Raising Venture Capital for Mobile Games - Part 1

I gave a talk on raising venture capital (VC) at GDC Next 2013, which is currently available on the GDC Vault. This is also a cross-posting from the Proletariat Blog.

Funding is one of the least discussed parts of the development process. Publishers dominated this conversation for a long time, but in the past few years, venture capital investors have become increasingly involved in games. The process of raising VC involves two key pieces: networking and pitching. I’ll cover these topics in later posts, but for now, let’s try to understand venture capital.

Disclaimer: This is my experience and my opinion. There are certainly other ways to go about this process; think of this advice as just another tool in the toolbox, not the only tool for the job.

What is Venture Capital?

When I talk to other developers, there seems to be an air of mystery around the idea of venture capital and what accepting it would mean for their company. Most developers think of venture capitalists as Scrooge McDuck with piles of money to swim in and (apparently) ski upon.

In reality, taking an investment is a viable way to fund a game company and most developers are surprised to know that it’s fairly common in our industry. Everyone knows about companies like Zynga and Supercell taking VC investments, but they don’t always know that Riot Games, Meteor Entertainment, Harmonix Music Systems, and Oculus VR have as well.

When considering if venture capital is right for your studio, it’s important to understand that a VC investment is actually selling part of your company. This is markedly different from a traditional publishing deal, so it’s important to know the differences.

Venture Capital vs. Traditional Publishing

It’s a good idea to consider a number of funding options when building a company and it’s important to understand the differences between each option. The table below outlines a number of differences between VC investment and publishers:

The most important piece is the first one. When taking on VC investment, you aren’t just signing up to work with the investor for a single project, but rather for the life of the company. This is why it’s critically important for the team and the investors to get along and be aligned in their expectations and goals.

Another key point in this comparison is that the VCs will mostly stay out of the development process for single products. This can be a good or bad thing, depending on what the company needs in terms of feedback and support. It may seem obvious that a game studio would want total autonomy, but that also means getting very little support.

Keeping control of the intellectual property (IP) is always the right option if possible. Since the VCs are invested in the company and not a single game, they want the IP to be valuable because it will increase the value of the company. A publisher wants the IP because it gives them the ability to produce further titles with it, regardless of the development team.

Publishers will usually have considerable input into the milestones, budget and scheduling of a project; this does not happen with VCs. This was mentioned above but a company going the VC route will have less support but also less oversight, so the decision is on the development team.

Lastly, it’s important to discuss board control. Companies need to have a Board of Directors, and it is very likely that investors will want to be a part of the board. It’s a great chance to have mentors available that are very invested, but it also means giving up some control of the company. The board can typically block mergers or acquisitions, have input on salary levels, and even push to remove the CEO. My best advice is to be open and transparent with investors about your expectations.

Keep in mind that the traditional publishing deals referenced here are not representative of every publishing deal. It’s always a good idea to meet with multiple publishers and understand the opportunities available. Some publishers are trying new strategies and looking for ways to be different.

Conclusion

I would recommend considering VC investment to any game studio that is looking to be more than just a lifestyle business. There’s currently a hunger for good game investments, and the amount of investors interested in games continues to grow. No matter what sort of partnership a studio is involved with, it’s important to make sure there is mutual trust and respect from both parties. Just like hiring new team members, make sure that a publishing partner or VC is a good fit for the company and for the team.

Up Next…

In the next post, I will talk about networking, including some good places to get started and the lessons I’ve learned along the way.