At the recent Games Funding Forum, industry veteran Dr. David Lau-Kee from London Venture Partners spoke about the role of Venture Capital investment in the games industry.
London Venture Partners have been involved in the early stage of investment in many successful games companies, including Playfish, Natural Motion, Unity Technologies and Supercell. In a wide-ranging interview with games consultant Ella Romanos, Lau-Kee talked about the factors important in getting financial investment.
Surprisingly, having a finished game – or even a game concept – is not the key to securing VC backing. According to Lau-Kee the majority of VCs invest in the potential of a company, not your amazing and long-nurtured game idea. The two most important factors in prospective investments are capital efficiency and scalability.
Lau-Kee cited the example of Supercell, makers of Clash of Clans. The secret of their success was as much to do with their company vision and balanced team makeup than any particular project. This, combined with their technology and production methodology were the key factors in securing investment from LVP.
If funding is found there are certain expectations from VC investors that will not appeal to many studios. Investors will always look for a large return, often in the region of 100 times their original investment. As such, VC backing is not the right funding avenue for 90% of studios.
Independence and creative control is paramount to many studios but having VC backing means that along with financial support there will also be pressure to deliver a large, growing company. That’s not to say that failure will not be tolerated. Failure, in fact, can be celebrated, as long as you learn quickly – and cheaply.
Lau-Kee also outlined some of the common mistakes that studios make when looking for investment. One is actually asking for too little in funding. VCs would prefer to back a company sufficiently to give it the best chance of success rather than under invest and see a company fall short of its goals.
Finally Kau-Lee talked about how much you would need to be prepared to give away. Typically VCs will want to acquire an equity stake of of 10-25% , and it’s important that the founder of a company retain at least 50% of the business. Most VCs will be dubious of any founder ready to give away a majority stake, and the willingness to do so would be seen as an instant red flag against a prospect’s business acumen.
When all is said and done it’s a numbers game, and if you’re not prepared to treat your project as a business – as opposed to a purely creative, artistic endeavour – then it’s likely you’ll struggle to attract interest from major backers like London Venture Partners or a traditional publisher.