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What Do Investors Look for in a Game Developer?

Lightspeed Venture Partners venture capitalist Jeremy Liew explains exactly what he and other VCs look for in a game developer -- taking stock of the ingredients for success by examining the wins different games and developers have made in the market.

December 6, 2012

11 Min Read

Author: by Jeremy Liew

Lightspeed Venture Partners venture capitalist Jeremy Liew (@jeremysliew) explains exactly what he and other VCs look for in a game developer. Lightspeed has invested in Kixeye, Playdom, Serious Business, and Kongregate in the video game space.

In the past few years, the opportunities for game developers have exploded. With more places than ever to play -- from proliferating smartphones to Facebook -- games are the most popular category of applications. These platforms offer developers a huge number of potential players. As developers can now self-publish on these platforms, they are starting to look to venture capital instead of publishers to fund their development and growth.

Equally, venture capital interest in games is strong again -- especially for web, social, PC, phone, and tablet games.

Since I'm a venture capitalist, I'm often asked what I look for in a game company investment. I've had some good success in investing in this category, most notably Playdom and Kixeye, but this is still a difficult question to answer because investing isn't like giving a driving test. If a company checks all the boxes, it doesn't mean that I'll write a check. But there are a few things that I always do look for.

A Top Team

Everything starts with the team. When games first started to appear on Facebook and mobile, they were pretty lightweight affairs. Some were barely games at all, and others were straight ports of existing games, without consideration for what makes the new platforms different. But game quality has risen considerably and continues to do so.

To build a great game company today you need an experienced team of game designers, developers, and business people. You need a mix of experience that includes having shipped successful titles in the past, understanding how social and mobile differs from console, and understanding how free to play and games as a service differ from the packaged software model. You can't just wing it anymore.

I get excited when I see teams like Innovative Leisure, nWay, Hawken and U4ia who have assembled teams with the right experience to build great games.

U4ia's Offensive Combat

A First Hit

All games have title risk. I can't tell you that your game is going to be a hit before it is launched. Frankly, I don't think that you can either. I'm glad that you are excited about your game. You have to be, or you would not be an entrepreneur. But there are plenty of games that flop, and each of those flops was built by a developer who truly believed in that game. The only truth lies in what users think and do when they play a game.

As Unity, Adobe Flash, HTML5, and other tools increasingly get better, it is getting cheaper and easier to build a quality game and launch it in beta. I like to see real data from real users to see if people are playing a game, and returning. In the long term, aggregate time spent playing a game is the best predictor for monetization, so I like to see your early users getting addicted, and coming back again and again.

OMGPOP had many flops before finally hitting on Draw Something. In contrast, the first two games from Supercell, Clash of Clans and Hay Day, both look to be hits. But it is hard to predict in advance.

Hit After Hit

A first great game is necessary, but not sufficient, to building a great game company. When games were simply packaged software, we all knew that games were projects, with a defined "end of life." Now that we think about games as a service, we build games that can hold players attention for longer periods of time. We want to retain players for months and years. But at some point a player will tire of your game and move on. At some point, you will run out of your universe of potential players. And at that point, your game will start to die.

If things go well, this might be many years and billions of dollars in revenue after the game has launched. But even games such as World of Warcraft are now showing signs of aging. League of Legends has supplanted it as the most played game in the world, but one day League of Legends will enter into its twilight years as well. To build enduring enterprise value, to build an enduring enterprise, you must build an organization that can build more than one great game. You can't just build a hit; you need to build a hit factory.

As the Chinese game publishers have shown, you can only ride on a single great game for so long. You need to have a strategy for how you can leverage your success and learnings from your first game into future games.

You need to have an unfair advantage based on your first success that you can leverage into future games. This can take the form of cross marketing to your player base, reusable code libraries to make the next games faster and cheaper to build, or even insights into what players want that you uniquely have.

But if you aren't thinking about how the success of your initial title can be leveraged into future success, you run the risk of being a one hit wonder. It could end up being a tremendous hit, like League of Legends or World of Tanks, but it is still only one.

CCP Games (EVE Online) and Jagex (RuneScape) run this risk right now, while Zynga, Kixeye, Gameforge and Bigpoint are all examples of companies that have been able to replicate their success. Both Riot and Wargaming are rumored to be working on new games to make this transition.

Getting Discovered

The good news about the game industry today is that it is easier than ever to get your game in the hands of players. Between the web, Facebook, and app stores, distribution has seemingly been solved.

The bad news is that everyone else has figured this out too. All these channels are flooded. The game marketplace is crowded and noisy. Traditionally, game developers have relied on publishers to get their games discovered. As a result, creating strategies for discovery is a new area for them, and they are often glib about how to solve the problem. "We'll just get viral." "Best game wins." "Apple will feature us, my buddy works there." All easier said than done. So while design, development and distribution are important, the real difference between a successful game and a failed one is often discovery.

