’s an element of luck in winning and becoming eligible for assistance.

Look through initiatives of large companies

Many large companies have launched initiatives to help VR businesses get off the ground.

Good examples are Google’s Daydream or ViveX by HTC Vive.

Some game engines and platforms also have dedicated funds from which they give grants to tech entertainment startups. As a VR Escape game company, you would be eligible. One prominent example is Unreal Engine’s Epic Megagrants.

Pros

They will understand your business the best and provide you with the right kind of support.

Cons

You may have to sign exclusivity contracts.
In some cases, you may have to work with a particular brand of hardware.

Government support

A lot of governments offer specific assistance for tech startups and small businesses. One prominent example would be the SBIR/STTR program of the US Government.

Pros

Government funding is usually sufficient to take care of your objectives.
You won’t need to share ownership or control as in the case of private equity.

Cons

You will need to be prepared for an extensive bureaucratic process.
As entertainment companies, VR Escape Game companies may get lower priority than companies engaged in sectors like health, agriculture, food or defense.

Debt funding from banks

While banks do provide funding for businesses, this option has been included more for the sake of exhaustiveness than anything else.

Banks will want a lot of company stability and a definite and detailed business plan before they provide you with a loan.

Pros

You don’t need to share control or partnership with the bank.
The capital provided will be large.

Cons

Banks may not have the kind of expertise to judge a VR Escape Game business plan that a private investor or a venture capital firm would have.
Banks would be reluctant to extend a loan to a company in the early stages of growth.
Banks may seize your property (including intellectual property) if you fail to repay the loan on time.

How about crowdfunding a VR Escape Game company?

Crowdfunding is a very popular option these days, especially for startups.

You basically ask people at large for funds, like this.. There are many platforms apart from kickstarter that can help you do this.

Crowdfunding is a great idea; however, in terms of how much you can raise, it most probably can’t compete with private equity capital, support initiatives by large companies and so on.

One prominent feature of crowdfunding is that generally speaking, you don’t have to pay back your donors or cede equity to them.

Pros

You have complete control over how you spend the money.
It’s a kind of donation which means you neither have to pay back your donors nor give them a stake in your company.
It is a kind of free marketing and market survey in one. People are reading about your VR Escape Game company (marketing) and giving you money based on how much they like your proposal (market survey).

Cons

It’s unlikely you will be able to raise funds at the private equity capital/government assistance scale.
The crowdfunding platform may take some of the funds raised as various charges.
It all depends on the whims of people at large.
You have to compete with a large number of other individuals or companies similarly raising funds.

Will VR Escape Rooms face the fallout of Softbank’s Vision Fund debacle?

VR Escape Room and VR Escape Game companies have been doing pretty well on fundraising so far.

However, the recent debacles faced by Softbank – the largest investor in tech companies in current times through its $100 billion ‘Vision Fund’ – has been leading to a complete rethink about how tech companies operate, what kind of business philosophy they should have and whether investors need to tighten the purse strings to prevent ‘overcapitalization’.

The inevitable question is, will this shift affect VR escape game companies?

If you dig a little deeper, you will find that the answer is ‘NO’, for two very compelling reasons:

VR Escape Game companies don’t claim to be anything other than

Entertainment companies, creating thrilling experiences for players.
Companies creating experiences that can be used for corporate events and team building events; the success of Escape Rooms in team building is well-known.

In other words, whatever claims they make are well-established.

They don’t make tall claims of trying to ‘elevate the world’s consciousness’ or anything like that, which WeWork did ceaselessly under now-ousted CEO Adam Neumann.

This strategy, which VR Escape Game companies are not known to follow, led to extremely bloated valuations of companies like WeWork.

VR Escape Game companies generally don’t pursue ‘growth-at-any-cost’ strategies.

One of the largest criticisms against companies like Uber and WeWork has been their mantra of growing at a loss for years, just to capture market share.

Investors are now shunning those kinds of strategies in favor of good old Mr Profit.

Once again, VR Escape Game companies have never followed such a business philosophy or growth strategy.

In fact, one of the largest VR Escape Game companies out there, Avatarico, prides itself on having returned investments in just 6 months.

Clearly, neither of the two features widely attributed to Softbank’s debacle in its tech company investments are present in the business model of VR Escape Game companies.

Logically speaking, therefore, VR Escape Game companies should not face any fallout from the recent shift in the approach towards funding tech companies.

In conclusion, the options for fundraising for VR Escape Game companies are many.

From self-funding to private equity to hackathons to government assistance, all the various options have their own pros and cons.

You must choose your option based on where you are with your company (just started; looking to grow; started but struggling, etc) and take a call on how you want to raise your funds.

Bio: Christal is the founder of Entermission, a company that aims to distribute Avatarico VR escape games to physical escape room businesses in the United States and Australia.

She co-founded Virtual Reality Rooms, Australia’s very first VR escape game center, the best location dedicated to Avatarico games in the world by bookings, which is now a part of the Entermission chain.

She is also the master franchisor of the Escape Hunt franchise in Australia and New Zealand. She supports 6 branches of Escape Hunt across the two countries and directly owns and runs Escape Hunt Sydney.