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Today I’m talking with Matteo Vallone, who is a Principal at venture capital firm Initial Capital, who invests in seed and early-stage companies with a focus on games, consumer services and technology enablers.
Matteo worked for several years at Google Play, where he got to work with game developers and eventually transitioned into working with them as an investor.
Joakim: Hi everyone. It’s Joakim Achren, your host of the Elite Game Developers podcast, a podcast about the entrepreneurs and investors who are building the games companies of the future. Today I’m talking with Matteo Vallone, who is a principal at venture capital firm, Initial Capital, who invest in seed and early stage companies with a focus on games, consumer services, and technology enablers. Matteo worked for several years at Google Play, where he got to work with game developers and eventually transitioned into working with them as an investor.
Joakim: Hi Matteo, welcome to the show.
Joakim: Hey, let’s kick it off with your background and how did you get into the world of venture capital?
Matteo: Before joining Initial Capital, I was at Google, and I had been there for 10 years in some different roles. But my last role, I was leading the games team for Google Play apps and games in Europe, and basically, my role was to build, nurture, the apps and games ecosystem for Google Play, which also meant onboarding new, interesting developers on our platform, help them with our tools and new launches and actually helping them being successful on the platform with featuring and all that. One challenge I had was how do you filter the noise, right? How do you find the most interesting startups, the ones that can really push the boundaries, make great things among the big, large group of developers who want your attention?
Matteo: For me, it was actually a tactic. I built relationships with investors who helped me filter that noise. That’s their job. They select the best ones, and they also back them with capital, which means that they are more likely to be successful. So. I think it was a very good source of interesting leads for me. I consider myself almost an investor, but rather than investing my money, I was investing time and resources we had, which wasn’t limited. So, that was where I started talking with investors, and I really enjoyed the conversation I had with some of them, and learned more about this side of the ecosystem that was a bit more obscure to me. I really enjoyed startups. I always wanted to work more with them, and so, one thing led to another and here I am.
Joakim: Tell me more about Initial Capital and your role there.
Matteo: Yes. So, Initial Capital is an early stage VC fund. We focus on pre-seed and seed investments. We tend to be very hands-on and active in those investments. We tend to lead the rounds and really work close with the company in the first few years, to build a product, find product market fit, starting scaling, and then I’ll back the company finding new investors for the later stages through our network. That’s kind of what we do. We have a very strong focus on gaming. It’s always been the case. The fund was started by a group of people that were very successful in the gaming space. The founders founded and grew two companies in this space. The first one was called Macrospace, which merged with another company became Glu Mobile, and they IPOed on NASDAQ.
Matteo: The second one was Playfish, which was sold to EA. So on the back of those two exits, together, with a few people that were instrumental, and so not just the co-founders of those companies, but also the people that helped them through those journeys, got together and started investing as a fund in startups. Of course, their background, their network, was very much focused on gaming, that’s how they got best deals. They were very able to help those companies very effectively. One of the first investments we made was we led the seed round for Supercell, which was a great start, if you ask me. On the back of that, we kept investing in this space, and we built a reputation.
Matteo: Geographically, we focus very much Europe, I think probably 75% our portfolio is based in Europe, with very strong focus in UK and the Nordics, and Finland being a very important hub for us and for Supercell. Then the rest of the portfolio is based in US, mostly California, where we’re also quite active.
Joakim: That was a super interesting background as an investment company who the whole DNA is from gaming, and specifically very much like games as a service.
Joakim: Is that the categorizing as well, like how you approach games?
Matteo: Absolutely. I think it helps not just because of, of course, the great knowledge that comes from that experience, the specific knowledge, sector knowledge, but also, I think, a different approach to some other investors where we’re very product focused, and most of us have an entrepreneurial background. Even if not, like in my case, we have very strong product background. So we are very much excited, passionate about building products, new products, finding product market fit, and working through those very grindy iterations that you need to go through before scaling. That’s kind of what makes us quite unique.
Joakim: How has the work of Initial Capital, like you guys, how has it changed from those days when the first seed investment went into Supercell, versus something that you’re working on right now?
