Top 3 Mistakes Gaming Startups Make - According to the VCs
In the fast-paced world of gaming startups, securing venture capital can make or break a company's trajectory. But what exactly are VCs looking for?
Simply put, they’re after a rare combination of a superstar team, a product that nails market fit, and a company that is poised to ride the next big wave of growth.
Timing and momentum play a huge role—investors want to see startups capitalizing on expanding markets rather than competing for scraps in saturated spaces. They’re platform-agnostic and keen on diversification, especially in a landscape where mobile gaming, once the crown’s jewel, is becoming increasingly crowded.
Before Apple's draconic privacy changes, the mobile gaming market was growing by 20% every year. Today the growth is one-tenth of that. In other words, the market has stopped expanding and thus doesn’t attract venture capital.
As the mobile gaming market saturates, VCs are looking beyond just one platform. They’re excited about cross-platform titles like Genshin Impact and Fortnite, and there’s also interest in emerging technologies such as VR/AR, as well as innovations in how games are distributed.
VCs are diversifying their portfolios to tap into these underdeveloped, high-potential areas, knowing that each platform comes with unique risks and opportunities.
Tech innovations also catch the eye of investors, especially when gaming serves as a "beachhead" for broader applications - the ones that can expand beyond gaming into sectors like fitness, education, or finance, all of them hold immense promise.
What else is catching investors' attention right now?
Join our host, strategic marketing consultant Jen Donahoe, as she sits down with three top industry experts: Sikander Singh Chahal, Principal at Transcend Fund; Anton Backman, Partner at Play Ventures; and Jere Partanen, Principal at Sisu Game Ventures. Together, they dive into the latest trends shaping gaming VC, explore red flags that can derail your chances of securing funding, and offer insights on navigating the entire investment journey—from pitching to scaling your startup in a competitive market.
This conversation unearthed key insights on what VCs look for in gaming startups and how founders can position themselves for investment success. Whether you're a budding game developer or a curious entrepreneur, this deep dive into venture capital strategy explores the essential questions: How does VC work? What does a good investment look like from a VC's perspective? And what must founders bring to the table to secure funding?
The discussion also tackled the fundamentals of the investment process, why VCs take lead positions, and how board structures impact startups. Ultimately, it’s a look at what truly matters to VCs when gaming companies pitch and seek funding in this highly competitive, evolving space.
3 Mistakes Gaming Startups Make (and How to Avoid Them)
Venturing into the world of gaming VC can be daunting, even for experienced founders. Here are three common mistakes that can derail your chances of securing funding—and how to steer clear of them:
Mistake #1: Broken Cap Tables (ownership structure)
A poorly structured cap table can scare off VCs before they even evaluate your game.
Founders often give away too much equity (shares) early on to angel investors or advisors, especially in less developed ecosystems. This dilutes the founders' stake, making the startup less attractive to future institutional investors.
Just think about it in practical terms. Would you be willing to invest in a game studio if one of the major owners and a board member was a person who has no understanding of games but who would yield their power in all sorts of decisions from office escape to key hires and compensation structure?
Don’t rush to give away percentages of your company early on. Some early employees will ask for a significant percentage of the company to join. And many founders will consider giving away shares as a good way to save on salary costs. But in reality, it will devalue your company going forward. And it will reduce the founders’ ownership.
How to Avoid It:
Offer meaningful equity (shares) only to the absolute key team members. People who are and will be the pillars of your company. Use the option pool for the rest of the employees.
Pay a market salary (preferably not top of the market) to avoid situations where you have to incentivize with stocks. If you can’t pay a decent salary, it usually means you shouldn’t be hiring either. The core team needs to be able to get the product to a place where you can raise capital and pay employees to speed up progress.
Mistake #2: Over-Structuring the Board Early On
Early-stage startups need flexibility. While it may be tempting to create a formal board early on, this can lead to unnecessary bureaucracy and rigid governance structures. In the early stages, informal investor catch-ups are far more effective than formal board meetings.
Also, keep in mind that your early investors are likely angels and VCs who invest in tens of early-stage companies. While your startup is special for you, it’s only one of their portfolio companies for them.
Later-stage investors will require a more formal board structure. At that point, you’ve already likely given away over 50% of your company to investors. The board of directors will be the bosses of the CEO. Winging it informally then can easily lead to the CEO losing the board's trust - and their job.
How to Avoid It:
Stay nimble in the early days. Keep things informal, focusing on regular updates rather than formal board meetings. Preferably, bring along investors who you trust and enjoy talking to in this manner.
When it’s time to build out your board, ensure it’s composed of individuals who can add strategic value, not just fulfill formal obligations.
Mistake #3: Focusing Only on Content, Not Distribution
If you build it, they won’t come. It’s no longer enough to just have a great game—how you distribute it is equally important.
Too many startups focus solely on market opportunity and content without thinking about how they’ll get their game in front of players. Studios that fail to innovate in distribution often get outpaced, no matter how stellar their content is.
Simply put: the era of finding the fun and then adding marketing and monetization is over.
How to Avoid It:
Explore underserved genres or innovate in how you bring your game to market. Look at lapsed categories or niche opportunities that can revitalize older genres while capturing underserved audiences. Develop a robust distribution strategy as a part of your product strategy.
Don’t have a product strategy? Why not? Making a game in today’s mature market without paying attention to the market, marketing and audiences seems like winging it. You could get lucky. But it’s unlikely that investors will provide you with capital without a proper plan.
Gaming VC Is Evolving—Are You?
The ultimate goal of venture capitalists (VC) is to create value through investing in early-stage or start-up companies with strong high-growth potential and with an innovative, disruptive business model or product.
The world of gaming VC is changing rapidly because it has to. The growth of the game industry in general has stalled. VCs are now looking at companies that ride on trends like cross-platform gaming, gamified apps, and distribution innovation.
Whether you’re building the next big mobile hit or a groundbreaking gamified app, understanding what VCs are looking for—and how the market is shifting—is essential to securing the investment you need to scale.
But then again, not every company should seek venture capital. You can try to raise needed funds for your dream game by being a work-for-hire studio. Or you can strike a deal with a publisher.
But whatever you do, don’t leave it all on luck. Have a compelling product strategy. A plan that gives you a thorough understanding of the market, rival games, and target audience. A strategy you can execute against with limited resources. And most importantly, a strategy that takes into account distribution.
