Sent on November 5th 2021.
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🤔 How to pick the right investor
Founders can expect two things from investors: money and value-add.
Both are important, but the amount of money available has made money a commodity.
You can look at the terms, which investor is giving more favorable terms for the founder. Less dilution does feel great.
Having a big brand VC logo tied to your company will look good.
But the impact of less dilution or having a big brand VC logo on your company presentation isn’t going to ship great games for you and turn your company profitable.
That’s where value-add comes in.
Here’s a question I asked myself: How would Joakim pitch himself to founders?
- As a former founder, I can relate to what founders are going through.
- As an investor, I’m involved in dozens of game studios and have seen multiple ways of things going right and wrong.
- When it comes to game studios, I’m quite the generalist. Future funding rounds, board meetings, recruitment, I can be involved in all of them. As a focus area, I try to give lots of product feedback as I spent most of my career as a product-focused entrepreneur.
- I have regular 30min catch-up calls with founders where I want to get down to the problems the founder is facing and help where I can.
These should be good enough reasons why you should have Joakim on the cap table.
But let’s break down why these matter, more than money, excellent terms, and great VC logos.
Look for a partner, not for money, not the logo
Founders should not talk about getting a fund to invest, but instead, talk about the person who is a partner at the fund and will be helping you to go to the next stage. It’s the help of that individual that will take you to the next stage. Pick a partner, not a firm.
It would be helpful to approach this like you’re looking for a co-founder. Going through all the similar aspects helps a lot. If you are pitching to a group of people at a fund, that’s OK, but you want to ensure that you are getting a person, not the fund.
Others have had bad experiences
Reference checks on investors is an obvious thing to do. I’ve previously written about reference checks, and they are applicable for this situation as well.
One thing you want to look out for is investors who have ego issues. Here are a few ways that these can manifest:
- Spending time at board meetings on game design
- Spending time at board meetings talking about how great of an investor they are
- Spending time at board meetings getting mad at the other investors
Sadly, many of these issues don’t materialize until you have actual board meetings. So you better ask other founders what the investor is like when you’re having a board meeting; how they behave is one question you want to ask.
Question to ask investor, who was part of a big company exit: “What was your role as an investor in contributing to the success of that company? Give me the details.”
Allocate time for a courtship period
Ask investors for feedback on the game is too easy. Once you are serious about bringing in an investor, have them prove their worth. Ask them for a meeting where you’d test out how it is to work with them. Bring actual concrete problems to them and work together to solve these problems.
If they aren’t up to something like this, it either means they aren’t excited enough. Once invested, the investor wouldn’t know how to add value.
Question to ask investor: “Now that we are considering you guys to get involved, are you willing to have a meeting where we go through some of our current problems, and you’d give feedback and suggestions?”
Right investor for the right stage
Think about VCs as enablers who can take you to the next stage.
When you are early, you want to ask if the investor has helped “founders with an idea” stage companies to move to the next stage? Did they spend time with a game studio to get a game out that has great numbers and is now scaling in ROAS positive?
In the early stage, it also matters to have a category expert as a VC. If, as a founder, you have been doing PC and are now doing mobile, you want a mobile specialist VC.
In the later stage, when the numbers are there, and the game is scaling, you’d raise for the VCs who can take you to hundreds of millions in valuation.
Question to ask investor: “What do you think we should do to find product-market fit?”
When you are looking for an investor, and you can pick from many investors, you’d be much better off by focusing on the value-add that they bring. Spend time figuring out the individual who will work with you, who will be there to build the company alongside you.
All those five-star reviews can’t be wrong 🙂 Get my book, “Long Term Game: How to build a video games company” from Amazon. Available on Kindle, audiobook, and paperback. Check it out
🎮 Arnd Benninghoff — Better M&A in gaming
In this week’s podcast, I’m talking with Arnd Benninghoff, who is the Executive Vice President of eSports and Games at MTG. MTG is a Swedish-founded strategic acquirer and operator, who’ve built a portfolio of games businesses which have been acquired through this Swedish family model approach.
In this episode, we talk with Arnd about the way that you can effectively bring world class game studios together and build something big as a group.
Listen to the full episode by going here.
📝 In case you missed these
- From 3D Artist to Gaming VC
- Tabletop RPGs Go Online
- Game depth
- Growing games and teams
- Creating a billion-dollar games company
- Understanding your players
- Lessons about Cap Tables
- How to create a game studio pitch deck
📃 Articles worth reading
+ How the Gamer Generation Built the Future — “One day in the early 1980s, William Gibson was walking down Granville Street in his hometown of Vancouver, past the diners and newsstands, when one of the shops grabbed his attention: a videogame arcade. What he saw in there would inspire one of the most influential concepts in the history of science fiction, one that would inspire generations of writers, filmmakers, and technologists.”
+ Amusing ourselves to death — “A terrifying term like gamification, however, seems equally apt when discussing the high stakes game that a growing number of people are playing today. The retail investor class, regular folk using an app or interface to buy and sell shares in equity markets, has bloomed. To play a game of financial David versus Goliath, thousands of small budget investors (think $50) put their money in meme stocks, NFTs, or crypto in the hopes of paying off student loans and mortgages. Brrr.”
+ Why sell your game studio? And why not? — “It’s always super exciting to see colleagues sell their studios. This is a crazy time in the industry with tons of money floating around & tons of well-financed companies looking to acquire teams and IP. We’ve been approached about acquisition 3+ times in the last 6 months alone! I thought it might be interesting to consider the reasons why someone might sell a studio, and other reasons why they might not. The reasons might not be as obvious as they seem. What are some reasons why someone might sell their game studio?”
💬 Quote that I’ve been thinking about
“If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. Let him step to the music which he hears, however measured or far away.” — Henry David Thoreau
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I hope you have a great weekend!