Matteo: A couple of things. One thing, we started getting some deal flow outside of gaming quite soon and it actually grew quite a bit. The reason is that, I think in the wider, especially consumer industry, but not only, people are realizing that gaming is skyrocketing, and it’s doing great, and they realize that actually, games developers are pioneering, especially when it comes to games as a service, as you mentioned. They’re pioneering best practices on how you onboard users, how you retain them, how you engage them, and even how you convert and monetize them, right? Those best practice, they realize that actually can be leveraged in other verticals.
Matteo: So, one interesting thing is that we were actually called in some deals to bring that knowledge to those companies. Over time, we realized actually, this is a very viable strategy. I think the side benefit of that is not only we can bring knowledge and help those non gaming companies, but actually by being exposed to them, by having other type of companies in our portfolio, actually also enables us to help games companies even more because we get exposure to different business models with different ways to approach marketing, to different ways to approach influencer campaigns and stuff like that, can actually be quite interesting for games companies. The cross-pollination is a win-win for the portfolio. That’s one big lever of growth, that we’ve seen it from the beginning, but especially in the last few years.
Matteo: With growth also comes needing a slightly bigger team, which meant at the beginning, they we’re all friends that knew each other and started investing together. Now, it’s more about professional organization where we hired new people, and we have processes and structure, even if it’s very small team, everyone has a say, and it’s very tight-knit, but it’s still evolved from the beginning. So that’s been a very interesting journey, I guess, for the team. I’ve joined this journey a couple of years ago as I’ve seen the last iterations of that, but I think it has been an evolution from the beginning.
Joakim: Can you tell me, as an investor, how do you view the gaming landscape nowadays, specifically for companies who are building gaming content?
Matteo: Yes. We can talk about that market maybe later, but I think eye level, if you look at a few years ago when freemium mobile games started, that’s what I think opened the door for large VC investment in this category. I think not only it’s because, of course, the revenue potential is massive but also because I think this model is much more VC backable. It is a much more friendly model to startups that need to find product market fit. It enables startups to actually create something, measure it, test it, validated it, and then improve on it and gradually build something that pleases players and can be monetized, and then they can gradually add monetization layers and grow the business.
Matteo: This is very different from what the gaming landscape was before, where you needed lots of money, lots of time, build massive products without any feedback from users, then you would launch a box, pray and hope that people like it, and start again. Right? That doesn’t work For early stage startups. It’s very difficult to scale a startup like that. So, fast forward to today, that market has grown massively, and I think the biggest engine has been this model in the mobile gaming market.
Matteo: I think, actually now, it has become mainstream, even beyond mobile, right? PC and console are realizing that actually, it’s not just a better way maybe to monetize the game, but it’s a better way to build a game, enabling everyone to join a game from the beginning, listening to their feedback, giving them something, even if they’re not paying anything, and then figure out ways to monetize the ones that are more passionate about the game. So this means that now, there’s even more money available, there’s more interested investors, so I think if you are a gaming company today, it’s probably easier to have a conversation with an investor and to actually raise money. It’s not easy. It’s just easier. It’s less difficult, I guess, than it was before.
Matteo: But on the other hand, this also means that there’s more competition. The market is more mature and more people have realized that this is the way to do business, so it actually is more difficult to succeed. So, yes, it’s easier to raise money, but it’s also more difficult to deploy that money effectively and be successful, especially if you’re focusing on me-too products. You have to be really innovative, or very, very strong at execution. Ideally, both. But definitely, it’s one of those.
Joakim: Going into discussing about this kind of like a first time founder, who is definitely jumping into a very competitive landscape, maybe they have something there that is interesting. So, what is your advice there for founders, on how to approach financing round, if it’s a very seed, pre-seed stage?
Matteo: Well, first of all, the first question is, what type of company, what type of goals you have, because not everyone needs to raise from VCs. You need to be aligned with the type of investor you’re getting money from because that is the way to build the best relationship, right? If your goals are more or less aligned at the beginning, then it’s going to be easier. Maybe you can have different opinions on how to reach those goals, but that’s normal and it’s actually useful, but those goals are aligned, right? So, first of all, figure out what exactly … Do you want to build an Indie game development studio or do you want to build the next big Nintendo or whatever?
