EGD News #36 — Investing in Gaming

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On to this weeks topics.

Photo by Soumil Kumar from Pexels

Investing In Gaming — Atomico’s framework 🎮

Let’s look at the European investment landscape and put a focus on Atomico. During the previous decade, Atomico was quite active in gaming. Atomico, founded by Mattias Ljungman and Nicklas Zennström in 2007, is one of the major VC firms in Europe, with five funds raised (recent at $820m), and invested in more than 130 companies to date.

On the gaming side, Atomico has invested in five games companies.

The team at Atomico wrote an article on each of their gaming investments (see links above), titled “Why We Invested.”

My favorite takeaways from the “Ohbibi memo” were:

  • Atomico games team predicts that PC and console game genres will, at some point, transition to mobile. “Opportunity is to create deeper, more engaging games on mobile, that keep players coming back for more.”
  • “Put simply; we believe that Oh BiBi is the best games company in the industry to tackle this challenge of going after the big PC and console genres.”
  • Founders have the domain expertise: “Oh BiBi founders Stanislas Dewavrin, and Martial Valery has enormous global ambition levels, are visionary European entrepreneurs and have 18 years experience in building blockbuster mobile games and 150 titles between them including Minion Rush (860m players) and Asphalt (650m players).”
  • Pattern recognition: “We know from our experience with prior games investments such as Supercell how special the Oh BiBi team is, and we can’t wait to support them on the next stage of their journey.”

Atomico’s gaming framework

In 2018, Atomico’s game team released an article on how they, as investors, look for the next Supercell. “We’ve decided to make our evaluation framework public. We hope that it will become a handy checklist of things you should be able to discuss if you are getting ready to go out and raise external funding.”

A. Overall Games Fit

  • What is the game? The market, the acquisition costs, organics appeal, etc.
  • Who are the people involved? Founders, key employees, angels, advisors, and other investors involved.
  • Atomico states that they don’t fund copy-cats. Game devs, who have the experience, will know that without clear product differentiation, it’s impossible to launch into a competitive market.
  • Why this matters? They want to see that the founder-product fit, meaning that the right people are tackling the right game idea.

B. Unit economics

  • All the KPIs available
  • Want to understand that there is a way to achieve LTV > CAC
  • Why this matters? If there is data available, from previous games that the founders have shipped, or current soft launch numbers, Atomico will look at that.
  • If there’s a team that’s worked on similar games before, they could go into a discussion about the data and dynamics associated with the games. I believe this was what happened with Teatime Games.

C. Competition

  • Atomico has a checklist for competition, which looks at the vertical: who is there already, how big are they, is there a niche being tackled with a big differentiation?
  • Why this matters? They want to figure out the landscape to see that the team understands the challenges and that there is a way to get in and become a significant player in the market.

D. Team

  • The team is the most critical component. Here the checklist looks at the competitive nature of the founders and how well they execute.
  • I think this matters a lot: “Are they deeply passionate about understanding what makes a game unique, fun, entertaining and seductive while empathizing with the users?” This is core to game development, at any level of the industry. No amount of money will make a bad game a good one.
  • Culture: what is the culture these founders want to build into the company?
  • Why this matters? The most common reason for startups to fail and go out of business is when the founders give up. They don’t hustle get the funding in place or don’t have what it takes to “go down with the ship” if needed.

I believe they put the gaming team together as Alexis Bonte came over as a Venture Partner in 2017. Mattias had already been involved with Supercell and Niklas with Rovio for several years, and they had the itch to invest in games. Together, they invested in Bossa Studios, Ohbibi, and Teatime Games in 2017 and 2018.

Things have now died down on Atomico’s end, with no new gaming investments since 2018. Last year, Mattias Ljungman left Atomico to start a new early-stage venture firm, Moonfire Ventures. They have not publicly announced any gaming investments, but I reached out to Mattias as I was writing this and he said that they are looking to do gaming investments at Moonfire.

Investing In Gaming — Blake Robbins 🎮

Continuing to another part of the world, to the United States.

This week there was an incredibly valuable podcast episode on the Invest Like The Best podcast. The guest was Blake Robbins, who’s a partner at Ludlow Ventures. Blake has been an active investor in the eSports industry.

There have been lots of notes shared on the episode by people on Twitter. Here and here are the best collections of notes that I came across.

I wanted to put together my takeaways from the podcast, especially on the topics that don’t get talked about often enough in gaming.

A. eSports landscape

Blake points out how the games publishers operate when it comes to their games being used for eSports.

Older ones like Valve (Counter-Strike) are hands-off, “[Valve] treat [Counter Strike] more like golf. It’s a lot of independent tournament organizers, amateur teams and players working their way up. There isn’t any set number of teams in a professional league. And that’s compelling for fans and viewers because there’s new teams emerging all the time and becoming the best teams in the world.” Similar wild west eSports is going on with Starcraft and Dota 2.

Newer ones like Riot, with League of Legends, take a different approach. Riot organizes regional leagues and then funnels those to a world championship with bigger viewership than the Super Bowl.

On Riot & Franchising: “[In 2018], Riot came out and said, let’s pick ten teams that are going to become stable partners. We’re going to do a league revenue share. We’re going to put real teams around this to help grow it and create it as a sustainable eSport. That’s when things start to shift in this world, and investors started paying attention.”

What’s Activision Blizzard doing? “Activision came out with Overwatch. They brute-forced a game to be an eSport. And they were going to start with a franchise league right from the start. They charge hefty premiums. Rumors are between $20m-$30m per spot. A spot that you had forever and hopefully became a sort of the rare coin.”

Blake ponders: “It’s going to be interesting to see what happens with the ‘open versus closed’ ecosystem for eSports, like how that evolves and how the esports teams themselves need to figure out a way to fix that.”

