How to get capital for your game studio
Three mobile game investors discuss how you can get funding for your studio in 2021 and onwards
Editor’s note: This article is based on a panel discussion from LevelUp 2021, moderated by Joakim Achren. Joakim was joined by Michael Cheung, Founding General Partner at Makers Fund, and Salone Sehgal, General Partner at Lumikai, India’s first interactive media and gaming focused fund.
2021 is a great time to be a founder of a mobile gaming company: the industry’s growth over recent years, accelerated by the impact of COVID-19, has made it impossible for investors to dismiss it as a peripheral market. In this panel, moderated by Joakim Achren, Michael Cheung and Salone Sehgal share their insights into the state of the gaming industry, and give founders practical advice on how to approach fundraising.
What an effective first message looks like
Michael Cheung: While a warm intro is always great, in the new COVID era it’s harder for serendipitous encounters to take place. So as an investor, I’ve found myself becoming more receptive to cold LinkedIn messages and even cold emails, with one caveat — to be clear and concise in your message. What is your background? What are you doing? What problem are you solving? And what specifically are you looking for from me, whether that’s funding or advice? Many people would be surprised by how receptive people in the VC community are once they receive a message that hits these notes.
Salone Sehgal: As Lumikai is a new fund, we’re actively encouraging cold approaches. I think a dependency on warm introductions and referrals limits our ability to unearth gems, because plenty of founders aren’t well connected in the VC world. So we encourage founders to email us all the time: we like short introductions, one or two lines on the opportunity, on the team, the proposition, and bonus marks if they’ve researched us and connected their vision to something one of our founders have talked about in the past. The worst emails are long-winded, too desperate for money, and poorly researched
How M&As and IPOs are affecting early stage investing
MC: I think it’s a great time to be a founder in our industry. There’s tremendous investor attention on our industry and raising is definitely less challenging than it was even 24 months ago. From a founder’s perspective, this has increased the importance of researching who you’re going to be working with on the VC side — what their background is, the experience of other founders working with them. With all the M&As and IPOs, companies are getting approached earlier than ever to get acquired. And there is more pressure on M&As as a result of the higher number of IPOs. More founders will be arriving at the crossroad of exiting and pocketing a nice profit, or continuing onwards.
SS: Gaming is no longer on the fringes of tech, it’s in the mainstream in the investing world. This impact of this on the fund side is that you have faster speed of deployment of funds, so there’s more liquidity around. The downside of this is potential valuation inflation, which hurts both companies and investors in the long-run.
Covid’s impact — here to stay?
SS: For India, the pandemic brought digital acceleration which has brought forward the country’s tech revolution by 4 or 5 years. So you already have a market with 650M internet users, 350M smartphone users consuming 9 gig of data a month, primarily on videos and gaming content. Indians for the first time became the biggest consumers of gaming in 2020, outdoing China and the US.
This is because COVID created a systematic change; millions of people were brought online, some for the first time, and I don’t believe this will disappear after the pandemic. On a sociological level, we’re also seeing a phase of “digital decolonization”, where more Indians are taking up their digital identities, more focus is on India-first games. There’s an increasing desire to separate from the west.
MC: I think Salone’s answer can be applied globally, albeit the reasons are different. Every time a company has ridden the early stage of success, let’s say they have revenue and enjoyed a pandemic-fuelled spike in users, investors question whether this performance will disappear once the virus goes away.
My belief is that the user behavior we’ve seen during the pandemic is deeply ingrained. The main goal of game designers, at least in the VC-backed space, is to create engagement and long-term retention through habit-forming titles. What everyone has gained in the last 12 months is a hyper-engaged audience at a scale never seen before. And if designers have done their job well, they’ll have created habit-forming products. So while there will likely be a correction of some kind when the virus is gone, I think the success of the companies which have unlocked the highest scale will create a new benchmark in terms of revenue and engagement.
One piece of advice for fundraising
MC: Meet with multiple investors ahead of your fundraising. Think a few months out, be clear with your intentions, explain that you’re not raising money right now but that you’re keen to have a chat. I think this will help create strong relationships: both the founders and the investors can learn a great deal about each other.
SS: Because we work with very early stage founders, our key pieces of advice are:
- Really ask yourself if you are a venture-scalable business. Think about whether you need a VC, or a publisher, or a project financer, because your approach for each will differ.
- Be realistic and do the math. If you’re raising a $20M seed round, you need to be able to map out where your company or product needs to be in order to reach a valuation of 3X that amount in the next round. Most of the early stage founders we meet, there’s an underestimation of the sum they need from investors, and an overestimation of their ability to deliver and execute on their vision. Second-time founders do a much better job of this than first-timers.
- Gaming is incredibly competitive. Try to find a unique selling point or skill set within your team that sets you apart from the competition.
