Gigi Levy Weiss on Venture Stories (Apr 2020)

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Gigi Levy Weiss in an interesting investor. He used to be the CEO of an online gaming company in Israel, then turned investor. His portfolio includes companies like Playtika, Moon Active, Plarium, and Space Ape Games. Today, Gigi is a managing partner at NFX, which is an accelerator and venture funding firm based in Silicon Valley.

NFX is a unique firm since their investment thesis is formed around a concept of network effects, which, in simplified terms, means that each new user in a product will add value to the other users of the product.

Managing partner James Currier points out that there are only four defensibilities left for companies against the competition in the digital age. These are:

  1. Scale. People order everything from Amazon because they have everything.
  2. Embedding. Oracle has been embedded into enterprise behavior, and it’s hard to rip them out.
  3. Brand. People are used to Uber; it’s the definition of ride-hailing.
  4. Network effects. It’s native for the digital age. Companies that focus on network effects tend to become bigger over time.

Watch this video on all the 13 network effects, defined by NFX.

But now, back to Gigi. I bumped into this fascinating interview with Gigi on Venture Stories, a podcast I highly recommend for people to understand venture better. Here’s a breakdown and main takeaways from this interview.

When Gigi looks at game companies today, he sees two different types of game companies.

Creative lead “There’s the type of game company that works on the core principle that if you build a great game, they will come. In the mobile world, the company that’s the most like that is Supercell. Probably the best game company out there. They’re just building amazing games. And everybody’s happy. Everybody’s playing them.”

Data-driven “These are games companies that are all about optimization. They’re all about methodology. Zynga was the first. It’s all about fast iteration. It’s all about saying, ‘We don’t know what people are going to like, we have some guesses. We don’t know. But we’re going to improve that.’ These companies are based on deep data science, iteration and optimization. Taking nothing for granted and testing everything. They’re constantly optimizing, making the game better.”

“They know that if you increase the LTV, then you can spend more money on the CAC (customer acquisition cost). If you can spend more money on CAC, you bring in more customers. Bring more customers, you make more money, and you can improve the game even more, and so on. And that creates an advantage that is over time very difficult to compete against.”

Takeaways here: I’ve heard that Finnish developer Seriously, which was acquired by Playtika (Gigi’s portfolio company) in 2019, they are getting much leverage from Playtika’s data-driven culture. I would personally say, as I said in a previous EGD News, that Helsinki has lots of creative talent, but lacks in data talent.

How Gigi invests in gaming?

“Investing in these creative lead game companies is very difficult because I need to make the same bet that I would make on a movie. When games were packaged goods, they were like movies. In other words, when you invested in a game, you had to think, do I have the best director? Do I have the best art? Do I have the best storyteller, the best of everything. Because if I don’t, it’s not going to succeed. That made games the same kind of investment like movies, which is not very much a VC thing.”

“But when I see one of these data-driven games companies, that’s an easy one, because I can look at how good they are. I can see how they’ve optimized games before. We call all of them, Supercell, Zynga as games companies, but they are actually very different companies. For me, it’s easy to invest in data-driven ones. They have a process of continuous improvement, and improving CAC to LTV equation. I know that when you do it right, you can grow the company exponentially.”

Takeaways here: There’s a lot of talk about being data-driven versus data-informed going on in the mobile gaming space. I believe the middle ground is essential since I want great art and great storytelling, combined with optimizing to make a more compelling experience. I think that it will give us more innovation. And above all, more ways for early-stage startups pay salaries, to be frank.

Out of Gigi’s investment portfolio, what do the companies that succeeded have in common?

“They had an excellent infrastructure for looking at data, improving it and iterating. And it doesn’t matter what the game was, slots, strategy, simulation, RPG, etc. All of them had the same drive toward optimization, the same focus on data, the same understanding of games-as-a-service live ops and games as a platform. All of them, while being very different, exercise similar principles.”

“Also, these games are of high longevity. While there isn’t really any monopolies, the combination of knowing optimization and data science in this field and getting the talent, having the capacity financially and knowledge of UA, and then being able to build these games. If you look at the top 25 games, it’s the same companies there for a few years now. When you look at the top 100, there’s a lot of changes, but top 10, the changes are much smaller. These games are just mega games. People continue playing them for years.”

Takeaway: This emphazises both Playtika’s and Zynga’s strategy to pay a premium on acquiring highly profitable companies with games that retain players for years. Read EGD News #32 on Zynga’s M&A model.

In 2020, what is Gigi looking for?

1. Phenomenal teams “The first thing is phenomenal teams doing the same kind of games. And you know, that’s been working for us. We’ve invested a bunch, and we’re doing a few more investments.”

2. New monetization or consumption models “There’s a company in our portfolio that is taking games and allowing people to play skill-games for money in a legal manner. It’s growing fast. It’s taking the same principles, the same understanding of how to build an exciting game, and how to retain the customers, etc. But they’re giving people another layer of excitement which is around real money. So different models of engagement or monetization are one thing.”

3. New platforms “We’re excited about new platforms. We invested in a company called Volley, doing voice-based games. They have millions playing every day on Alexa. It’s growing fast as all these big companies are pushing voice. It’s likely going to be a good games platform. We’re putting our finger on the pulse on AR and VR, waiting for the devices to be around so that we can invest in that.”

Interactive film. Is there a future there?

“In games, the customer is expecting infinite changes in the game, in a very personalized level in real-time. Whenever you try to do a movie that’s interactive, the latest one was the Black Mirror episode that was interactive; it’s difficult and expensive. It’s not yet delivering the kind of value proposition that people want.”

“The industry is not there yet, even creatively, to think about how does a movie that changes for the consumer, going to look like. [The tech needs to get] to the point that you can dictate 10 endings, without shooting 10 endings. You’ve got two stars, and you decide whether they kiss or kill each other or whatever, without shooting 100 endings. The day that happens, this industry will change completely, because then it will have the same capabilities of games.”

Takeaway: I believe that interactive stories like Episodes and Stories is the start to something like this, and there’s more to come, including VC interest.

Other can industries can learn from gaming?

“Every once in a while, I meet non-gaming company CEOs that I think are not moving fast enough, or not understanding the extreme, in which you can iterate and optimize. I send them for a day or two to a games company. They come back completely shocked. And then they start implementing this in their own company.”

Here’s some exciting content that Gigi has produced on startups and VC.

Other notes

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