In 2009, viral growth through invitations and notifications were the way that Facebook games could get discovered. As these channels became better policed, discovery moved to the feed. But today, even the feed is no longer a reliable driver of discovery. As a result, games that rely solely on viral growth will have a harder time replicating the success of Zynga.

For mobile, charting is the primary mode of discovery, and this led to widespread app store manipulation. Today, mobile game publishers use various techniques to "burst" to the charts, hoping that game quality will keep them there for a while.

All that being said, we do see a few strategies that work repeatedly for at scale discovery in the current environment. I like to see game companies that are taking advantage of some of these strategies, and preparing themselves to take advantage of more as they grow:

1. Cross-Promotion
Game publishers with a lot of Facebook or mobile install bases are able to make their user base aware of new releases in a free and scalable way. Zynga has repeatedly made use of this approach to launch its new games at real scale. Facebook has now made it possible to cross-promote from a Facebook installed base to mobile. To be able to do this well, you need most of the games in your portfolio to appeal to a similar audience. Building different games for different audiences makes it much harder to take advantage of cross-promotion.

2. Sequels
Publishers with a hugely successful hit game can often milk the IP with subsequent releases. Rovio has done this repeatedly with Angry Birds. With the game market being so noisy and confusing, most players will give a sequel a shot if they enjoyed the first game. It's notable how poorly Amazing Alex did in comparison to the Angry Birds sequels.

3. Borrowing IP
Much like a sequel, players will respond to a brand they recognize. This can be IP from another game platform (Bejeweled Blitz, Zynga Poker, Sonic the Hedgehog, The Sims Social) or another medium (Battlestar Galactica Online, Marvel: Avengers Alliance, Temple Run: Brave).

In the $60 packaged software world, gamers would check game reviews before buying any game, even one with licensed IP, so many games that borrowed a TV or movie brand were not successful because they were not good games. But in a free-to-play world, players are more willing to give a game a try if they recognize and identify with the IP.

4. Paid Acquisition
Smartphone and Facebook both have relatively efficient markets for paid installs at this point. If a game monetizes better than others, it can pay more for a new player than others can, and it can find its audience through paid channels. This requires excellent monetization, which typically means targeting core gamers. Kixeye, a Lightspeed portfolio company, has followed this approach with great success.

5. Get Featured by the Platform
This is hard to do. Infinity Blade benefited from a lot of promotion from Apple, in large part because it changed people's perceptions about what was possible for an iPhone game. This drove a lot of users for the game, despite its relatively high price point. Getting featured by the platform is hard to plan for, and can take a combination of distinctiveness, something in your game that also promotes the platform, business development expertise, relationships with the platform and someone simply taking a shine to your game.

Chair's Infinity Blade

6. The Early Bird Gets the Worm
Zynga did this on Facebook and is still the dominant publisher of Facebook games. Gameloft, EA, Gree and others are frequently in the top games charts for mobile. I think that iPad is the only fast-growing new platform that does not currently have a set of dominant publishers.

There are far fewer games built specifically for iPads. As a result, discovery is substantially easier for iPad than iPhone. It is less crowded, for now. Most tablet games are simply up-rezed mobile games. But tablet gaming has the opportunity to be quite different to phone gaming, with longer session times, more screen real estate for display and the opportunity for co-op and competitive play with another person sharing the same device. Developers are starting to take advantage of this by building tablet first games and having great success. In the short term we may see more winners coming out of the iPad gaming platform than any other.

7. Co-opting a Community
Riot did a tremendous job of this, co-opting the DOTA community to come over wholesale to League of Legends. We haven't really seen this done by anyone else recently, but the tremendous success that Riot had with this approach makes it worth exploring to see if it is repeatable. In the console and PC gaming world this has done this several times, notably with Counter-Strike, co-opting the Half-Life community, for example.

Some of the strategies are more available to larger companies than startups (e.g. cross-promotion or sequels), but they should still be held in mind by startups as they think about their future. Discovery is the problem for many game startups today, and companies should spend real time thinking about discovery and how to prepare for it. You can't just make a game and hope for the best.

Wrap Up

We've seen many false dawns as we've waited for the "Golden Age of Game Developers." Every new console release has offered that hope. But each time it has been the publishers that have benefitted and not the developers. But this time, because developers really can self publish, I think we finally are at a golden age for game developers. I'm excited about this as an investor. If you've got the elements that I've listed above, I'd love to hear from you! In the meantime, let me know what your thoughts are on what game developers need to be successful in comments.

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