EGD Special: How to raise from angel investors

Loads of new gaming studios first spend time courting with VCs, when they should actually start from the ground floor. In this podcast episode, I talk about raising funding from angel investors and how you can build your own list of angel investor leads.

Transcript

Joakim Achren 3:26
All right, everybody. This is the episode, we’re going to talk about how you can raise angel investing for your gaming studio. So back in today, in 2005, when I was starting my first gaming studio, there weren’t really any options for scouting for gaming angels. In Finland, pretty much nobody had done an exit in gaming. That was back in the day that we had Remedy. Max Payne

Joakim Achren 4:00
had become a huge success. They had had a nice payday, but it didn’t sort of like something that, you know, people would be investing in startups that weren’t the reality. I don’t know why are those people put their cash into but it definitely wasn’t into other companies. I wasn’t at least aware of that kind of functionality. And nobody was sort of like doing that, at least publicly, which has changed a lot now in 2020 when we have a lot of angel investors operating in all of the different gaming hubs around the world. I’ve seen it happening now in recent years in Helsinki. As I’ve started doing angel investing more people have become more active in the field. Today in this podcast episode, I’m going to talk about how you can raise from an angel investor

Joakim Achren 5:00
for your gaming studio. What are the practical ways to actually do that? Even though you might not know of any angel investors who are doing that in gaming, I’m gonna go through how you can create your own sort of List of angel investors who others are targeting, which gives you a big advantage. But first off, like, I’ll just do a quick introduction, probably a lot of the listeners know who I am. So I’m Yarkon, the founder of elite game developers, a 15-year gaming entrepreneur, founded due to venture-backed gaming companies. I’ve been doing at this elite game developers for a year and a half now with the angle of helping entrepreneurs, helping people who are interested in gaming startups to get more involved. And regarding fundraising, I’ve done a bunch of videos on YouTube, where I talk about how you raise funding.

Joakim Achren 6:03
But I’d recently noticed that I haven’t really focused that much on angel investing, which I think is the most crucial component for the long tail of gaming studios out there who are trying to get on their feet, looking for external capital. But it’s really hard. And I know for a fact how hard it is. And a lot of people spend time talking to venture capital firms. Because there’s so much out there, everybody’s bombarding them with their pitches. But that’s not where you should start on your journey to building your company, you should always think about first, how do you bring in the best angels to the founding stage of the company. So I recently launched a community called gaming Angel fellowship, which is sort of an online course where I teach my learnings on angel investing for people who are new to angel investing in gaming. But there’s also a community a slack workspace, where all these new angel investors get to talk together. And I bring in a few deals that I’ve seen people like startups that are eager to get to pitch to angel investors. Like this is a new way and a new format to actually start doing these Angel deals in the gaming space.

Joakim Achren 7:30
So I’m going to now focus on telling you, like how you should approach angel investors, how do you find them?

Joakim Achren 7:41
But first, let’s talk about investors in general, I want to kind of point out what kind of investors are out there who are looking at doing investment into early-stage gaming studios? And what are they looking for? So in a sense, first, it’s good to kind of go through what are the motivations for these investors to be active in investing in startups. So first off, I think, it really is about, like, you know, having really great returns as an investor for the capital that you put in.

Joakim Achren 8:20
So it is money is driving a lot of this investment activity. But the people that stick around who’ve done gaming companies before, and they continue to invest in gaming is that there’s a lot of love for gaming itself. As an industry, you’d love to see new games come up how they’re broad. You love gaming, you love games, you love making games, you’re staying around, you’re doing investments. And there’s this passion for figuring out what is the ultimate game, like, I think we’re never going to solve what is the ultimate game, there’s, I would say every few years, there comes a new game that just, you know, blows up everybody’s mind about like, Hey, this is not something we see before like you could think about among us now. Then we had pokemon go a few years ago, Clash Royale was an amazing mobile title. So it’s, it’s an ongoing innovation space. And I think we’re never gonna, you know, stagnate as an industry. We aren’t innovating creatively anymore. So I believe there’s going to be more cool games coming out. And I want to be, you know, backing those founders and helping them out to achieve something great. So I really love working with founders. That’s one of the motivations for me is to see these people grow and be a part of their journey but also have skin in the game.

