Image Source: RON FLAVIN, Inc
I had the pleasure of hosting a panel during GDC with other seed stage investors who specialize in the game industry. Joining me were Shanti Bergel, Managing Director of Transcend Fund; Harri Manninen, Founding Partner of Play Ventures; and David Lau-Kee, General Partner of London Venture Partners. If you attended Summer GDC Online you can access the session here.
When an early stage company is looking for seed funding (generally less than $1.5M), it is helpful to note that investors look for different things since there isn’t always a product or service to show yet. A founder doesn't need KPIs or even an established company if they can show past success and a clear vision.
Get in early
It's a great time to start a games business and it's never too early to talk to a game investor. According to Lau-Kee, “It makes a huge difference if founders come to us early versus a few months in already. We often see people coming to us too late and we end up trying to unwind some things if the direction is slightly off. It's better to get in early than course correct once they are already in it.”
“There’s a lot of places where things can go wrong - for example, a shareholder with a lot of equity could walk away - so you really need to know what to have in place,” said Manninen. “There is a wealth of knowledge founders can go by if they talk to us early.”
De-risk through knowledge
At the seed stage, the history and experience of the founder - what have they succeeded at in the past - goes a long way.
Shanti Bergel advised that funding conversations at this stage will be very nuanced and context based, specific to the challenge at hand. “If you’re making a shooter on a platform, where the business is established, there will be benchmarks from other players you will be compared to. If you’re innovating and creating something new, you will get more existential questions around why this exists, is it really a thing, and will people care. If you’re a young team going after something, focus on why it's directionally correct and less about the team and the experience.“
Hold onto your equity
David Lau-Kee said it perfectly - “Equity is the crown jewels” - it's the most important thing a founder has so you need to guard it. Some people give away too much of that,” he added.
When fundraising, founders first need to come up with how much they want to raise, and then should think about how much stake in a company they'd be willing to give up for investors. Most investors have an ownership target, usually 10-20%, so it would ultimately come down to negotiation around the ownership.
When to include KPIs in your pitch
“If you have KPIs you will be judged by KPIs,” said Lau-Kee. “The time to put metrics in is very important. Don't rush it, because you can't go back and adjust the KPIs once they have already been laid out. Once you have something to measure (a product), KPIs become the most important thing to look at; but most companies usually have their seed money by this time.”
Bergel added, “There won't be a pressurized conversation around KPIs - but if you were to focus on one, in the games business it tends to be retention. The innate ability to be entertained.”
Words of wisdom from the experts
The collective panelists ended with some great advice that every game company should follow when they are planning to raise seed money.
Have a vision for the company - not just the game
Be aware of how you will differentiate - find a voice and an audience that appreciates your distinction
Know what your superpower is and don't be audacious about taking over the world
By Teppei Tsutsui, Managing Partner, GFR Fund