Formation of TSR
In the fall of 1972, Dave Arneson, a wargamer from nearby Minneapolis-St. Paul, demonstrated a new type of role-playing game to the LGTSA. Gygax then created a similar game set in the imaginary Castle Greyhawk, and invited his children, Ernie and Elise, "to create characters and adventure". The next evening, Kaye joined the game along with Gygax's friends Rob Kuntz and Terry Kuntz. Kaye created the character Murlynd, Rob Kuntz created Robilar and Terry Kuntz created Terik. Kaye observed as a group eagerly played the prototype Dungeons & Dragons game at Gen Con VI (1973), and brought the idea to Gygax of starting a company so that they could publish the game on their own.
Sensing the potential popularity of the game, in October 1973 the two men each invested US$1,000 in the venture — Kaye borrowed his share on his life insurance policy — in order to finance the start-up of TSR, which was initially run with business taking place in Kaye's dining room. Their investment of $2000 was not enough to print their new role-playing game, so they instead published Cavaliers and Roundheads, a miniatures game based on the English Civil War, and planned to use its revenue to print and publish D&D. But sales were poor, and they still did not have enough capital to publish Dungeons & Dragons. While developing D&D, Gygax had sent copies of his preliminary rules to other wargaming friends for playtesting. Now worried that someone who had playtested the new type of game would bring a similar product to the market first, the two accepted an offer in December 1973 by playing acquaintance Brian Blume to invest $2000 in TSR to become an equal one-third partner. (Gygax accepted Blume's offer right away. Kaye was less enthusiastic, and after a week to consider the offer, he questioned Blume closely before acquiescing.) Blume's investment finally brought the financing that enabled them to publish D&D.
In January 1974, they printed a thousand copies of the game and hand-assembled them in the basement of Gygax's house. Warehousing and shipping was done from Kaye's home. The first printing sold out before the end of 1974, and sales of a second printing began to increase exponentially. In late 1974, Kaye helped develop some of the rules for a new Western-genre game to be called Boot Hill.