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It’s Joakim here. Greetings from snowy and now also freezing Helsinki!
This week I did a webinar with Anton Gorodetsky and Sergei Evdokimov from InvestGame.net and we did a review on gaming’s investment, M&A, and IPO landscape from 2020 and shared our predictions on what will happen in gaming during 2021.
You can watch the recording from the webinar by going here.
Now, on to the news.
📈 How public companies grow
What gets rewarded in the stock markets? If you show growth and dominance in your space, the share price increases.
I want to talk about a few more points from our webinar, especially around the path of M&A and new game launches for public companies in 2021.
My prediction for M&A is that the momentum for consolidation will start moving over from profitable target companies down to the Series A stage. Public companies will offer highly attractive multipliers and public company stock for startups who’ve shown product-market fit — companies who haven’t yet scaled but will do so in the next 12 months.
Historically, early-stage acquisitions of companies in sub $10m annual revenue have either been team acquisitions, King with Nonstop Games, Z2Live, and others. Then there are these nonsense deals like Zynga with acquiring viral hit Draw Something in 2011. It’s like someone buying Fall Guys for a billion dollars and figuring out later that it doesn’t monetize.
Acquiring at Series A seems trivial. Last year I interviewed investor Gigi Levy-Weiss from NFX, and we talked about Series A investing in gaming. When you go past Series A, things aren’t as tricky anymore.
Gigi said: “I think everybody could invest in a games company once the revenues are in the 10s of millions of dollars. The reason is that you’ve got so much data, and you’ve got so many KPIs that you can analyze that literally with an hour in the data room, I know the health of a company all the way. “
“Everybody can analyze the data. Everybody can look at it, everybody can find comparables and stuff. So the question then becomes who has more money, who is more general contacts who can help more company building. “
I want to come back to what could work in the early stages.
It becomes a question of taking Series A versus selling early for the founders of the target companies, getting snatched up when you have proved product-market fit, with both retention and revenue numbers, which is the hardest thing to do.
Founders know that if they’ve struck gold, and they keep digging, there’s more gold. Raising a Series A and staying independent is a path to something special, and the founders know this.
Considering M&A, you could get an offer for $100 million, but you have a game that could eventually lead to a $1bn offer. Then it becomes a question of constraints: can you scale independently from 100m to 1bn?
Case CD Projekt
On the webinar, I also talked about public companies launching new games. There is a recent example of a public company launching a new game and not meeting expectations.
What happens when a new game launch fails for a public games company? CD Projekt launched the most anticipated PC/console game of 2020 in December of 2020, and it was a very broken game, containing lots of bugs and practically unplayable in many ways.
In the latest Deconstructor of Fun podcast, Eric Kress pointed out a few problems with this launch, which eventually lead to the Polish outfit losing almost 50% of their market cap on the Polish stock exchange.
I’m highlighting the problems here that Eric mentions. If you want to listen in, open the podcast at 12:10.
“[Cyberpunk by CD Projekt] was probably the worst launch in the history of video games from a perspective of expectations.”
“What went wrong? The expectations got ahead of themselves. Across the industry, investors, enthusiasts, the press.”
“Everyone is blaming management. They released this way too early. But there are so many other people that were involved in this kind of “conspiracy.” The European investment analysts were the worst. My peers in Europe were out of their minds. They were talking about 50 to 60 million units, “This is gonna take over GTA, etc.” And that fueled more speculation and management was basically confirming these ideas and they just kept on self-perpetuating it, and the investors got sucked into it too. And so everyone believed that this thing could do 50 or 60 million units.”
Even though mobile games don’t go out as a “big bang,” they aren’t immune from hype and can be pulled into a similar speculation scheme as happened with Cyberpunk. If Supercell would be a public company, their long soft launch model and going for years without new games would not receive praise in the stock market.
The thing I’m most worried about from 2020 was how share prices of public gaming companies just kept climbing up. What often doesn’t get talked about is how a falling share price affects morale inside a company. The staff starts using the share prices as a pulse check for how the company is doing. Talent drain can be a severe issue for companies who want to launch new games.
Like Kristian Segerståle said on my podcast last summer, it’s good to add a healthy dose of paranoia into your work.
But it’s not all doom and gloom. We had a good chat with Anton and Sergei, and we talked about how the industry is growing significantly with this new influx of capital. Check out the full webinar recording by going here.
🎯 Addressing Inequality for Women in Gaming
Joseph Kim from GameMakers recently did a discussion panel on Diversity in Gaming and Addressing Inequality for Women.