Matteo: So it’s just a first step is very important. Once you know what type of investors, of course do your homework. Figure out who are the best people there and talk to friends and people in the ecosystem that can give you feedback on who they like to work most with, and build a list, start prioritizing them, of course, reaching out to the people that you know, or through the network you have. I think one important thing is do it as soon as possible. Don’t just go with a pitch deck and say, We need the money in two weeks.
Matteo: Even if it’s not fully framed in your mind, if you have a clear understanding of what your goals are and you have a clear understanding of who you want to do it with, start having discussions with investors. Build a relationship. Get feedback. That’s the best way to then win them over and be trusted, especially when you don’t have a product, it’s all about the relationship and how you project yourself with investors.
Joakim: Yeah. That’s actually a interesting topic because I remember my first games company, it was like 13 years ago when I was raising the seed round, I went through these kind of programs where you were educated on how to pitch and what kind of pitch deck you would structure, then you were brought in front of investors. That kind of model is probably out of the window already. Should you always start discussions, even when you don’t really have the pitch ready but you have already a team? You maybe have the idea of what you’re going to be building.
Matteo: Yeah, absolutely. Especially if it’s pre-seed or seed. Of course, you know when you go into ABC, it’s a bit more of a structured process. But even in those cases, you need to build a relationship in advance. I think as a founder, I know it’s boring and it’s not the best thing about building a company, but fundraising is a very important component, and you should always consider yourself fundraising. Even when you close your round, that’s when your next round starts, right?
Matteo: It doesn’t mean that you have to devote all your time to that, but you need to nurture those relationships with the investors that you consider more interesting for that round that is coming next. Even if it’s 18 months from now, you start now building that relationship giving updates, getting feedback, so that when you actually have a pitch deck and you can pitch, of course there is things that need to go into that pitch, but most of the fundraising job has already been done before then.
Joakim: What I’m seeing now is that it’s pretty much impossible to raise without having the numbers, some kind of evidence, of traction and whatnot, but still, you could have the team there, which is like an interesting component in itself. How should the founders build and structure the pitch when they don’t have numbers and when they do have numbers?
Matteo: So, that’s a very good question. I guess the different stages means that you focus on different things. If you already have a product out there that has some number of users, so some numbers are meaningful, then you definitely focus on that as well, the team is always going to be a very important part of it. That’s why I’ve also mentioned relationship. Making sure that the investors know who you are and why you’re great at what you’re doing. But definitely product market fit and some KPIs are important too. I would say, if you don’t have that, then you of course you need to focus more on the team.
Matteo: But even then, for me at least, I would summarize everything with three Ts. I call it three Ts. I don’t know. Maybe you can fine other ways. There’s the team, the thesis, and the time. So, team, we talked about it. When you present the team, I think you should make sure that not only people understand how great you are, but why you’re doing what you’re doing. Why this group of people got together and why you’re so motivated to do this together and you think that you’re better than others doing this, right? So, be specific about that.
Matteo: The thesis is, even if you don’t have a product, you have some insights from the market hopefully, and from what you want to do. Just be very structured on how you present the thesis. Make sure it’s one or two. There’s not any things you’re assuming. Everything should be proven, except maybe a couple of things. Those are the ones you focus on and are the interesting ones. I think if you don’t have proof of that, validation of that thesis, you have a very structured approach on how you’re going to prove them, and an efficient way, right? So, you know how to prove what you want to do in a short time and with little investment. So, that’s important as well.
Matteo: Time, for me, basically, it’s important to have a vision. It’s important to know long term what you want to do, and have a very big ambition, but also be very cognizant that every 12, 18, 24 months, you’re probably going to run out of money, until you get to a point where you’re profitable. What are your milestones? Do you know where you’re going to be in 12, 18 months, if you execute properly, or you just have a big vision, a big thesis, but you don’t have that sense of cadence and milestones, and KPIs that you need to reach. So, make sure you articulate that.
Matteo: If you have that, I think it can give confidence to an investor that even if you haven’t proven anything, you have an edge over others on getting there. Of course valuation might reflect that. Of course if you have a product that is already validated, you can expect higher valuation and everything else considered equal. But these things are the things that as investors, we want to see.
