Sent on October 22nd, 2021.
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📈 Creating a billion-dollar games company
It’s 2021, and people are fundraising like there’s no tomorrow. I recently talked to a crypto gaming founder who admitted that they were in a hurry to raise because the market for that kind of stuff is hot, and they don’t want to miss out on the opportunity to raise a few million before it’s too late.
Whatever your motives are, it’s an excellent time to be raising for a games company. The one thing to keep in mind with big raises is that the expectation of building a big company will be much higher. When you raise several million with the prototype and a team, you are expected to deliver way more than raising 500k with a prototype and a team.
It got me thinking about big fundraises. I recently listened to the interview of 1047 co-founder and CEO Ian Proulx, who had just completed a $100m raise for his shooter company. Ian’s playbook is straight from Silicon Valley, which tells you how we build a big games company.
How do you raise a big round of hundreds of millions like that?
First, pick a big game category, where people will spend real money repeatedly, not only watch ads.
Second, reach product/market fit: ROAS is looking better than anything else. If you grow fast but keep churning, you’ll die.
Third, your team is the best in class, and they get things are done at high speed: execution and player-focused.
Bonus: there is an incumbent who has the market at the moment, but this team can take it over. As an example, you’d raise as much cash as you can, build a competitor for Epic. Or you do what Dream Games is doing, taking it against Peak Games and King.
You’ve got the money, then what? How do you execute that vision of building a big games company? Let’s go back to the Silicon Valley playbook.
The mission of every founder or CEO is to reduce risks and hit milestones that demonstrate the business’s value. That’s how you 10X your valuation—showing constant traction and showing competence on hitting your goals.
The mission requires a focus on hiring, which means that the company goes into a hyper-growth stage.
As Ian from 1047 Games says: “it’s about hiring the right people in leadership positions, and then empowering them to go hire their teams.”
“I’m out recruiting the best of the best. And if I can get the top marketing person in the industry, the top UA person, the top revenue person, top executive producer. There are just so many different roles that we need to fill right now. And we have the budget to do so. If I can get those top positions fast, I can tell [them] to build your team, hire ten people for marketing, as long as it doesn’t get in the way of productivity, but we need to ramp up fast. Right now, we’re focused more on the long term than the short term.”
You might feel that this is no way to build a game studio. But it’s the playbook that so many Silicon Valley companies have followed once they’ve had product-market fit. And it has worked.
The options are organic growth or acquisitions. You can grow in both ways.
Rovio is trying to break through the glass ceiling. They acquired Ruby Games in Turkey and opened a studio in Toronto. As a public company, they have to operate quite transparently when it comes to their performance numbers. The current studios haven’t been able to take the company to the next level, so this clear step towards expansion, both organically (new studio in Toronto) and through M&A (Ruby Games), is an attempt to go from $1 $10bn.
Why haven’t we seen private mobile studios go past $1 billion?
Softbank acquired supercell for $1.5bn, but it could have been a $10bn company.
Zynga acquired small Giant Games at $800m, but it also could have been a $10bn company.
Seriously got acquired by Playtika for $275 million. It also could have been a $10bn company.
Reworks was acquired by Playtika for $600 million. There are so many like these.
Why weren’t secondaries enough? Like Ian says, “It’s just a business, right? It purely comes down to if I spend $1 on advertising, am I making $1.50 back? That’s what it boils down to.” I think it’s a matter of having to go after positive ROAS alone is hard. You need to have the right talent in the company, the right mix of data and creativity, which is often hard to build up in the Nordics.
I’m thinking about something I wrote on LinkedIn recently:
“Starting a startup is contagious. This is something I’ve noticed in Helsinki: your ex-colleague started a game studio, and a few years later, they are 20 or 30 million run-rate or have just sold the company for tens or hundreds of millions. You also want to try a startup. Lots of game studios are constantly getting formed because of this and other reasons.”
This is not only happening when you decide to start a company. It also happens when you are contemplating an exit. If your peers in the industry are selling the company in five, six, or seven years after founding, you emulate.
Clayton Christensen writes that ”if the decisions you make about where you invest your blood, sweat, and tears are not consistent with the person you aspire to be, you’ll never become that person”
What does an exit mean? Ex-founders sitting in Majorca at a lovely villa?
Who wants a life of nothing but sipping drinks at the pool for the rest of your life. You build a dream house, you take nice trips, but you will come back to work. And to build that ten-billion dollar company.
👸 Joe Schaeppi and Bastian Bergmann — Understanding your players
In this episode I’m talking with Joe Schaeppi and Bastian Bergmann, the founders of 12traits, a company that helps you to discover and analyze your audience. I’ve been following the development of 12traits since my Next Games days and the service is incredibly valuable for service based games.
In this discussion, we talk about identifying your real audience, excluding groups that won’t stick to your game, and how games can grow when you have a better understanding of your players.
Here’s one highlight I want to mention from the discussion.
How do you bring in the scientific approach for red ocean versus blue ocean? When somebody is thinking about a concept? Maybe the thematics are different? What matters there?
A really good example is Voodoo’s Plantopia, their latest casual game, headed by Sophie Vo. They went into the merge space, which now it is arguably one of the red oceans. It wasn’t like that maybe three years ago, but now it’s definitely one of the red oceans. there’s a lot of money in. And it’s hard to stand out.
We allowed them to make a game that feels familiar to people in the merge space that’s still unique enough so that it can stand out from the rest of the crowd and find its own audience, its own group amongst the bigger pool of merge games.
Listen to the discussion as a podcast episode by going here.
📃 Articles worth reading
+ NFTs, Ultima Online, and player-run game economies — “Establishing a successful gaming category is difficult in its own right: not every innovation that takes root in gaming will emanate to other consumer touch points. And not every new innovation introduced by a game will even find success in other games.”
+ Metaverse! Metaverse? Metaverse!! — “Like all the best buzzwords, ‘metaverse’ tries to link together lots of interesting things – in this case, VR, AR, games and crypto, and a few other things besides. But, all of these are questions.”
+ Deconstructing Axie Infinity: Is Play To Earn The Future? — “The game is easy to pick up and deep enough to feel mastery progress, the holy grail of strategy game design. However, realistically players quickly run into familiar situations that only become more frequent. The pool of cards, defined by the pool of axie parts, is ultimately rather shallow, with lots of design space available for more mechanics.”
💬 Quote that I’ve been thinking about
“The statue is already in the stone. My work is to liberate it.” — Michelangelo
👀 Something cool
I personally would have thought about the other two options as priority.
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I hope you have a great weekend!