It’s a crucial topic which I’m not talking about enough on EGD. I’m so happy that JK did this panel that I decided to bring up the highlights from the discussion.
- Dr. Jo Twist, CEO of UKIE
- Sam Wallace, Managing Director of Sheffield Haworth
- Linda Waste, Sr. Director, Talent Acquisition, Inclusion & Diversity & Employer Branding, Electronic Arts
Here are some of my highlights from the Youtube video.
Joseph Kim: “Why aren’t there more women in the gaming industry?”
Jo Twist: “There are a number of issues that are going on.”
“We all know making games requires many different skill sets, whether it’s programming, business, arts, technical, and creative skills.”
“In the UK, in particular, we haven’t had a very good track record of teaching computer science and programming at a young enough stage and in a compelling way. Encouraging young people, removing stereotypes about computer science or the kinds of careers that it can lead to.”
“And getting the awareness of games as an industry, let alone as a career path is so important.”
Linda Waste: “We have to challenge ourselves in some of the legacy thinking about what you need to have in your background to work in gaming.
“If you start looking for people and your first requirement is that they’ve already worked in gaming, you’re kind of doing it wrong, right from the start. You’re working from a pool of candidates that’s inherently non-diverse, to begin with.”
Sam Wallace: “There’s this preconception that you have to have industry experience to be successful in the industry. And I think that that can be off-putting.”
Joseph Kim: “Is there an unconscious bias in hiring or even in promotions?”
Jo Twist: “I think the unconscious bias can be countered by sharing best practices by training, highlighting, and making these things conscious. But companies need that guidance.”
Linda Waste: “We’re not yet doing it right [at EA]. It’s a journey, and we’re on it just like many other gaming companies and a lot of different companies all over the world.”
“You need to take a long hard look at your hiring practices and to think consciously about what you’re doing at every moment in the process where you’re deciding on a candidate. Is this candidate moving forward? Or am I passing on them and why?”
“We can’t let people use their gut, which is what happens. We have to educate people. How do you look at a resume? How should you be interpreting that information so that you can make the right decision about these candidates?”
“[Not to go the way of] “I’ve always done it this way.” And this is the same job description I’ve used the last five years, and this is what I need. And I’m not going to compromise on my requirements. Well, your requirements are biassed, and they’re full of legacy.”
Joseph Kim: “The other issue may just be having appropriate role models?”
Jo Twist: “People talk about mentoring schemes, but I think sometimes people use mentoring as a blunt instrument. It’s often quite patronizing.”
“You’ve got to give people a choice of people, [a list of people] they could talk to, to get guidance. I prefer the word “champions” [over mentors.] People who champion you, or people who champion a particular kind of need to make that change.”
“[Leadership might be saying,] “We need more diversity! Recruiting — Go solve that!” That’s not going to solve it if you’re not doing the things you need to do, make, grow, retain, and advance the people you already have.”
There’s more. Check out GameMakers on Youtube to watch the whole panel discussion.
📃 Articles worth reading
+ No Meetings, No Deadlines, No Full-Time Employees — “I don’t expect anyone to copy our way of working wholesale. We got here on accident, not some grand plan. However, I do think there are pieces of our story and the way we work that could benefit other companies, their people, and–most importantly–their customers.”
+ Merge becomes the new match — “If your ambition is to compete with the incumbent lords of the genre then your work is cut out for you; you’ll need a top-notch marketing strategy, an innovative product, perfect timing, an efficient content pipeline, meticulous live op planning, production quality through the roof and the resources to scale the game if everything else goes right.”
+ Canadian Tech Scene Doesn’t Work — “The Canadian tech scene, as it currently operates, does not support startups. It stifles them. I’m sure for some of you it’s in your professional interest to insist otherwise, and look I respect that, but I care about us getting this right, and someone needs to say this so it might as well be me.”
+ Deconstructing PC Building Simulator product strategy — “Stopping the money-making machine (generating content for old users) to focus on the early game (which will generate no short term benefits) it’s a painful decision, but necessary if the game has lost a lot of technical quality. To avoid these situations, some teams choose to focus on a very slow development rhythm and deliver content only if they’re completely sure it’s bug free and extremely polished. Like Supercell, for example: They’re so clean that they don’t need to take out the garbage later.”
💬 Quote that I’ve been thinking about
“When you first start to study a field, it seems like you have to memorize a zillion things. You don’t. What you need is to identify the core principles – generally three to twelve of them – that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles.” — John Reed
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That’s all for this week. Take care and stay safe!
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