This is how eSports industry incentives conflict:

1) Many publishers have seen eSports as a marketing tool, but they realize that there’s more here

2) Teams, players and other operators want more from the publishers than just a marketing play

3) Publishers like Activision are still selling $60 premium games, so they’ll want to double down on marketing new games, which can create a conflict of incentives

Blake adds to this, “I think we’re still in the first inning of figuring out [the alignment]. Each game itself is taking different strategies, some are much more aligned, and some are like completely hands-off. And it will be interesting to see how it plays out.”

B. How Blake invests

“At the early stages, it’s incredibly difficult because you’re investing before there’s even have a playable demo. It’s likely just a team of a couple of people with an idea. Maybe they were former devs from bigger studios. But it’s incredibly risky.”

How Blake mitigates the risks is that he doesn’t invest in games, but platforms. What is a platform?

1) It’s free-to-play so that it has its own game economy.

2) Creators can produce and monetize content. There’s internal (Minecraft, Roblox) and external (stream gameplay) content.

Blake adds, “If we invest in a studio, it’s not just betting on one or two games. It’s usually like, let’s try and produce eight to ten games in a year. [We’ve been] realizing that there is some hit-driven nature to this business. But if you do it right, and one of these hits, you can build a real platform around it.”

“[Kids aren’t] hanging out on Twitter, Facebook, or somewhere with their friends. They’re going home after school and talking with their friends for hours on Fortnite. It’s the place where they’re hanging out. And that’s the thing that has largely been misunderstood by a lot of investors.”

There’s a bigger movement going on here, and it’s not just gaming. There are more and more platforms that enable people to create and sell content online.

Blake explains: “The beauty and the real power of the internet are that if you’re good at something, you will likely be rewarded for that. And so these platforms emerge, whether that’s Etsy, or Substack, or Twitch or YouTube, whatever they might be, to help those people make money doing what they love.”

“I like to view it as like the modern-day lemonade stand. If you’re a kid right now, you’ll likely want to be a YouTuber or Twitch streamer, and trying to get followers or viewers. I think most kids today are students of the internet. And so if they can figure out how to monetize their time. Platforms that emerged to help enable that are going to win over the next decade. To enable these new to this new type of creator a new type of small business.”

Blog 📄

I’ve spent almost two decades on gaming company boards with investors. I wanted to create a series of articles on board meetings. This is part 2 in our Board Meetings For Gaming Startups article series. This time, we cover the minutes of a board meeting, what’s an optimal structure for recording a meeting.

“Board meeting minutes should never be treated as word-by-word transcripts of the meetings. The document should be an easily digestible summary of the most important actions, decisions, and points made during the meeting. Focus on the results of discussions and not the back-and-forth of who said what.”

Board Meetings For Game Startups – part 2

Podcast 🎙

In May 2020, I did a webinar with the Aalto University on the topic of How To Minimize Risks In Games Business, especially when you are trying to get a startup off the ground. I have the accompanying slides on the EGD website, which you can find by going here.

“With my first startup in 2006, I was giving out press statements that “we are eleven (11) people now, and we’ll have tripled that by the end of next year.” What happened by early 2007 is that I had to lay off everyone and find new investors. I had the validation of having a yes from our initial investors. I thought that it was enough. When things get a bit out of hand, it can be hard to spot problems. How do you avoid these kinds of traps?”

How To Minimize Risks In Games Business

Last week 🗓

If you missed out on the EGD news last week, I took a look at Stillfront from Sweden. I talk about the success of Stillfront Group and why I believe they’ll become a big player in the games industry.

EGD News #35 — Stillfront is going places

Articles Worth Reading 📃

+ The Customer Acquisition Pricing Parade — This is a great article on the sustainability of user acquisiton, with money flowing from VCs, to the hands of Facebook and Google. “$0.40 of every VC dollar raised goes straight to user acquisition. As a result, companies that used to focus on industries are now focusing on audiences.”

+ Why Game Development could be Iceland’s next Breakout Industry — Teatime Games, Mainframe Industries, 1939 Games, etc. The games industry in Iceland, with a population of 364,000 people, is growing. In this article, Kristinn Árni Lár Hróbjartsson talks about the indicators: “Delivery of quality games, investment from successful foreign investors, and a growing local ecosystem of game developers and game enthusiasts that help each other, are in my view indicators of a seedling ecosystem, that could – given the right environment, success and support – become a cluster in its own right.”

+ What comes after Zoom? — Benedict Evans looks at video conferencing and how it has evolved as a user experience. There have only been small improvements from Skype calls to now having Zoom, Hangouts, Whatsapp, Teams. There are less network effects at play with Zoom, and the fundamental UX isn’t that great. Evans asks these valuable questions, which you can consider as inspirations for questioning video game design.”Why, exactly, are you sending someone a video stream and watching another one? Why am I looking at a grid of little thumbnails of faces? Is that the purpose of this moment?”

+ Understanding player motivations — I’ve been using Quantic Foundry for a few years now, as a simplistic tools for talking about gamer motivations. In this article, Nick Yee, the founder of QF, talks about how they’ve been giving more focus to mobile, with push and pull motivations. “Sometimes we make minor adjustments to the model by adding a few motivations for casual games,” said Nick. “For example: I play games to pass the time or while I’m waiting in the doctor’s office. In the model, we focus more on the pull motivations — that is, things that are inherently about game design that draws someone to a game.”

Something really cool 👀

Blockbuster Video, the video rental chain, was an entertainment industry giant in the 1990s, but disappeard off the charts in a few years. This is a really cool video on how the stores appeared on the United States map as dots, and eventually left the map.

Blockbuster Video US store locations between 1986 and 2019

Quote that I’m thinking about 💬

“Discipline equals freedom.” — Jocko Willink