Is VC Funding Right for Your Mobile Game Studio?
Background on VC Funding
As a gaming entrepreneur, you’re going to need funding at some point. Tech publications glorify raising venture capital as success in itself, but in many cases taking on VC funding to grow your game is like hitting a thumbtack with a sledgehammer. There are many tools for the job and entrepreneurs should know their options. In this panel at Casual Connect, Braavo Co-Founder Mark Loranger leads a discussion with a panel of VCs, investors and entrepreneurs to explore what funding options fit different scenarios and what VCs are looking for in a prospective company.
Panelists include founders and investors with perspectives from both sides on why, when and how to think about funding your business to get the best results.
- Cesar Mufarej, Co-Founder & CFO, Fanatee
- Kamran Ansari, Venture Partner, Greycroft Partners
- Mike DeLaet, Co-Founder & CEO, DOD Media Group
- MODERATOR: Mark Loranger, Co-Founder, Braavo Capital
VCs expect big returns
First you have to build a product that is profitable. The next challenge is scaling to a point that becomes appealing to VCs. As Kamran Ansari puts it, “You can have a great business as an entrepreneur with one or two titles… It just may not be right for venture capital.” It is easy to forget that VCs manage a portfolio of investments on behalf of Limited Partners. This can cause friction when the template for what delivers the most lucrative returns for those LPs departs from the vision of the founders. To mitigate that risk, make sure you have as much leverage as possible before accepting funds. If you can use other channels for capital to hit KPIs that will get you more favorable terms, do it. It could save you a headache later on.
Franchise potential matters
In the eyes of a VC, mobile games are seen in a similar light as movies – a hit based industry. To maximize their investment, VCs look for games that can extend the life of a hit which tends to translate to franchising. If you’re the founder of a game dev studio and are set on the major growth potential that comes with VC funding, consider how the premise of any product might extend into a series of games. If franchising doesn’t get your mojo going and you prefer to churn out unique-yet-profitable titles you can have a really profitable and successful business – it’s just less likely that path with lead to VC capital.
Focus on the “right” investment, not the biggest
There is a preconceived notion that bigger investments and valuations increase the chance of a successful exit later on. After all, most startup founders that fail will tell you they just ran out of runway. However, there is another side to that reality. Every dollar a VC invests comes with the expectation of a return 10X-100X. A negative consequence of that expectation is that a potential exit in the $20M+ range may get rejected by your investors because it doesn’t provide the magnitude of returns they need. If you do go the route of a VC, don’t swing for the fences on a valuation of funding if you can help it. The more options you have for an exit, the better.
Predictable growth means non-VC funding may be the way to go
A common mistake for founders is pursuing dilutive capital when they really need cash to hit KPIs before their next round of funding or grow through marketing. Incremental growth needs like these are better suited for traditional lending or on-demand capital from companies like Braavo. If you know what your returns on incremental investment will be and how long it will take to make that money back, VC probably isn’t the right channel for capital.
When is VC the best option? According to Fanatee CEO Cesar Mufarej, a couple good examples would be needing to expand into a new genre or needing funds to meaningfully expand your team.