Joakim Achren 9:53
So I would, I would kind of like classify the two types of investors that early stage startup

Joakim Achren 10:00
So we’re talking about you have angels, and you have venture capital firms. So angels invest in all kinds of reasons. But for VCs, they usually have a fund in place, which they need to return to the people who put money into the VC firm. So they have to have a maximum return possibility with each of the deals that they’re looking at, you know, for an angel, it’s fine to have a five x return on investment, or maybe you just love the type of game that the founders are working on. But the VCs can’t operate in that model, because they have to return their fund that they’ve raised like this 2 million 100 million. So they have to kind of like line up companies that have possibilities to actually do that. Like, let’s say they invest half a million into your company, to return the fund of 50 million, they need to have 100 x return. So can you 100 X, what they put into your company?

Joakim Achren 11:03
I’d like thinking about them, like where does the money come from? For angels, it is always about their own cash that they’re, they’re investing. I’ve recently started an angel syndicate. But the cool thing there is that we’re kind of like all pulling in from the gaming space,

Joakim Achren 11:20
sort of our own cash to do this investment. So it’s not like a structure like VCs have, where they have limited partners who are putting money into these funds.

Joakim Achren 11:31
And in thinking about the investment size, for an angel, angels could put in like, just 1000 euros, and that would be really like skin in the game for them to be involved in startups. Of course, angels can go up higher to 50,000 200,000 200,000, depending on the wealth of this individual Angel. But in VC, you know, you can go up to a million as an investment for one VC or 10 million or 100 million, there are no real limits there. But that that is the difference there is that

Joakim Achren 12:11
the reason that the VCs are looking at these kinds of like companies that become that could come to a billion-dollar company, is because they want to return their fund first before the people who are running the venture capital firm can get a profit. So they have to first return the money that they raised beforehand.

Joakim Achren 12:32
So why am I focusing on angels? I think like I’ve seen so many early-stage startups go and talk to VCs. And it’s such a hard road, when you have like, hey, here, I have 50 VCs lined up in an Excel spreadsheet, I’m going to go through each of every one of them. And the founder might spend like three months. And nobody’s You know, there’s a lot of meetings, but they’re not getting anywhere.

Joakim Achren 13:02
So that is the case that you know, VC sees 100 deals, and they’re on a pass on 99 of those deals. Because the fact is that most of them can’t return the fund. So when they see a startup, as one out of 100 that has all these risks mitigated regarding like, is the team good enough? Is the product good enough is the space big enough that you know the company becomes a billion-dollar company, if not, the VC will pass. But if you go down one notch and just focus on two angel investors, you can have a lot more like impact, like meeting five angels could already result in in one person putting a check into your company. I’ve seen that happen, where the founders just focus on angels, and they start getting results quite immediately.

Joakim Achren 13:59
I recently did a webinar with James Cramer from Skunkworks Games. And we talked about his learnings from raising funding from angels and sticking to actually the angel round for all through pre-seed. And even now going to see it he’s still like talking to a lot of angels. So

Joakim Achren 14:25
I think he mentioned this really interesting idea that to become a VC backed games company.

Joakim Achren 14:35
Without a rock star team in the first place. You’re gonna be like navigating a level three dungeon with level one armor. I think it’s it’s totally true that if you go and talk to the VCs, immediately, without the most experienced team from gaming,

Joakim Achren 14:57
it’s going to be tough. It’s always tough.

Joakim Achren 15:00
So in essence, that’s where you want to start is at level one with that level one armor, which is the angel stage, and focusing on angels until you can prove that you are the rock star team.

Joakim Achren 15:17
So, if you’re just focusing on angel investors, I think it becomes a mindset shift, where you need to create this your own way of fundraising because this is not the common way everybody goes talk to the VCs first. But like,

Joakim Achren 15:36
the process then would look like, in a way, because angel investors aren’t making a fuss about themselves. They’re not, you know, they don’t have websites where they post their portfolio companies and whatnot as VCs do. So what do you want to do, you want to pitch to people who aren’t on any of these lists who don’t have websites.