Joakim: So, thinking about the time to actually get in touch with you, if somebody leaves a bigger company and they’ve been running product teams, their whatnot, and they feel that it’s now their time to start their own company, would you immediately want to talk with them? Is that the state?
Matteo: Yeah, absolutely. As I said, I love to speak with people that are even just thinking about starting a company, and want feedback. Sometimes they end up not starting their own company, but they join someone else, and we sometimes connect them. So, I think when you are even just thinking about this but you haven’t wholly formed ideas, we, investors, especially early stage investors, can help figuring out those things and actually connect with other people that are thinking about the same problem or in the same space, and actually, that could be a useful engine. And, again, you are building a relationship that could be useful down the line.
Joakim: Yeah. Would you ever write a check after one meeting or do you always go through a rigorous process of-
Matteo: So, we are a very small team, but because of that, we can afford to basically have a collegial decision process where everyone has to be onboard. Everyone speaks with the company independently and form his own idea or her own idea, and then discuss it together, then we have a process that we go through. But the idea is that during that time, everyone needs to get excited about the company. The company needs to get excited about the team because you’ll then work mainly with one person in the team, that will be your point of contact, but you will have access to everyone, anyone. Different people have different skillset and can bring different values. So, it’s a two-way conversation that needs to be at team level and not just single person level. Because of that, we don’t write checks after the first meeting. Whoever you speak to, that person will speak to the rest of the team and will trigger that process if there is enough interest.
Joakim: I really like your approach on this founder-investor fit, and figuring that out through several stages.
Matteo: One of the key traits that we consider successful investments for us, if you look at what is being successful, one of the themes is, there was a good relationship with the team and could easily add value and trust the founder to do what they needed to do. When there is no full trust or full excitement from both sides, even if the investment is attractive, if everything checks, it’s very difficult to make an investment decision. So it’s a very important part of the process, is to just spend time-
Joakim: Does the process for you guys change when you go from stage pre-seed, to see, to series A? Do you really need more data, more information, to actually make decisions, or is it pretty much the same per stage?
Matteo: Well, it’s a similar process in the sense of the stages that are involved and the people that are involved. It’s a bit different in terms of what we analyze. As I mentioned at the beginning, if it’s pre-seed or already product, let’s call it pre product, those things I mentioned, team, thesis, time, and plan, the things we focus on, if there is a product, we also focus on the actual product metrics and whatnot. But overall, of course if there are revenues, then we focus on that and how this can grow. So, in a way, it’s different in terms of the content we look at and focus on, but process wise, it’s fairly similar.
Joakim: What do you think about this, knowing if you have product market fit for a game. When you see something, you’re evaluating maybe doing a decision to invest or not, and the game is having numbers, is it very clear cut when you know that you’re going to back the team because the numbers are so great?
Matteo: So, sometimes it can be a very clear cut, but those investments tend to be, everyone wants them because good investments, especially early stage, it’s arts and science. If it was pure science, it would be more competitive and more difficult to make investments, but actually, think it’s a combination of data, facts, but also insights and experience and intuition from that. I think the data, especially at the beginning, are never complete. They always tell a story that can be different depending on how you interpret it. So, you have to trust your judgment. But of course, there are, as I mentioned, especially with the freemium business model and in general freemium games, there are KPIs and there are metrics that can help you navigating and articulating those decisions.
Joakim: When you say no to a founder, how do you approach giving them feedback?
Matteo: Well, we try to be very transparent and very specific. We don’t like cut and past type of answers and template answers and feedback. We try to be very specific about the things we liked and didn’t like, or didn’t convince us, so that it’s actually useful feedback. It’s also a way to be very clear about whether this is not for us at all. So, if you’re focusing on this, let’s not waste time on both sides. Or, if we’re missing something, we’re interested but we’re missing something, maybe if you address that, we’re always happy to have another conversation. So, keeping the door open when it makes sense and being very clear when it doesn’t make sense, wasting time for both sides. Sp, very specific, very direct, and open the door when it makes sense, I guess.
Joakim: For me, it’s always been, the most hard feedback is usually around the team because I don’t want them to take it personally, but that’s the way that it might happen. Somebody just isn’t yet there in their understanding of how to approach the business.
