Investing in Game Startups | Venture Capital Panel

We’re here today to talk about the current investment environment for gaming studios.

We’ll be more focused on mobile but certainly can try to speak a bit more to PC/console opportunities as well. Specifically we’ll speak to:

1. What are investors investing in right now?

2. What’s missing (from an opportunities perspective)? What are the biggest problems that need to be solved?

3. Investing in the current environment of pandemic and shelter in place?

4. How defensible are gaming companies?

5. What’s controversial in the games industry today?

6. What are big future trends in gaming?

And with us today to speak to all of these issues and more are:

1. Jason Chapman, Managing Partner of Konvoy Ventures

2. David Gardner, General Partner, London Venture Partners (LVP)

3. Graham Gockley, Principal at Transcend Fund

Check out the panel interview below:

Joakim Achren from Elite Game Developers summarized some of the key highlights from the panel below:

How do you invest?

David: Is the company in a crowded space? If the team's credibility is incredible, you'd say, "yeah go ahead and do it." Normally we're saying, "you know, go into blue ocean space because it's hard on mobile."

David: Robin Games is interesting because [Jill Wilson] is an experienced leader, was a senior at Jam City. She's not a newbie. And she's focusing on where the market is headed. It was an easy yes. She could have probably said, "I'm going to do storytelling games" or Match-3, and we probably would have done [the investment]. It depends on who walks in the door is the ultimate answer.

Graham: We filter mostly on the quality of the founders, their experience, and then the business opportunity that they're pursuing.

Jason: We try to think proactively. We ask ourselves, "How do we identify trends across the market?" We look at companies that are doing well in a crowded market, learning from them. Every week, we're taking a couple hours, and we're taking a sub-sector [of gaming] and [evaluating] how we think about it. It's a lively debate amongst the team.

Regarding teams, there's been a trend of gaming studios by ex-Riot and ex-Blizzard guys getting funded. Why is this trend happening?

David: One of the roles we play as investors is helping the ecosystem by [giving] very talented people the backing and support to try something new. For us, the risk is improved because they are experienced, and mainly there's a culture and a discipline at Riot that's impressive. That impacts people. The way they process things and how they are organized. It puts them in a great position [for investment].

How is COVID affecting your processes and how you're evaluating and investing in companies?

David: Deals are being done. [COVID] has forced us to be more disciplined with references. It's hard to make decisions when you spend one or two hours with someone, versus you take references from people that may have worked with them for hundreds of hours.

Jason: I think COVID has given us a little bit more breathing room on deal times. We have to get very creative about how we get references for a person to find any skeletons in the closet.

Graham: COVID has opened up the playing field. Instead of talking to a founder who's based in London and saying, "Yes, I'll be there in July, let's have a meeting," which is two months from now. But now we can hop on a Zoom call tomorrow.

Jason: We're seeing that there's a flooding of generalist funds [to gaming]. Part of their portfolio is on fire, and not in a good way. They're like, "We need to look towards new horizons," and they've looked at gaming. We've seen generalist funds reaching out to us, asking, "How do I get into this sector?"

David: The classic criticism on gaming: it's a hit-driven business. The answer is yes. But what's the problem with that? When the [VCs] aren't building a portfolio, they take a few shots and fail. I mean, who making games hasn't had to make many games before success. It's the same thing with investing. I encourage those investors to allocate a decent amount of capital to make multiple investments.

Jason: Under COVID, valuations have plummeted. About 20% on Seed / Series A, from where it was before. If you're raising at $10m valuation, you're now raising at eight. I wouldn't be surprised to see valuations go up a bit in Q4/20 and Q1/21 when the generalist funds start pulling the trigger on this industry.

Future trends for gaming?

Jason: COVID expedited the acquisition of the next couple hundred million gamers. Looking towards those [new] gamers, what kind of niche genres will be created, ones we didn't think of before?

David: Market expansion into new demographics. Definitely UGC.

Jason: I think you're going to see the pairing of gaming giants and technology giants, like Roblox and Microsoft and like Epic and Amazon.

Graham: In the short term, defining what a game is and digital experiences is going to be very interesting. Fortnite concerts and movies are incredibly exciting as a way to leverage your power and leverage your audience.

Jason: Joe, I have a question for you. What's something you're hoping for, that you think should change in gaming VC? Something you think we could do better?

JK: I'd like more transparency in documenting your thinking and documenting your processes and having more [of them] online. Something similar to firms like NFX; they're putting a lot of their thoughts online.

David: How about Deconstructor of VC Gaming? You can watch Silicon Valley, and that answers most of it.

Jason: If we think there's potential [in the pitch], we say, "Hey, these are the things that are missing. Come back to us when this is complete or finished." One team made us invest because they did everything we said. They said, "You said to do all these 10 things, we did them." And we're like, you're right. And so I try to put my money where my mouth is.

Graham: VC isn't the right fit for every business. Just because we're not interested in a particular pitch doesn't mean that you can't be successful in your definition of success. Sometimes it's hard for us to express why you might not be a good fit for venture capital and the types of returns we are seeking as investors.