Joakim Achren 16:00
So you want to approach the process in a way that, you know, you pitch 200 people quickly, without creating this kind of awkwardness with the whole process, that that’s how you get the most out of the time you’re going to spend on fundraising. So what do I mean by pitching to people who aren’t on any lists? So if you talk to or if you listen to like how VCs talk about their, their processes that they live out of the deal flow that they’re getting, they get, you know, dozens of companies reaching out to them every day, with pitch decks, having meetings, I look at looking at these companies, they have a lot of companies coming to them. And they only want to pick the very best out of all of them. So if you talk to angel investors,

Joakim Achren 16:55
they don’t really like have deal flow, because they’re not out there talking about themselves as angels. But then the question becomes how do you create? How do you know? Who are the people? How do you create your own list of people who aren’t on the basic, like VC and investor lists? So I would say actually, that unlike VCs, there actually are too many angels out there. Because you can first off think about the family, friends and fools list. Of course, that exists as well, you can get a few 1000 from those people.

Joakim Achren 17:34
But then,

Joakim Achren 17:36
since you’re in the games industry, you can start thinking about who else already knows gaming? Because that’s one of the hurdles I’ve seen for people to invest in games is that if they’re not familiar with like, hey, what goes into making a successful game? This is like, a lottery ticket if I start investing into gaming, because I don’t know anything about like, Are you good? Or

Joakim Achren 18:01
are these people better whatnot. So you want to find people who could be angel investors from the industry? Like, think about your ex colleagues, some of the people who might have had an exit, maybe they were part of a startup that got sold, they have they got some cash,

Joakim Achren 18:21
people, your friends, acquaintances from the industry, just like going through LinkedIn.

Joakim Achren 18:28
Then think about your, like, local game development scene, what are the companies that you know, are doing well reach out to the CEOs, to the management team of those companies and ask them if, if they want to become an angel investor in your startup, that’s how you create your own list, a unique list that other people don’t have. Like, of course, everybody, like out there has all the gaming, venture capital firms listed, you can go to invest game.net, and just pull out the list from there and start, you know, reaching out to those people. But the problem is that so are everybody else. So if you create your own list of angel investors, people who are in the industry who have cash, that’s a total different thing.

Joakim Achren 19:18
So think about like, strategy for raising Angel money. So step one would be that you reach out and meet a lot of people, everyone you can you can reach out, especially people in the industry who might have cash.

Joakim Achren 19:35
And the second step to is that you go outside of your own geographical location. So if you’re in Helsinki, if you’re in Tel Aviv, if you’re in London, just don’t stick around in that city, like expand outside, talk to people in Germany talk to people in, in France, in Sweden, in Norway, in Denmark, like there’s in all of these countries.

Joakim Achren 20:00
There are entrepreneurs who’ve made cash with game companies who’ve done an exit. Like those people, I would say, there’s a 5050 chance that they’re, they’re actually doing angel investing, because I’ve been talking to a bunch of people this year about the possibility of investing. And I’ve gotten a lot of people involved in my syndicate.

Joakim Achren 20:22
It’s, it’s, you know, not, not sort of like rocket science to start doing this. You can just, you know, start bombarding people and be polite, don’t make it an awkward situation. And I would say, step three, would be that, don’t try to convince people too much, just get to a quick yes or no. So that you don’t spend anybody’s time you don’t spend your own time either. And then once they get give you a yes, step four, send them the convertible note template, you can look it up from LA game developers blog, I have a template there for convertible notes for gaming startups.

Joakim Achren 21:03
Then thinking about how you want to communicate with these possible angels. So if you reach out to them, they might be, you know, saying, like, Hey, how are you What’s up, and then you can say, I’m building a gaming studio, if you’re interested in hearing more happy to talk about it. And if the angel says, Okay, great, then how you how you follow on with that, it’s like, if you are someone, you know, maybe he’s interested in investing, I’d be happy to chat about it. And if you can also, like, if that doesn’t lead you anywhere, you can just say that, do you know one person who might be interested in potentially investing in my startup.

Joakim Achren 21:49
And I think it’s, it’s totally fine to take small checks, like 1000 euros, dollars pounds, that’s totally fine.

Joakim Achren 22:00
A lot of people I know, are happy to write these small checks, if they start thinking about like, this is something that, you know, investing in gaming companies, I know, gaming,

Joakim Achren 22:11
it’s not a far fetched idea. And what happens there is that you get the flywheel going, because a lot more people will then be thinking about, hey, like, this is something I could be doing as well. And when you’re messaging angels, you can always say that I have, you know, 20,000 committed from other people already to invest, or 10,000, or 30,000. And it really like builds up a momentum momentum for you.

Joakim Achren 22:43
And I’m actually, like, a big believer that all the founders should create a certain level of fear of missing out for the investors is FOMO effect. So once you get this momentum going on with the checks, you want to start doubling down on the fear of missing out. You mentioned how much you already raised, how much has been committed.

