Welcome to another edition of Founders’ Hustle, a newsletter covering the ‘hustle’ of entrepreneurship and building startups.
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Note: Apologies for the unprecedented gap in service since my last newsletter. I had to pause writing over the summer. Your patience does not go unnoticed. 🙏
Hey folks 👋
Today’s newsletter is a Q&A session with Jon Bellamy on pitching gaming VCs pre-product. Although that sounds kind of niche, many of the takeaways are transferable to pitching VCs generally, particularly B2C startups.
For those who don’t know, Jon is currently VP, Strategy & Corporate Development at the recently IPO’d Huuuge Games. Before that, an associate at gaming VC firm London Venture Partners and, before that, an Associate at game developer Jagex.
When I jumped from adtech into gaming, Jon Bellamy was among the first people I reached out to for advice.
And, I was pleasantly surprised. He was more than accomodating in sharing his experience from the other side of the table.
Back when I first reached out to Jon, I didn’t have a product in the marketplace, so the conversation inevitably revolved around raising venture capital pre-product.
Although we live in a time of amazing tools (like Unity and Unreal Engine) which make building and shipping games a lot more accessible, game studios often raise capital from VCs prior to the launch or development of any product, demo, or fan following.
I was curious about the framework VCs use to make investment decisions at such an early stage, so I fired over some questions to build an understanding of what components make a compelling pitch.
Next, I’m revisiting that conversation with Jon through the lens of his time at London Venture Partners and experience since.
How early do VCs invest in game studios?
There’s no such thing as too early. VCs have invested in a single founder with an idea and a track record many times over.
What are the key factors VCs use to decide whether or not to invest at such an early stage?
It’s absolutely the team that is the primary point of focus; if the founding team is:
a. Complementary with one another.
b. Uniquely/exceptionally qualified to tackle their challenge.
c. Approaching a challenge that could be significant in scale ($100M+ revenue) in the medium term.
d. Demonstrably experienced, with track records in successful, established startups/companies.
Do ‘tier 1’ game studio founders get turned down? If so, why?
All the time! The investment decision is comprised of a handful of factors:
Perceived market opportunity.
The investor's existing portfolio construction.
Fund maturity and capital availability.
Signals from other investors.
How much does the narrative of why the team wants to build the games they do play a role?
It's critical. Building a product because you can isn't enough — the "why" is everything.
Statistically speaking, in early-stage games VC, it takes ~2.2 attempts at product development until the successful startups find product/market fit.
This is a slightly misleading statistic as it overlooks the vast majority of startups; those that don't succeed, but it serves to show why the conviction in "why" matters far more than the "what" in the early stages of a company's life.
Besides the opposite of what you have already outlined, what are VC turn offs?
A founding team without prior experience.
Single founder teams.
Only-technical founding teams.
Only-commercial founding teams.
Pitching only a product, not a company.
No track record of the founding team.
A fragmented cap table with low founder ownership.
Poor understanding of the competitive landscape.
What is a good way for founders to convey their vision has venture returns potential?
Clearly communicate the market opportunity, then establish irrefutably that your team is uniquely qualified to capitalise on said opportunity.
As founders, be extremely honest with yourselves; do you really want to build a venture-returns style company? It's an important step which is almost always overlooked.
Outside of team credentials, how can founders add credibility to their pitch?
Understanding how the feature development slate affects base-level KPIs lets you build a compelling roadmap that is prioritised appropriately. Communicating this can lend legitimacy to the pitch.
Clear understanding of the competitive landscape: where the opportunity lies and why.
Proven success in the market elsewhere.
Network of attractable, best-in-class talent.
A well-tested pitch with clear understanding of answers to likely questions.
Do you think it is helpful or detrimental to provide target KPIs?
It depends. To specify KPI targets and show how said KPIs aggregate to a Day(n) LTV of x where x>CPI is a good demonstration of product-level understanding, and knowledge of competitor title performance indicators.
Applying this knowledge to the concept of a milestone-based development process, where if D(n) Retention < Target D(n) Retention number at a given date, development is halted or pivoted, can help to reduce perceived risk.
What are the risks of doing this?
Potential downsides of communicating product metrics early:
Too conservative and you become uninteresting.
Too aggressive and you come off as naïve.
You set concrete targets that investors will hold against your progress - makes it more black/white when it comes to further investment/portfolio prioritisation. This can be a good or a bad thing, depending on your performance.
Some less familiar investors will not understand unit economics sufficiently to have the conversation, and may perceive the pitch as a pure R&D/tech play, rather than a rounded company venture.
A smart analyst might take retention/conversion/ARPPU/CPI/K-factor figures and build a back-of-envelope model to sense-check the potential scale of the product. At this point it’s easy to decide there’s insufficient potential for the product(s) without any real proof points.
Now that you mention sense-checking, unit economics only get one so far. What expectation do VCs have on founders forecasting total addressable market size, and how do they go about verifying it themselves?
Understand your market, derive your TAM from reference-able sources, and cite those sources. Make it simple for an analyst to back-solve your TAM themselves when drawing up their investment memorandum. Oftentimes, founders will be taking on a new space or niche, so be clear about your assumptions and why you can stand by them when market data isn't available.
How can founders build investor confidence in their ability to execute?
My suggestion would be to demonstrate sophistication by thoroughly understanding potential KPIs, how to adjust them, and how they affect DAU/Revenue/Profit at the end of the day.
Some investors will love it. That said, keep this at the discussion level and don’t make the pitch itself so technical that some investors might lose track - a confused investor is not a likely investor.
Keep the pitch high-level and compelling, with an extremely high-potential vision, and if you can get a partner onboard, you’ll likely end up having deeper conversations about KPIs and plans. This is your chance to drive home.
How specific does a vision need to be for it to be taken seriously? Are we talking ‘next generation card-battlers’ or more clear-cut like ‘card-battler for Star Wars fans’?
The company pitch is "Card Battler experts creating the next generation of titles for the stagnating $xB Card Battler market" and the product pitch is "Card Battler 2.0 for X00M Star Wars fans", or similar. Clearly on the fly, neither is sufficiently punchy, but this should help to outline the difference.
I get the impression it works like a scale. A rockstar team could pitch a big but vague idea, whereas a team with less (but solid) experience better have a tangible product vision. True?
Teams with strong track records at exceptional studios will always have an easier time selling "big vision" companies, as they have credible experience at the top of the industry, and have been immersed in "best practice" for years.
This doesn't mean that vision is exclusive to tenured Riot-ers; if the vision is compelling and the team are confidence-inspiring, your pitch should be well received.
Should founders seek outside help for their fundraise?
This can work where an individual advisor offers to partake in the upcoming round/invest earlier on the basis of being granted favourable economics in exchange for bringing other investors in.
If it’s purely a transaction fee (even if paid in shares), the introduction will carry less weight than a sincere intro from a trusted peer with nothing to gain besides a thank you.
This isn’t to say don’t rely on such a service, but consider approaching higher priority prospects personally, and going about the process in the conventional sense, leaving the outside help to approach B- or C-Tier prospects.
Any other advice you can share that will make a pitch stand out (for the better!)?
Be sincere, know what you don't know, but be resolutely confident in yourselves and your pitch.
Hope this helps!
If you’d like to hear more, check out the links below.
Until next time,
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