Matteo: Yes, I agree. That’s the most difficult one to give as feedback. The way I see it personally is that no one is, in absolute terms, bad at something. It’s just that that specific person might not be the best person for that specific task. So, in that case, the feedback is, “Because of this and this experience or skillset, or experience or way you think about the world, we don’t think that maybe you’re the right person for this job.” We might be wrong, of course, but it’s not like you’re bad. It’s more like we don’t see a perfect fit in what you want to do and who you are.
Joakim: Yeah, it makes sense. So, then when you have a portfolio of companies, like you guys have done several investments in the gaming, you’re managing your time between the portfolio and looking at new deals. How does that work?
Matteo: High level, if I can give you an average, I think I spend 50% of my time with portfolio companies. I have around 10 companies that I’m either in the board or work with, and then 50% sourcing new ones. It starts from the portfolio companies. The priority goes to them. So, if they need me, I make time. Everything else, every hour that I have available outside that, I focus on the sourcing part or looking in the market, talking to people. But again, there is no process.
Matteo: As you mentioned at the beginning, with emails, it’s a constant struggle, right? Sometimes it’s easier because for some reason, one week things are quieter and so you can pause and actually be proactive about it, and sometimes you’re just taking care of fires and emergencies and all that. So, it’s a constant struggle. But as I said, for me, the priority goes for portfolio companies just because they need us and everything else is our job to fit it in our agenda.
Joakim: Yeah. How do you internally, at the initial approach, improving how you invest and becoming better at your day job?
Matteo: The important part of us being a fairly small team, everyone has a very clear memory of all the investments we make and how they’re doing, and what is happening. Even if I’m not working on all the companies, I know what is happening across the portfolio. So, when we make investment decisions, we always try to compare the company that we’re investing in with others in the portfolio, even if they’re not doing the same thing, but they have similar traits. We are always looking for patterns that emerge through our experience with those companies. Especially when the company fails, we really try to understand what went wrong and if there are common traits with others that failed, or try to learn from our portfolio and use that as a reference point that is constantly created, is probably the best way.
Matteo: We have quite a big database in our mind. Sometimes also looking at investments that we didn’t make, we passed on, and actually did very well. Figuring out why we passed, if it still was the right call, and sometimes it is. Okay, yeah, they were very successful, but we did the right thing by passing because this is how we thought about it. But sometimes you challenge that decision to say actually, we should have thought about this and that. But it helps having a clear set of values and parameters that we use internally, that we constantly update through this process of re-evaluating patterns that emerge.
Joakim: Yeah. That’s really good. Totally agree on those ways of working. Thinking about the industry, the whole game industry, there’s so much money available nowadays, for the company that is showing good traction will definitely get investments to go to the next stage. Then there’s a lot of other parties who are showing up, like publishers on free to play, the model is starting to work there and they’re funding the user acquisition in many cases, so the teams don’t need to raise that much, for those purposes. How do you think all the money that is our there is affecting games companies?
Matteo: Well, it’s an interesting topic. I think that the money itself is a good thing. Of course it enables more people eventually to do their thing. More shots at the goal, as a community, means potentially more success. But it’s potentially also generating a bit of an inflation in some of the evaluation expectations or some of the business plans that might be a bit too aggressive too soon. I think it maybe sends a wrong message to some people that product market fit, fast and lean integration is not the priority anymore, and it’s more about capturing a trend or capturing an arbitrage opportunity, of copy cats, and just being fast at that.
Matteo: Sometimes that works, but as an industry, I think gaming, especially, again, the freemium world, has shown that with a very scientific approach, you can make creative content, creation processes, something that can be invested in business-wise, can work. This abundance of capital might persuade people that there are shortcuts, and that is potentially a negative thing, if that makes sense.
Joakim: Yeah. I think the idea of actually putting out more tries, having more capital to actually fund a good team, while they search for the right product, that’s the best case where the money should go into.
Matteo: Yeah. I think it’s interesting that there are different ways now to fund UA, when you have a scalable product, and I think that’s a good thing. I think VC money is good if it supports and accelerates UA, when it makes sense, but the best reason to raise VC money is building product, innovating, growing the team, the company, and its capabilities and knowhow, versus a more commodity type of investments.
Joakim: Yeah. Fueling the growth, in a sense.