Joakim Achren 23:08
But you don’t want to sort of like, you know, create this kind of like artificial like momentum. Like they should be real commitment, commitment, real cash in the bank versus, you know, so and so saying that they’re gonna invest, even though it’s not a firm Yes, yet.

Joakim Achren 23:31
And how do you stay organised with this, there’s a, an interesting, kind of, like, you know, this investor lead list template out there. You can Google for bolt IO lead list. And they have a really interesting template that you can use to follow up on people and keep, keep a CRM on the angel investors that you’re reaching out to.

Joakim Achren 24:01
And I would say like a few things to note here is that, like, all of these companies, that you look at, in pocket gamer in game industry dot biz, or invest game.net, this, these companies that raised you know, 2 million, or 1 million, 3 million, those companies were also struggling at first to raise nobody’s like immediately getting cash in the bank. So they become hot deals just because other people were believing in them. So the momentum starts to kick in, and you start getting more people believing in your company.

Joakim Achren 24:44
And a few ideas. What I’ve recently taught a lot about is also like, thinking about like how much you want to raise. Let’s say you want to raise half a million for your company, but don’t go out saying that

Joakim Achren 25:00
You’re gonna be, you know, looking for 500,000, you should rather say like 200,000 at first. But once you get enough people to commit to that 200,000, then you say that you’re actually raising 500,000. Because then it’s much easier to go from 200 to 500, compared to going from zero to 500, that’s, especially for a company that can’t, you know, raise from VCs, from angels, you could follow this kind of process, it will require a lot of work. But this is the way to get to that half a million, for sure.

Joakim Achren 25:36
Or what you could do this is also been happening with angels is that you raise half a million in this kind of trenches that you first raise 150,000.

Joakim Achren 25:49
And then you you build the game, you get some data, and then you raise another 150,000, based on the early data, and then you go a bit further with the product, and you start seeing results, like even more metrics, like long term engagement, monetization, and then you raise the final 200,000, which gets you to half a million. But with each of these stages in these trenches, you can increase the valuation of the company, basically, you first give out x, and then the next tranche, you can get with a smaller dilution, because you progress more, you can say that data company’s value is this much. So now 150,000 will give you less percentage, because we’ve gone like further into the company stages, and you get still get the same same sort of

Joakim Achren 26:48
FOMO effect going on, because you, you just recently like few months ago, raised 150,000.

Joakim Achren 26:56
So it is sort of like still you’re using the same runway, but you’re just adding on top of it, and you don’t talk about hey, we’re raising 500,000, or half a million, but the router work, work it true in your mind that this is the plan we’re going to go through. And you can actually control the dilution. What’s more, and this is only possible with with angels, since you can like you know, take these small checks and combine them to any kind of sum you want. versus when you have venture capital firm, they rider would want to put in all the money and get you know, a big ownership percentage already at the early stage.

Joakim Achren 27:37
So some summarization here for for approaching angels. So how you want to go after this, like start small, this is what you should really be thinking about what is the, the kind of like the the least wealthy individual who could still Angel invest, start talking to them, get them inspired, but what by what you’re doing. Also be in amazement with what you’re already building. And you can raise like small 5000 10,000 checks from these people or even 1000. And then you start creating this fear of missing out. If like, you’ve already committed a lot of like investors into investing into a company, you can build on to FOMO. And then you start proving your business out before you raise more cash through angels.

Joakim Achren 28:29
And to kind of like, point out a small ending detail here. So with gaming Angel fellowship, I’m going to start something new. So we have a members only Slack channel going on, where we have a lot of new angel investors,

Joakim Achren 28:49
chatting and exchanging knowledge. So what I’m going to do is start sharing information about companies that I’ve been talking to, who are raising an angel round or pre seed round. And if you’re interested in getting featured on the community, like I would be happy to feature you guys. Like if you’re looking for funding, or if you know of somebody else who’s who has a gaming studio who is looking for funding.

Joakim Achren 29:19
You can ping me on LinkedIn. And I’ll definitely get your company featured on the community.

Joakim Achren 29:28
Thanks so much, guys. Go check out gaming Angel fellowship.com. And we’re going to have the material that was shared today, going out on elite game developers calm as well. So you can get the links that I mentioned whatnot on on the site. So yeah, hope you have a good week and speak soon. Bye bye.