Deconstructor of Fun

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Uncovering the Minds of Game Investors

Joakim Achren

Most of you likely know Joakim Achren as the founder of the fantastic Elite Game Developers blog, podcast, and newsletter. But you might not know that he is also a published author, a venture partner at Play Ventures, a very active angel investor, and co-founder of the powerful Next Games.

I get to talk to Joakim regularly. This time around we decided to record our conversation - and add a bit more structure to it. Let us know how you liked it!

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The Funding Trends

(Mishka) Blockchain gaming and Web3 dominated the funding headlines during the second half of 2021. Can you get funding for a game that is not based on blockchain in 2022?

Yes. Gaming VCs are still looking for the best teams, who've shown that they can execute. Besides the team, I think the key here is to have a playable that is basically ready to be shipped. Of course, you can't always build the game without the cash. But then it goes down to looking at what the team has built and what are they building now.

That's why ex-Peak founders are getting insane valuations. They leave Peak and they build Match-3 games, which they know so well. Not a lot of things can go wrong there.

(Mishka) The shift to blockchain gaming has been incredibly fast. Why?

There are two factors here:

  1. Gaming investors are seeing crazy multiples for these companies. I think that Sky Mavis raising this mega round from a16z really escalated things, along with the funding rounds of Mythical Games, Dapper Labs, and Sorare. If you have companies making a few million with a few thousand active players, it’s highly attractive, especially since things are so early.

  2. There are several more experienced game teams, either pivoting or forming new companies. As my colleague, Anton Backman from Play Ventures said recently, and I concur with his assessment, blockchain understanding will be commoditized, but game design and product understanding will be a rare skill, even as it is in gaming now.

The Different Investor Classes

Angel investors, Venture Capitals (VCs), publishers, and strategic investors. Can you talk about each of those and when it’s optimal to have each of them in your cap table?

I think it depends on what kind of support team you want to build around the company. Some people just want to get the money and run at the goal. Some want partners in the business. As an investor, I'm currently working with some two dozen companies on a weekly or monthly basis. When you have many investors helping, you have several networks to utilize for hiring, for feedback, but mainly for troubleshooting. Start-ups always have so many problems and issues, and having lots of partners involved in the business, ones who've seen a lot, will help.

So first, angel investors are usually the first money that you take. They are previous operators, former gaming execs, former founders, bringing smaller money to the table, but giving lots of help and advice after they pay you to get involved. I always prefer to join as an angel and not as an advisor, mainly because I have real skin in the game.

VCs are different. They have funds that they've raised from limited partners, basically investing the money of wealthy institutions and individuals. They have a mandate to seek great target companies to invest in.

One factor plays a big role in how angels and VCs are different. Let's say a VC has a 50m dollar fund, and they get an exit where a company gets sold for 100m and the VC owned 20%. Great, so they get 20m, from something they invested 1M into. That’s a 20x return! But, because VCs always need to return the fund, they still need to make up for 30M before they can see profits.

Because of this, VCs will be pickier than investors. They can't rely on small wins. They need to be looking for the home runs, the unicorn exits, to make the math work. Angels don't need to be as picky, since each exit, even a 2x or 3x return, will make a profit.

Picking a publisher or ‘strategic investors’ (for example, other gaming companies) is different. They are industry players who can support the developers in their game development and publishing efforts, by offering resources that the angels and VCs don't usually have. But when you bring a publisher or strategic on your cap table, the main difference with angels and VCs to these guys is that they have their own agenda: to build their own business. Angels and VCs are focused on getting your company to work, not getting an added advantage from your company. Who knows, strategics might start talking about an acquihire when things go bad, versus putting more money into your company like other investors.

 

The Venture Capitals

How to choose the right VC for your company?

When it comes to gaming VCs, I prefer previous operators above all. Former gaming executives and founders are great because they’ve walked a mile in your shoes. You want them to be there for troubleshooting in tough situations. Every start-up will have problems down the line.

Don't just pick a firm to work with. Pick a person in a firm. In gaming, people talk a lot about the firms, like "we are going to raise from these guys," But I'd really want people to shift to talking about individuals who they want onboard and why. Not everybody in a fund has the same skills and previous background to give you the exact similar guidance. Remember, you aren't bringing them on board for the money, but for all the help that comes with that money.

What’s the difference between gaming VC vs generalist VC?

In the early stage, gaming VC is your pick. When you have KPIs and things are growing, a generalist VC will work just as fine, since you then want to start scaling up your company, and there are very specialized generalist funds who can help with going big.

Do all VCs work well together? after all, they compete for the best deals…

They do share things that they are seeing. I think it's most common when you have investors from different stages, sharing companies that they can't invest in, like a pre-seed and seed investor sharing deals with Series A investors.

In the end, investors are professionals that will work efficiently towards the common goal. It’s truly rare to find any people problems between investors.

How about crowdfunding or funding through tokens?

Sure, those are options. But I think the big reason not to prefer these options is that you won't get the benefit of getting experienced investors that could help you build the company.

How do investors find investees?

I can maybe talk about how I find investees. There are three main ways.

