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What Do Investors Look for in a Game Developer?

December 6, 2012 Article Start Previous Page 3 of 3

All that being said, we do see a few strategies that work repeatedly for at scale discovery in the current environment. I like to see game companies that are taking advantage of some of these strategies, and preparing themselves to take advantage of more as they grow:

1. Cross-Promotion
Game publishers with a lot of Facebook or mobile install bases are able to make their user base aware of new releases in a free and scalable way. Zynga has repeatedly made use of this approach to launch its new games at real scale. Facebook has now made it possible to cross-promote from a Facebook installed base to mobile. To be able to do this well, you need most of the games in your portfolio to appeal to a similar audience. Building different games for different audiences makes it much harder to take advantage of cross-promotion.

2. Sequels
Publishers with a hugely successful hit game can often milk the IP with subsequent releases. Rovio has done this repeatedly with Angry Birds. With the game market being so noisy and confusing, most players will give a sequel a shot if they enjoyed the first game. It's notable how poorly Amazing Alex did in comparison to the Angry Birds sequels.

3. Borrowing IP
Much like a sequel, players will respond to a brand they recognize. This can be IP from another game platform (Bejeweled Blitz, Zynga Poker, Sonic the Hedgehog, The Sims Social) or another medium (Battlestar Galactica Online, Marvel: Avengers Alliance, Temple Run: Brave).

In the $60 packaged software world, gamers would check game reviews before buying any game, even one with licensed IP, so many games that borrowed a TV or movie brand were not successful because they were not good games. But in a free-to-play world, players are more willing to give a game a try if they recognize and identify with the IP.

4. Paid Acquisition
Smartphone and Facebook both have relatively efficient markets for paid installs at this point. If a game monetizes better than others, it can pay more for a new player than others can, and it can find its audience through paid channels. This requires excellent monetization, which typically means targeting core gamers. Kixeye, a Lightspeed portfolio company, has followed this approach with great success.

5. Get Featured by the Platform
This is hard to do. Infinity Blade benefited from a lot of promotion from Apple, in large part because it changed people's perceptions about what was possible for an iPhone game. This drove a lot of users for the game, despite its relatively high price point. Getting featured by the platform is hard to plan for, and can take a combination of distinctiveness, something in your game that also promotes the platform, business development expertise, relationships with the platform and someone simply taking a shine to your game.

Chair's Infinity Blade

6. The Early Bird Gets the Worm
Zynga did this on Facebook and is still the dominant publisher of Facebook games. Gameloft, EA, Gree and others are frequently in the top games charts for mobile. I think that iPad is the only fast-growing new platform that does not currently have a set of dominant publishers.

There are far fewer games built specifically for iPads. As a result, discovery is substantially easier for iPad than iPhone. It is less crowded, for now. Most tablet games are simply up-rezed mobile games. But tablet gaming has the opportunity to be quite different to phone gaming, with longer session times, more screen real estate for display and the opportunity for co-op and competitive play with another person sharing the same device. Developers are starting to take advantage of this by building tablet first games and having great success. In the short term we may see more winners coming out of the iPad gaming platform than any other.

7. Co-opting a Community
Riot did a tremendous job of this, co-opting the DOTA community to come over wholesale to League of Legends. We haven't really seen this done by anyone else recently, but the tremendous success that Riot had with this approach makes it worth exploring to see if it is repeatable. In the console and PC gaming world this has done this several times, notably with Counter-Strike, co-opting the Half-Life community, for example.

Some of the strategies are more available to larger companies than startups (e.g. cross-promotion or sequels), but they should still be held in mind by startups as they think about their future. Discovery is the problem for many game startups today, and companies should spend real time thinking about discovery and how to prepare for it. You can't just make a game and hope for the best.

Wrap Up

We've seen many false dawns as we've waited for the "Golden Age of Game Developers." Every new console release has offered that hope. But each time it has been the publishers that have benefitted and not the developers. But this time, because developers really can self publish, I think we finally are at a golden age for game developers. I'm excited about this as an investor. If you've got the elements that I've listed above, I'd love to hear from you! In the meantime, let me know what your thoughts are on what game developers need to be successful in comments.

Article Start Previous Page 3 of 3

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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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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.