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What Do Investors Look for in a Game Developer?

December 6, 2012 Article Start Page 1 of 3 Next
 

Lightspeed Venture Partners venture capitalist Jeremy Liew (@jeremysliew) explains exactly what he and other VCs look for in a game developer. Lightspeed has invested in Kixeye, Playdom, Serious Business, and Kongregate in the video game space.

In the past few years, the opportunities for game developers have exploded. With more places than ever to play -- from proliferating smartphones to Facebook -- games are the most popular category of applications. These platforms offer developers a huge number of potential players. As developers can now self-publish on these platforms, they are starting to look to venture capital instead of publishers to fund their development and growth.

Equally, venture capital interest in games is strong again -- especially for web, social, PC, phone, and tablet games.

Since I'm a venture capitalist, I'm often asked what I look for in a game company investment. I've had some good success in investing in this category, most notably Playdom and Kixeye, but this is still a difficult question to answer because investing isn't like giving a driving test. If a company checks all the boxes, it doesn't mean that I'll write a check. But there are a few things that I always do look for.

A Top Team

Everything starts with the team. When games first started to appear on Facebook and mobile, they were pretty lightweight affairs. Some were barely games at all, and others were straight ports of existing games, without consideration for what makes the new platforms different. But game quality has risen considerably and continues to do so.

To build a great game company today you need an experienced team of game designers, developers, and business people. You need a mix of experience that includes having shipped successful titles in the past, understanding how social and mobile differs from console, and understanding how free to play and games as a service differ from the packaged software model. You can't just wing it anymore.

I get excited when I see teams like Innovative Leisure, nWay, Hawken and U4ia who have assembled teams with the right experience to build great games.


U4ia's Offensive Combat

A First Hit

All games have title risk. I can't tell you that your game is going to be a hit before it is launched. Frankly, I don't think that you can either. I'm glad that you are excited about your game. You have to be, or you would not be an entrepreneur. But there are plenty of games that flop, and each of those flops was built by a developer who truly believed in that game. The only truth lies in what users think and do when they play a game.

As Unity, Adobe Flash, HTML5, and other tools increasingly get better, it is getting cheaper and easier to build a quality game and launch it in beta. I like to see real data from real users to see if people are playing a game, and returning. In the long term, aggregate time spent playing a game is the best predictor for monetization, so I like to see your early users getting addicted, and coming back again and again.

OMGPOP had many flops before finally hitting on Draw Something. In contrast, the first two games from Supercell, Clash of Clans and Hay Day, both look to be hits. But it is hard to predict in advance.


Article Start Page 1 of 3 Next

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Comments


Xavier Moore
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Great article

Serge Versille
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A great team, a first hit, and the marketing power to create more hits are what attracts a banker. It is strange a VC would have the same risk approach to investing as a brick and mortar bank.. This must be why game devs have been flocking to Kickstarter. But I guess, as the article points out, that the early bird will get the worm, and that the investors with the ability to bet on the right team and project BEFORE the first hit, are the ones who will get the sizable returns.

Rodolfo Rosini
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Jeremy Liew is a smart man but this article bends reality a little. First of all you have to consider that there are many steps for funding before you get to meet him and raise money from Lightspeed.

Investors generally will look at your existing traction (vs. overall spend) and see if that can be leveraged with more capital, then will analyze your customer acquisition model and distribution (which is a big issue in games since you have big gatekeepers like Steam and the iTunes store and it's hard to bubble to the top organically).

Which is why investors tend to favor tech/platform type of deals rather than games. Also the examples are so cherry picked to be misleading. Unity was founded in 2004 and for years top VCs would not have touched them with a 10 ft pole (attitude changed with the explosion of social games and the need for x-platform development) and Supercell's first product was not even on iOS.

Again the way to make money as a VC is to find a company that is successful but is constrained by lack of capital and expertise to grow (and on this factor is the reason why VCs are better than banks). The bonus scheme of a VC is not designed to invest in small companies and nurture them slowly to a modest success.

If you want to make games, Kickstarter is awesome. If you want to build a business and capitalize on a shift in consumption then go for external investment.

Jonathan Blow
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Let me summarize this article:

"To be appealing to an investor like me, become a highly successful game company."

Gee, thanks. Nobody would ever have thought of that.

Daniel Kaplan
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http://politico.ie/images/politico/features/AITT/crisisjam%20haha
%20business2.jpg

Edit: Naww..cant seem to push out links in the comments =D

Lewis Pulsipher
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Another, more practical, summary would be:
"to obtain venture capital you need more than aspirations and hopes and passion - every developer has those." You need a track record and a plan.

If this article doesn't help stars-in-their-eyes devs recognize what they're really up against, nothing will.

jeremy liew
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Rodolfo, I definitely love to invest in game companies with positive unit economics (CAC vs LTV) that are constrained by capital in their ability to grow. But that is where the other factors that I mentioned come in. I also want to see the team (so that I have some sense it isn't a fluke that the first game is working) and a thoughtful approach to both discovery and subsequent game concepts in the pipeline. In the absence of that, I think that your'e looking at a project (with a defined end of life) and not a company (That will build equity value over time).

As Serge rightly points out, if you're looking at building a single game, which by definition is a project, then kickstarter is a better financing source than venture capital. That way you can sink your money into up front development, run the game until it eventually peters out, and definitely in the middle and back end of this period if you recognize the situation and don't try to overinvest to turn back the inevitable, you can create very nice cash flow for yourself as a developer.

Betting on great teams and project before they are a hit requires a greater degree of foresight than I have (and some might argue more than anyone has!) as with all games there is title risk. There are no "sure things" - so it comes down to risk tolerance. Some are willing to take title risk. I'm not. I prefer to take scale up risk.

Luis Guimaraes
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Makes a first hit. Makes hit after hit. Has a great team. Has a powerful cross-promotion network.

Needs money.

Eric Schwarz
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I like how this article has a lot to talk about regarding branding, social media, sequel milking, games as a service model, and all that stuff, yet the author is apparently clueless about what makes a good and successful game. "A First Hit" is possibly the most important section in the piece, yet it's the shortest and says absolutely nothing at all, not to mention is also contingent upon everything else said afterwards. Funny how that works. Oh, it's hard to predict if a game will be successful? Thanks for the advice.

Neal Nellans
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If he could tell you that he'd be a developer and not a VC

Laura Stewart
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The title would better be "How to get a VC to Fund a Sequel to Your Homemade Indie Blockbuster."

Nicholas Bellerophon
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One interesting approach that some companies are taking to overcoming the discovery problem is the creation of very cheap, very simple, non-monetizing games designed purely to drive users to other games via cross-promotion. Especially on mobile, with the small screen sizes and short play sessions, hyper-casual games with a strong core loop can scoot up the free charts.
An example I downloaded recently on my iPhone: "Flow Free". But there are really quite a lot out there. The question is to what degree we're acquiring the kinds of users we want. From a base of 100k hyper-casual players, how many have the potential to also be mid-core whales who will buy hard currency in the premium product? 10k? 1k? But here's the great thing about cross-promotion: you have the power to find that out and adjust as needed, because you run both ends of the pipe.

Machine Works
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I think this is one of the best (because it's clear and no BS) articles I have read about VC game funding. While it is not that different from a publisher's point of view, it is pretty concise and the author shows that he has a much better insight than most VCs on the subject matter.


Arturo Nereu
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Thanks for the advice, I know not every investor is interested on the same profile but having your opinion is really helpful for us on this moment.

- @PhyneGames

Matthew Burns
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Thank you for this clear and upfront article on VC game funding.


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