Indie Funding: Xenonauts

If it wasn’t the perfect storm, it was at least a very bad storm. It all started when Chris England’s pet project, Xenonauts, got mentioned on TotalBiscuit’s popular YouTube channel. Then, just a short while later, Rock Paper Shotgun ran a preview. In less than a week Chris’ spiritual successor to the classic X-Com moved over 500 pre-orders, netting him in excess of $15,000. And it didn’t stop there, as word of mouth was helping him average another $500 per day for the next few weeks. Things were looking up for fledgeling Goldhawk Interactive.

It was then that the plasma bolt hit him square in the chest. His payment processor, PayPal, put a hold on his account.

It wasn’t the first time PayPal had put the kibosh on a thriving independent game developer, but Chris was fairly sure he didn’t have the momentum of Minecraft behind him to help fix this right away. He took his time, and he was able to give PayPal most of what they wanted via email.

“Normal stuff really, like evidence that I actually owned the bank account (I was transferring money into from my PayPal account), copies of my ID, et cetera,” Chris wrote me in an email. “The reason I had to ring them was because they also asked for things like proof of delivery.” Proof of delivery is hard to provide for a game that hasn’t shipped yet. For all they knew, Chris was running little more than a very successful scam. He could evaporate overnight, leaving PayPal holding the bag filled with thousands of upset international customers all demanding “chargebacks” for services not rendered.

Chris’s contention was that customers were getting access to the pre-release build when they put money down. “It wasn’t like we were just waving our hands and promising something in the far off future.” Regardless, PayPal does not consider pre-orders to be a valid transaction through their terms of service, something Chris admits he knew going in. “We got around it by saying the customers were buying a subscription. This seemed to work fine at a low level, but when serious amounts of cash are involved I guess they just don’t want to be exposed to that level of risk, and don’t understand what we’re doing.” Chris had begun moving money out of his PayPal account daily, trying to stay one step ahead of the ban hammer. When it finally came down, though, it trapped somewhere near $4,000 in limbo. His PayPal account has been locked down for total of 180 days. Chris will be without that four grand for another four months, and there is no appeal process available to him.

To make matters worse, this left him entirely without a way to accept payments. Just as his media train got rolling, his business model was derailed, costing him four weeks of pre-order income. “Even if the $500 a day fell to $250 over the course of the month, we’re still looking at about $7,000 of lost revenue on top of the $4,000 frozen away. It’s been expensive. Also, in one of those moments where you have to laugh because otherwise you would cry, the story went viral on Reddit and we got 40,000 hits in two hours. That crashed our site and caused a database error that meant we couldn’t update the front page.” Tens of thousands of pairs of fresh eyes were pouring over his team’s work and he couldn’t even tell them how to give him their money. Not that he even had a way at that point in time.

And so Chris took many, many cleansing breaths and a big step back. He rebuilt Goldhawk’s corporate site, separated it from the Xenonauts site. There are new forums, a new wiki, new videos and artwork. There’s also a new payment method, through Desura—think of Steam with less corporate oversight, less DRM, free downloadable mods, and a clearer pathway from developer to player.

“It was pretty straightforward. They gave free keys for all the guys who had pre-ordered, and provide the backend infrastructure and payment processing for us. We were interested mostly because I wanted to migrate away from our glitchy old system … to something a bit more professional, and on launch day it’s going to be much easier to mass-launch the game if all our existing customers are on Desura than if they’re just a line on a spreadsheet.”

But all this ease of use came at a price. Word on the street is that companies like Desura and Steam will charge as much as 40% of a game’s revenues for their services. “I’m not going to publically discuss revenue-share arrangements, but 70/30 is a widely quoted figure … . With Desura you get a decent referral bonus for traffic driven from your own sites though, which is a nice bonus, especially given even PayPal takes about 5% in fees.”

Even after the nightmare in October, Goldhawk is back on its feet. Pre-orders are stepping up again, and release could be as early as some time in 2012. They’ve also dropped their price from $30 to $20, hoping to goose sales just a bit more. Luckily, they’re over the initial development hump, and the final months of building out the last few game systems and polishing the whole thing are in front of them with a solid revenue stream and a good partner in Desura. But what if he were starting this up all over again? Would he go with PayPal, or someone else?

“I’d love to do some stuff with Kickstarter,” says Chris, “but it’s for US citizens or businesses only.”

Next week, how Kickstarter is helping game developers of all stripes get their businesses off the ground.