Various dimensions that VCs look for before investing in gaming businesses

Investors consider the gaming industry unpredictable; it is thought that building a “hit” game is a mixture of art and magic, a bit like investing in movies. Gaming is often perceived as mostly a creative industry rather than part of technology. Often investees think what will be that one cracking matra which will become hit while approaching the venture capitalists (VCs) for fundraising on their visioned project. The answer lies in the question why the investors will invest in your business?

Gaming has a huge market that will only continue growing, today it is more than just the games themselves, as with esports it’s a complete entertainment experience, and it has incomparable ability to grow fast. Recently IGDC hosted a webinar named  “Raising VC Funding for India’s Gaming Startups” and have discussed various peripherals of VC funding in gaming. The webinar was moderated by Ilipsis Digital Founder Arjun Sarode with panelist Accel partner Prayank Swaroop,  Lightspeed partner Vaibhav Agrawal, Lumikai Fund general partner Justin Shriram Keeling, Lumikai Fund general partner Salone Sehghal. Here are the various dimensions that these VCs look for while investing in gaming businesses:

Demographics and scope of monetisation:

Accel partner Prayank Swaroop

Swaroop  believes a profitable gaming business depends on “demographic choice for which the game is built for is very important, second is the game model for example right now real mony gaming, social gaming and education games are getting more visibility.” What he essentially look for before investing in gaming business is “longevity of the players  and are there enough monetisation opportunity inside the game .”

Diversified content availability:

Lightspeed partner Vaibhav Agrawal

On the other hand, Agarwal believes  gaming, in general, is ‘hits’ driven business it is like ‘capturing genie in a bottle who knows what next formats would be?’ They would look for platforms, as there are multiple games get launched and therefore not have a single horse in the race, second is the formats where a platform takes offline games to online like casino games, fantasy cricket and more. To understand the core consumer behaviour is which leads to the third format which “we feel could be derivative, for example if lots of people are spending time playing PUBG, Arena, Freefire this allows opportunities to large companies to get built on top of customer love that could be streaming, merchandising and so on. Therefore, the diversified strategy allows opportunities to win the market.

The magic of content and IPs:

Lumikai Fund general partner Salone Sehghal

Sehghal shares that they typically look for three to four core things you know the first thing that they typically look for is a mix of strength and creativity. “Building content for games is a creative business so you have RMG and the traditional game ecosystems in India which have been incumbents and have gathered a lot of financing. But, there is also this latent ecosystem that we have come to know which of talented developers and creators who are building original content and IP across both free-to-play and premium games and we’re constantly on the lookout for those unique ideas because there’s definitely a market for that.“

The second point is the craft of building games is both an art and a science; the art is the creativity, originality, and the innovation, and the science is you know the understanding data and the analytics and understanding the competitive landscape of where or what one is building.

The third one is there are games that achieve market leadership and that appeal to wide audiences “but we also know that small core audiences in gaming can drive purely big outcomes. It is far more important for us to see founders be focused on a core genre, understand their audience, and really delight them rather than trying to build games. for all so you know we are weary when people are building across two new genres with the shallow understanding of core audiences. Think the magic of content is that there are merit and value in being laser-focused on the genre and the audience and you can stay focused and still achieve those big outcomes and I think the last kind of lens through which we interact with founders is around their ability to take feedback and iteration cycles. You know creative processes have a genre and so do games so you have to experiment, you have to seek data, you have to fail and then you have to try again,” she added.
Flexibility to iterate, conceptualisation and capacity of global partnerships

Lumikai Fund general partner Salone Sehghal

Keeling believes “long-term capital which VC provides gives teams the flexibility to iterate and I think that’s it really can’t be understated. So I think if you look at the market leaders at every inflection point across, say in mobile games whether it’s from NG Moko to Rovio to Supercell; you know 90 per cent of the great game companies that we know right now they didn’t knock it out the park on the first swing. I mean even Twitter to some extent pivoted multiple times before they became what we know today. We look at gaming as this complex interaction between culture and technology which are constantly moving and evolving targets so giving the right teams the right space to succeed is key and it often takes two to three shots to score on goal .”

Point two is knowing when and how to help. Founders have their own vision they have their own strategy and they have to lead that strategy but game companies specifically often hit their inflection points at different times versus regular tech companies so conceptualisation goes to market and achieving scale which is usually around series ‘A’ are all quite different from gaming, which is this confluence of technology and art. A good VC “that’s been through this journey can help anticipate and resolve these crisis or in fact take chances that are unique to gain founders and I think then if we go a little bit further down the cycle you know. Once game companies have gained traction and their unit economics are fundamentally working, a strategically connected VC that understands this space can open these power doors to help scale with killer global IP you know but also building distribution through global partnerships through media, through influence and networks and you know by that point in the cycle they’ve gained enough leverage to cut these deals with better-negotiating power so those deals become incredibly meaningful.”

When should one approach to VCs?

Swaroop expressed that before opting for fundraise from VC one should  figure out how much money they will need for the business. Then they should opt for finance availability around, which includes bootstrapping or from friends or family. If anyone need more money which a VC can give then one needs to make a list of all VCs by researching at their previous investments, tweets, blogs and so on and after all research then one should approach the VC.