Matteo: Absolutely. I think overall it’s a good thing, but as everything, it has, potentially, some drawbacks. I think as usual, the good players are the ones that know what they’re doing and focus on the right things will strive. But it might incentivize not always the most efficient companies.
Joakim: Sure. Yeah. This topic has something that I’ve been talking to a lot of people about diversity and the game industry. Especially in the investor area, it’s still very much a male-oriented profession, to be a VC, investing against companies. How could this improve towards having a more diverse investor landscape?
Matteo: Yeah. Definitely that’s our priority, and focus on those candidates that meet the diversity goals that they have. It’s a self-fulfilling prophesy in a way, because historically, there is not much diversity. If you’re looking for someone who has 10 years, 20 years, industry experience from the VC industry, then it’s more difficult to find good candidates because they didn’t have the chance to build that experience, right? But I think diversity will come also from funds opening themself to other backgrounds, not pure VC investment background. But industry, sure, the gaming industry is also lagging behind, but definitely in a better shape already than the VC industry.
Matteo: If you’re taking people from the entrepreneurs or people that have built companies, or are part of big companies, it’s easier to find diversity, and even other verticals. I think that’s one big source of diversity. Just look somewhere else, not in the same bubble, because otherwise, it’s very difficult to accelerate that process. In general, I think as a trend, it will get better. I think that the consumer trends will open the eyes of the industry.
Matteo: Like if you see female audience being more relevant for example now for games, and more games being created for the female audience, means that diversity is even more important for those companies, and that means also it will attract talent that are actually speaks to that audience. So, I am optimistic about it, but definitely needs a proactive approach to accelerate, and that can only come from looking at outside the box, if you want.
Joakim: Yeah. Totally agree. Thinking about the mergers and acquisitions in the gaming space, and the consolidation, it’s been happening recently pretty nicely. Like the latest news was Playtika’s acquisition of Seriously, just this week. So, what do you think is going to happen with that kind of activity in the following years?
Matteo: Well, I think it will continue. What I’m actually even more excited about is I think the consolidation, right now it’s happening within games. So, big games companies buying smaller games companies, right? I think in general, the broader entertainments’ industry is taking notice of what games are doing, and the fact that interactivity is a very big part of what people are looking for with their entertainment content. So, fast forward to five years from now, this M&A activity will be driven mostly or at least partly by other companies. The Netflix of this world and the Comcast, the Disneys, will need to make big moves here. So, as a gaming company, your exit will not just be potentially Tencent or Supercell, or Playtika, but also Disney, Netflix, or whoever wants to build a platform that targets people’s free time.
Joakim: Yeah. My big bet is that Fortnite is going to look like this kind of primitive platform in five years because there’s going to be even more awesome virtual worlds with similar experiences coming out.
Matteo: It’s interesting, I think the most inspiring thing about Fortnite is that for me, it’s more of a social network than a game. The game is great, people really enjoy playing it, but the reason why they’re playing it is to be part of that world and have their persona and showcase there, rather than the pure game mechanic, which is, again, very interesting. But it’s more of an excuse to play than the real reason. You want to be part of it, right? That’s what is very interesting going forward.
Joakim: It is. Definitely. Thinking about the founder traits that help them grow as a leader, what do you think about this kind of first time founder CEOs, and them growing as a leaders? What are the traits there that help them. If they don’t have those traits, have you seen anybody coming up in the ranks very unexpectedly because of certain reasons?
Matteo: I think traits are similar to the non first time founders, but even more importantly, with first time founders is honesty with yourself on exactly what you’re good at and what you’re not good at. If you really know what your strengths are, you know how to use them, and when you know that and you know what your weaknesses are, you know who you need to team up with and what you need from those people. I think more and more, when you’re in the trenches and you’re focused on 20 things at the same time, you lose track of what you should be doing, you should be spending time on, versus what you should ask others to help you with.
Matteo: So, knowing very specifically what you’re good at and what you’re not, will help you prioritize. Prioritization is a very important thing that first time founders have to quickly learn. It’s just when you’re fundraising and you’re building a product, and you’re figuring out the admin side of it, and you need to find a new office, how you do that. Right? You need the help wherever you can find it.