  1. I have the angel syndicate, with over 130 people investing together in gaming companies. We pool the funds into an SPV (special purpose vehicle), totaling anything between 50k to 200k, and then we invest that into a company. Instead of getting each of the angels into their cap table, the company gets only one syndicate investment that holds all of the angels in it, because of the SPV model.

    I get a bunch of new deals coming through the group. Every week I'm looking at a new experienced team, who are raising their pre-seed round and they are looking for angels.

    I also spend a lot of time on LinkedIn and Twitter, and on private Slacks where people are actively posting about leaving their existing jobs. I would ping them to see if they are going to do a start-up. At least half a dozen of my investments have come from me reaching out to people.

  2. The second channel is my work with Play Ventures. My role as a Venture Partner is quite a specially tailored one. I currently manage and sit on the board of some eight portfolio companies. In conjunction, I've had the privilege to co-invest in several deals with Play.

  3. The third way, which results as the biggest inbound by quantity, is people reaching out on LinkedIn. I'm looking at five to ten inquiries on LinkedIn, where a founder is requesting to have a call and discuss a possible investment.

What do investors look for when they invest initial money into a game?

I first focus on the whole package, but I zoom into the founders. I think everything at the early stage reflects what kind of founders I'm dealing with and what the changes look like.

The question that I ask myself: Have they led teams? Have they had success in the past, and what kind of success? Are they good people with good integrity? Is the thing that they are doing something that they are good at, and why? I try to go to the very first principles with this.

Lesser experience usually means that they will need to pick up a lot quicker, on the product, on leading, on hiring. If it’s a NO in the early stages, it could be a YES 4 or 6 months later, if they've been doing the right things. Not just coding the game, but putting together a team, and addressing all sorts of issues on what they are doing.

How do you raise one of those “monster rounds” before showing early traction? Do the same evaluation parameters apply or is it more based on gut feeling and fear of missing out?

Super teams raise super seed rounds. It's as simple as that. Often the reason is that they just can afford to do it.

Often time, when one investor pulls out of an investment, it creates a ripple effect where other investors pull out as well. The same applies vice versa. Why is that?

I think that is just an indication of not having conviction in the first place. I remember Index Ventures used to have this saying that they invest in Team, Timing, and Traction. The big three Ts. The more of these that you are missing, or on shaky ground, the more likely it will be that the investor will just not want to participate.

I think that many investors can't make up their own minds and they are piggybacking on what others are thinking about a particular deal. Of course, there could be a good reason for many investors to pull out, like uncovering something bad about the founders, like really bad reference checks, etc. But it's a sign of a strong investor if they can build up conviction on their own and not back out just because someone got cold feet.

The Pitch 

What are the keys to setting yourself up to pitch successfully?

Make sure you have something that is attractive to investors. Like, I've written a bunch about this in my newsletter. You have an attractive team, very experienced people, and you are building something that makes sense to build in 2022 and to launch in 2023 or 2024. In a sense that you are setting yourself up for a billion-dollar business out of what you are building.

During the last couple of years, founders and investors had to learn to pitch and be pitched to via video call. What’s the difference between pitching online instead of face-to-face?

F2F is more personal and alive. Everything in the pitch reflects what the founders are thinking.

Like, you are showing a playable prototype. What it looks and feels like, will reflect investors on how the founder presents and thinks on what matters.

The same goes for where the funds to be raised will be used. How much will the founders spend on their salaries? How big of a team will they hire to go to market. What risks are they willing to take? Is their ego in check? Everything reflects the founders.

Should you share a playable or gameplay video?

Always. Often, investors are juggling hundreds of deals per week and your playable should be super accessible. It's also great to accompany that with a gameplay video, so that the busy investors, which they all are, can have time to review what you've built. It's also a good indicator of investor interest if they've had time to play the playable or not. If they really want to do the deal, they will play the playable. If they are unsure, it will take time. It's just a good signal for the founder on how to count on.

What stage should the playable be at? How much content and polish?

I don't think you need more than a few minutes of playable content. Polish on UX does matter, great loading times, etc. But not in the assets that much. Unity asset store stuff works just fine.

Silence is usually a NO, for now, right?

I think one key aspect here is that if you don't get a YES from the investor, you can always keep them in the loop until you have enough traction to make it worth their while to invest.

Should you include marketing budgets and strategies with your pitch? how much do you expect any game you want to invest in to spend on advertising? At large, when publishing games the rule of thumb is 18% of net revenue or contribution margin. With new marketing vehicles and platforms...the game has changed. I'm curious by how much? Or do VCs and investors simply want to sell off the game to a publisher and let them worry about it?

You can put a lot of stuff into your appendix slides. But fundraising goes in stages: pre-seed is meant to build the team and start the development of a game. Seed is for continuing development and soft launching. Series A is for scaling from the soft launch to a global audience. You want to share items in your pitch that are relevant for the stage you are entering. If you are going to start scaling and you have done the calculations, sharing the budget in a deck appendix could be a good thing to add. But you can also leave it out of the deck and share it separately if investors ask. I think that marketing budgets and strategies are going a bit too much into the details that won't sway the investor from a no to a yes.