(2/2) Bot lane teams from the $30M I've invested in videogame studios, platforms, and tech
The flywheel effect of maturing within top industry ecosystems
Without further ado here is a short primer on the gaming studio investments I've led so far- four dating from 2021 to early 2022, which have all gone on to complete later-round financings at higher post-money valuations (with the only exception being the one that has already achieved profitability) and other product/revenue milestones. The rest of the first $30M I’ve deployed has been a) new investments this year, and b) an enterprise tech investment born in gaming from 2021 that was marked up in 2022. Each of the four companies we’ll delve into here has its roots in gaming talent pools whose flywheels have been fueled by successful exits.
Lightfox Games
The founding duo (technical CEO, product COO) here worked on the core technology and product of Z2 Gaming, acquired for $40+M cash and up to $150M consideration by King, which was then acquired for almost $6B by Activision Blizzard. They and others from Z2 funded the initial capital into Lightfox themselves from the proceeds.
Gulliver's Games
The founding CEO specialized in go-to-market at Peak Games, which was acquired for almost $2B by Zynga, which was later acquired itself for $12B by Take-Two, and later at King. The mentorship of the former COO of AdColony (acquired for $400M) was his entrepreneurial catalyst. The cofounder duo of Joygame (acquired by Netmarble) were the first capital in.
DreamCraft Entertainment
DreamCraft's cofounder duo previously generated millions in revenue running the American mobile game production subsidiary of a Chinese developer/publisher. Tencent, the Chinese behemoth worth $400B ($30B+ in gaming revenue) was the first investor behind marquee American accelerator Y Combinator in their new venture, a user-generated gaming content platform, and later Makers Fund joined (anchored by Netease, another Chinese gaming strategic worth over $60B).
Playgig
The founder-CEO previously ran publishing for all of Riot Games, a role he stepped up into when his predecessor stepped into the CEO role after the original cofounder-CEO became chairman. Both were critical references for him when he raised first institutional capital from us after funding the company initially out of pocket. A key innovator in the multi-billion-dollar Call of Duty franchise (cornerstone of Activision-Blizzard, acquired by Microsoft for $70B) serves as game director.
Several themes are evident across these companies:
Complementary founders building their skillsets and networks at industry leaders by exit/revenue
Ability to kickstart the new companies financially thanks to capital generated by the financial returns within these pools (classic example of an ecosystem flywheel of market success leading to capital availability leading to funding new ventures)
A keen sense of the target product/team bar honed by exposure to these top-tier talent ecosystems
The filter and network effects provided by growing up in these ecosystems is also evident in the (very typical) path these opportunities took to coming into our orbit; in each and every case the initial introduction and diligence was facilitated by mutually trusted executives and investors from within these pools as well
In particular this last point can't be overstated in its impact on both sourcing the initial investment and facilitating follow-on financing. Not to mention the force multiplier effect it has in facilitating top talent coming in from day 1 to accelerate the foundational design, visual, and front-/back-end component and team building.
Despite all of their innate advantages, however, teams with roots inside top industry ecosystems are by no means surefire bets. Simply copy/pasting the formula from an industry incumbent (already post-exit) without form-fitting it to the unique circumstances of building gaming company from scratch is a recipe for disaster, and it is absolutely critical to discern in diligence whether the entrepreneurs know the nuanced balance between best practice in the two drastically different climates.
The time and resource equations are radically different in the two environments. Consider a multi-billion-dollar+ market cap incumbent strategic on the one hand, and a startup with a single-digit-million-dollar seed round under its belt. Though both may be going after the same wallet share, and/or targeting the same expansion of a market segment (equating to a multi-billion-dollar addressable opportunity), the two entities are investing resources against two fundamentally different risk/reward equations. The incumbent can afford to invest $100-$200M+ over several years of development for an expected value of hundreds of millions in annual revenue (or $1B+) for a live service gaming product; the startup has to prove core mechanics and a gameplay loop within 12-24 months depending on runway, and secure additional funding ($10-20M) to get to market and secure wallet share. That second threshold of financing, moreover, is significantly more difficult to obtain given the high bars required by downstream investors, both institutional and strategic. Some high level examples below.
For institutional investors: strong product traction in terms of both retention (a critical long-term predictor of game health), overall revenue, and unit economics; these metrics begin to become statistically significant in the first several thousand installs, but must be carefully monitored through the first several million players / dollars of revenue.
For strategic investors: the game itself passing the scrutiny of industry-leading content diligence teams that work within the strategy / corporate development departments of top strategics (these include personnel like former game designers, esports players, etc.) to evaluate the potential of the game and its current design, visual, and technical components.
More to come next on how each of these companies successfully navigated these high bars in the next Botlane post.