Who wouldn’t have given up a random finger or toe to be investing in the ground level of Blizzard Entertainment? I know they were own(ed) by Vivendi Entertainment, but it was good to dream about for a few minutes. Unfortunately, all software studios are not as successful as Blizzard is; many run out of money, close their doors and shut down their servers. Let’s take a look at some ways that these companies find ways to raise money to develop the games we come to know and love.

Not all work out: The most current possible casualty could be Firesky/Cheyenne Mountain Entertainment. The studio is in danger of possibly losing the Stargate Worlds license if they don’t raise capital by August 1^st. Which is less than a week away, it looks like they will need some angels to pull themselves out of this one. I’m not talking about angels as in Aion, I am using a real investment term to describe a wealthy investor that invests in small private companies.

This opens the trapdoor of a very risky style of investing, private equity funding. This is the type of money raising that vaulted many investors into millionaire or multimillionaire status in the internet bubble of the 90’s. But the MMO bubble of the 2000’s doesn’t seem that it’s getting the same type of response. These games, especially the ones with popular intellectual properties such as MGM’s Stargate, The Matrix Online and Lord of the Rings Online are more expensive to create. You are not just paying for the natural expenses of running a business and payroll, but also the weight of the name will cost you as well.

What’s in a name: This could be a reason why many studios try to develop their own brands or IP’s (intellectual properties). Some are successful such as Valve who created a very successful and respected name in the industry with the Halflife storyline. Complete with their own unwilling (and silent) hero Gordon Freeman, they quickly built the Half-life brand into as one of the best FPS’s in gaming history. I read recently that they too are looking for funding, not from the traditional methods, but from the community.

As reported on Gamasutra.com, Valve co-founder Gabe Newell tells Australian TV show “Good Game” that he is “super interested in” what he thinks “would be much better if the community could finance the games.” So what happens now? Do I go down to my local Gamestop and say, “I’ll take 100 shares of Valve please, put this money toward their next game. I hope it’s a winner!” All they would need is for little Johnny to lose money that he put towards the next installment of Half-life 3, the forums would be on fire for months.

Gabe Newell, Co-founder Valve Software.

Umm, no. That’s not how it works, thankfully. What would have to be done is certain contracts would be drawn out, there would be something called a “prospectus” handed out. A prospectus or “Red Herring” as it’s called has details about the company, where the money would be going and all the inherent risks. Basically states that you will most likely lose your money. And that is true, the trick to private equity funding is to invest in a few, one will make up for all the losses. But the most important thing is to have the money to lose. Even when a company is publicly traded on an exchange such as the Nasdaq or New York Stock Exchange doesn’t mean it’s totally safe. Just means it’s more accessible and easier to get your money in and out of.

Thar she blows!: And I wonder what Carl Icahn (above) thinks of video games since he is has such a large stake in Take-Two Interactive. Carl Icahn is a billionaire investor who sets his sights on Take-Two back in March. He raised his stake up to 2 million shares at roughly $5-6 per share. Even though the company has had some setbacks and a few of their most expected titles were delayed, he still in the money for roughly $6 million with the stock trading over $9. However, Carl Icahn has his own agenda, he is most noted for his machinations that eventually lead to a company he own part of to being bought out. This is something that Take-Two has rejected in the past, Electronic Arts wanted to buy them out back in 2008 for 2 billion or $25 a share. Does Carl think they are still worth that much?

Traditionally, smaller software companies have been more open to find funding through private channels. Sometimes larger companies help out looking for a cut in the action, while the studio works like mad at releasing fast enough and stay afloat until the ship rolls in. I hope that the ships rolls in for Firesky, they are looking into a small group of investors called MMOMOGULs for funding. They need someone like a Carl Icahn to step in and save the day. So we’ll know in about a week if there is a future for the Stargate Worlds MMO.