July 2, 2013

What are VCs looking for in mobile gaming companies?

Dive into the latest perspectives, insights,
and updates from our global community.

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New opportunities emerged as smartphones and tablet technologies became more sophisticated, in particular, tablets are becoming more powerful, supporting really compelling gaming experiences. It has been a pleasure to see the development of a vibrant mobile gaming cluster here in the Nordics and witness the emergence of new mobile giants like Rovio, King and Supercell. There is a long history of developing mobile games in the Nordic countries and interestingly Nokia was one of the first device manufacturers to recognize the market opportunity with the much loved “Snake” title and have since the late 90’s had many developers creating games for the company’s devices.

Recently there has been some active discussion about whether venture capital is the best way of financing game companies; Kim-Mai Cutler in Techcrunch wondered whether VC financing for games companies has become unsuitable. On the other hand, Kristian Segerstrale, investor and founder of multiple gaming companies, argued that the case for venture funding is now stronger than ever and another investor, Paul Heydon, supported this view.

At Nokia Growth Partners we invest globally in growth stage companies in the mobile sector. Every business must be mobile and that guides our investing approach. It holds true for gaming as well, which is one of our thematic investment areas. We do not see that the case for VC backing of gaming companies have changed materially over the last decade, though the sector does have certain particular characteristics, such as being hits driven, with highly profitable winners, that need to be understood and recognized at the time of investment. While we typically invest in later stage companies, in the gaming sector we are also looking at earlier stage opportunities. Gaming companies need capital, support and advice before they have launched their titles; however post-launch successful companies typically monetize effectively and additional growth capital is often not needed.

There are five points that, as an investor, we pay particular attention to:

(1) It is really difficult to get it right the first time, which means that a full portfolio of games and multiple simultaneous productions are required to increase the likelihood of a hit title. Rapid internal prototyping is important and helps pick the productions that can go forward. To support multiple productions and ecosystems, the developer needs to truly understand and manage the technological landscape.

(2) Cross-promotion is much more affordable than paid customer acquisition. A portfolio of games enables various user segments to be addressed. Effective tools, structured processes and the ability to re-use existing components are needed in order create a game platform that can be leveraged across multiple titles.

(3) The ability to optimize and drive gaming experiences in the right direction is critical for high engagement and retention. A scalable business intelligence infrastructure has to be in place from day one. A metrics and data driven approach is an ongoing process and a mindset of its own, that should extend to how data is used for successful and efficient customer acquisition.

(4) More often than not, monetization is an afterthought, as all efforts and energy are directed at game play and game mechanics. This, however, is a mistake and monetization has to be thought through carefully from the beginning. Companies that generate strong cash flows can afford to hire the best people and build the productions they want. Finding the right “balance of exchange” between the game and the player is important. For example, how much money the player needs to spend at what stage to progress faster in the game. Advertising is a viable monetization method, as long as it can be built in a way that doesn’t spoil the gaming experience.

(5) Great people make a game and a company truly successful. Teams that have a profound knowledge of the entertainment & gaming industry, either through having worked in a leading gaming company or having founded one before, are in an advantageous position. People who can create an inspiring organizational culture and attract the best talent out there will always do well. Investors can support a lot in the company building process. However, it is important for the team to understand that in return for backing the investors need to exit the business at some point, either through a trade sale or a public offering.

If you are looking to build a scalable mobile gaming business, based in the US, Europe, China or India, and feel that the above points resonate with you – don’t hesitate to reach out!