Joakim: So, how do you guys work with the founders in the portfolio?
Matteo: When we invest, at the beginning, we actually try to have a conversation about what are the things that they need help with, and try to focus on that. Different people will have different needs, and they also have different styles. In some cases for example, I’m on constant chat on WhatsApp with some founders that always want to bounce ideas and really want us to give feedback. Some others just want to be left alone for some time and just have e-discussion moments where we bring up all the issues or all the things they need help with.
Matteo: The beginning of the relationship is setting up the process, the cadence, and what are the key things they want help from, and setting expectations, right? I think that’s very important. Transparency on that. Then just once you know what they need and what they’re good at, you just focus on that. It’s as simple as that. A very important part of this is of course, the meetings, the board meetings, the regular meetings, and the way you manage those can make a difference.
Joakim: The board meeting is actually very interesting. What is your approach to helping the CEO there, on the board?
Matteo: So, for me, the board meeting, these two-three hours, whatever it is, are very precious, right? So, they shouldn’t be wasted with updates that can be done over email or over a deck. I think the most useful meetings are the ones where people already come prepared. So, as a founder, you need to take ownership of that. You need to share all the information you want people to be aware of, in advance, so that people have the time, have no excuses to not read it before the meeting. You then take that for granted that you should assume people know, and give very high level updates at that point, just to make sure everyone is in place or everyone remembers the key things, but we spend most of the time on discussion points, on things that need decisions or feedback.
Matteo: Mention those, share an agenda with those points that you want people to discuss, so again, people come prepared not just with information, but also with thoughts and ideas. I think that very basic thing is probably common sense, but as I said, entrepreneurs are very busy. They tend to focus on so many things, and the board meeting just comes up. Right now, they start coming up with some updates. Right? That’s not the purpose of the board meeting.
Joakim: Yeah. It’s something that the CEO definitely can get help on, from their investors, if they are the first time.
Matteo: Investors also are very busy, so they tend to focus on the things that are in front of them. So, you need to work a bit to make them work for you. If you set expectations, if you send the material, ask for them to prepare and come with these ideas, they will do it. If not, in some cases, they just focus on some other company that is needing attention.
Joakim: Yeah, I totally agree on those. Let’s go to some final questions here. What is your favorite book, and why?
Matteo: Wow. There are many. I guess lately, one that’s been very interesting for me is Sapiens, from Harari. I don’t know if you know, the book is basically very high level bird eye view of the history of mankind from the very origins to nowadays, and the new trends. I think the reason why I really love this book is it just helps you putting things into perspective, and again, recognizing patterns that emerge and that could tell us where we’re going as well. It’s very fascinating to put many things that you know from your history books, or from school or from conversations, into a perspective. Into a common story. So, I really love that book. I think it’s a very good way to also figure out what you want to invest in, in the future, just looking at what happened in the past.
Joakim: Yeah, and it helps you. Like you were talking about the perspective, what has happened in the history of mankind, how it has changed everything.
Matteo: Especially because I think we live in a very special time. Many things are happening. Maybe everyone says that about their time, right? People in the 50s were saying that and people in 2050 will say the same. But I really feel that were a turning point in many points, so pausing a bit, understanding what happened, what brought us here, is a very useful exercise.
Joakim: What are the next big trends in mobile games specifically?
Matteo: For me, the biggest impact so far, of mobile games, is that basically, everyone now is a gamer. Everyone who has a phone has played some sort of game, even if they don’t know or think about it. That means that, I think, especially the new generation, they’ve grown up expecting some form of interactivity from their entertainment. They know that the screen, you touch it and it does something and just waiting to watch something for a long time on that screen doesn’t make a lot of sense. It means that I think traditional media companies that are movie companies, that focus on more linear formats, will need to innovate. Will need to break that linear format and make it more interactive.
Matteo: On the other end, games have pioneered this form of interactivity, but they’re stuck a little bit, with the business model. I mentioned how freemium opened the gates, and it’s actually a very relevant business model, but it hasn’t been innovated that much in the last few years. Purchases are always pretty much the same. The monetization mechanics are pretty much the same, while other media companies are pioneering subscription models and other forms of monetization through ads and sponsorship. So I think what I’m interested about is the convergence of these two worlds. The infotainment world that is non-gaming and gaming, where I think the non-gaming world will take innovation from a product side and into the form of interactivity, and the gaming world will learn more about new business models and way to monetize and attract new users.
Matteo: So, I think for me, the most exciting space to invest in today is the convergence of these two worlds. I can give you a few examples of where I think this will happen. I think one example is already happening is this blurring of the lines between a spectator, someone who watches, and someone who plays. Right? So far, you either play a game or you watch someone else playing on Twitch for example. More and more companies are figuring out ways for the people who watch to actually interact with what’s happening on the game. Also, games where watchability is an integral part of the experience. That’s one area.
Matteo: I think the other area we touched on briefly before is Fortnite being for example mostly a social network or a social network of the future, I think there’s this blurring lines between entertainment and lifestyle where it’s not just pure game mechanics, but it’s like your social life is represented there in the game as well. Then another interesting area where the lines are blurring is, I think, the real world and digital world more, and more with AR for example, but even with things like the void bringing VR to retail spaces, and other interesting companies. Just what can happen when you can enable physical experiences with digital enhancements is very interesting. Not just gaming, but definitely an interesting area for gaming as well.
Joakim: Yeah, definitely. Do you have a story that has shaped you in how you approach your work?
Matteo: One thing definitely that stayed with my till now, and I think it will stay with me till forever, comes from when I was a product manager at YouTube. So, that was one of my roles back in the days at Google. That was early stage of YouTube, so it was a fairly small team for the size of the company, and very fast and curative mindsets. It was a few years after the acquisition so it’s still lots of stuff to build. I was a new product manager. I came from different background and this was a new role for me. I thought, I go there with my strategy background, I talk to the team, to my engineering team and convince them of my great ideas.
Matteo: The first few weeks it was a total disaster. My approach was like, “I need to lead these guys, to show them the way,” and they didn’t really listen to me. At Google, this is a very interesting thing, where you are the product manager, the engineers don’t report to you, so they don’t have to do what you say, but you need to guide them. Right? So, rather than leading them or managing them, you’re trying to influence them.
Matteo: Then I talk with a few mentors, mine, and my manager was very good, I realized that actually, what I needed to do was figure out where I could help. What are the things that these guys need, and just focus on that. Rather than telling them what to do was I asked what they needed from me. So, one thing that came apparent, at that point, I was focusing on launching YouTube in different languages and making sure that the local experience, the home page and everything was great. So, one thing they didn’t have is visibility on how big the problem, was.
Matteo: So I focused on building a dashboard, and metrics, and KPIS, which was a very boring task for everyone and not one that they were focused on, but after doing that, they actually realized that I could help, and they started listening to me more. With that, I also had more insights and data points for what I wanted to do, and then showed, “Okay, I think we need to do this because look at this data.” Right?
Matteo: So, what I learned from that is basically to be humble, I guess, to summarize that. But really, the important thing is nothing gets done unless you first build trust and relationship where you show you can add some value. You should never tell someone to do something and expect them to do it. It should always be a two-way conversation. That’s one thing. The other thing is do your homework, especially when talking to engineers, in general. Whenever you have an opinion, back it with facts, data, as much as possible, because the more you do that, the more people will have to listen to you.
Joakim: That’s a good one for sure. So, as the final note, where can people find more about you and Initial Capital?
Matteo: You can find me on LinkedIn. Also, Initial Capital, we have a website, intialcapital.com. My email is matteo.vallone (at) initialcapital.com, so you can reach out over email. Any of these channel will work.
Joakim: Cool. Thanks a lot Matteo for coming over.
Matteo: No, thank you for having me.
Joakim: Bye bye.
Topics that we cover:
- Matteo’s background and road to VC
- Introducing Initial Capital
- Founder traits that help them to grow as leaders
- How do you work with founders in your portfolio
- What should a pitch deck communicate about the business
- Lots of companies in the early stage, launching a game but lacking the numbers, what is your advice to these founders who aren’t able to raise their seed round
- Board meetings, what is your approach to helping the CEO
You can listen to the episode on:
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If you liked this episode, please make sure to check out my discussion with Carl Fritjofsson on how venture capital works for games.