Ex-Take-Two CEO on Wetherl Big Game Companies Will Survive AI?

The other thing that we're completely focused on is the intersection of AI and video games. Um, and we think that the change coming is massive. It's not just entrepreneurs, it's the incumbents too that need to pay attention. And I think this is one of those situations where can the incumbents embrace the change quicker than a startup can get distribution. [music] Ben Federer, you've perhaps the most accomplished executive to join this podcast. You've led Take 2 through GTA, Red Dead Golden Years. You've managed private equity, sat on the board of Epic, Bad Robot, led 10 cents international partnership and role of a president, just to name a few positions that you've held throughout your very story career. And now you're a partner at Terta Terta Ventures. What made you become a venture capitalist at this point?
Uh it's a great question actually. Uh I

I don't really have a much better answer other than this just what I wanted to do at this stage of my life. Um I sort of made a decision a that the next thing I do in my career I'm going to do for the rest of my career. Um and you know as an operator in a creative business you know I realized that eventually I would age out. Um and I probably already aged out a while ago. Um, but investing is something I can do for the rest of my career. And I'm really not a guy to retire. Um, and so, um, whereas a friend of mine said who did retire, he's like, "Retire? No, rewire." Um, which I which I I buy, completely buy. But I, um, I don't know, I just sort of felt like it's what I wanted to do. And the the alternatives of investing would have been either to just do it on my own, uh, with my own capital. And I don't think you'd get taken very seriously if you do it that way. I mean, there are plenty of angel investors, but I know even when I see a pitch and you sort of like it's different when I get an institutional firm that's backing the company versus, you know, angels, as impressive as they

are, they're just angel checks and they're just sprinkling money. Um, and B, I like having a team around me. Um, and having a fund allows me to have a real team. Um, a because I enjoy the leadership and b because, uh, quite frankly, they do most of the heavy lifting. Um, and so, uh, uh, it's great and I enjoy it. Um, and then finally, you know, I think I'm not alone in this, but a lot of executives, uh, maybe it's just a male thing. I don't think so, but a lot of executives at this point in their career get a lot of satisfaction out of mentoring people as opposed to just doing. Not just doing, but, actually doing. Um, and I really, really get a kick out of it. Um, I I've been coaching people all my life, mentoring people. Um, and I really enjoy it. And sometimes I tell people, you know, I'm actually I'm not really in the venture capital business. I'm in the mentoring business. I just monetize through venture capital.
So, uh, I mean, that's a kind of a long

answer to a short question, but I mean, reality is I do it because I enjoy doing it, not because I need to do it. It's I really like this stuff. So,
and why did you choose venture capital and not private equity?
Out of a fallacy. It was a mistake.
And the fallacy was it would be easy. [laughter] And the thousand was like, "Oh, this is like what is it?" It's just like cuz everybody knows you, you know, I don't know that uh I haven't seen the data, but there's at least a school of thought out there which is like whatever venture capitalist say, it's really just throwing darts at a board. Um
Yes. And it's and maybe it's true in terms of actual results, I don't know. But in terms of the work involved, it is absolutely not throwing darts at a board. Um, but I mean, think of it this way. If you're going to do a seed stage venture fund, which is what you've done, the research said you should have 30 companies in your portfolio. If you're going to have 30 companies in your portfolio, you're looking probably at

3,000 companies.
And I'm engaged in everything we do. So that's a ton of volume. Never mind all the emails that you get either to kind of oh we're selling you this service or that service which I have to respond to because I just it's my nature to respond to all the emails. Um and uh and never mind the people that you just you know just like it's just wrong. We're raising money for a biotech company. It's like that's just not our focus. But you know if I and you know how this works if you don't respond to them they just like they just keep coming. So you got to tell them no. Um, so it's just a lot it's just a lot of volume. All that said, once you get down to the companies that are interesting, it becomes really interesting. It's kind of, you know, this is an area that I've uh grown to love. I think I know it pretty well. I've been around it long enough to believe that I've seen just about everything. Um, and uh I really really enjoy it. I think there's there's nothing more uh

creative and interesting in the media and entertainment landscape than video games in my opinion. Video games um you know you could be I've been in the music business. I've been in the film and television business. Um but those are pretty stable. You know the video game business is really changes at the pace of technology. And there's always something new and interesting going on. And if you're going to compete in that world, especially because if there's something new and interesting going on, it's disruptive, which is kind of how you know big piece of the venture capital business. There's always something new going on. And because it's kind of techoriented and because it's both tech oriented and um uh creatively driven, uh you end up with some really really interesting people. And I I I really enjoy hearing what they have to say. And so it's it's for sure the most interesting part of the of the entertainment business. And it might be

in my opinion, you know, these days maybe not, you know, because of AI, but it's probably the most interesting part of the uh technology business for somebody of my background.
Yeah. So always something new going on compared to other entertainment sources. But how would you I'm I'm curious. How would you compare venture capital to private equity having done both?
Uh I would say it kind of like all it all depends. It always depends. Um, but we're in a very unique uh period of time in the venture capital business and I feel very fortunate to be here at this point at this point in time because there was first of all the tailwinds are enormous with the we're very focused on the intersection of video games and artificial intelligence and how that's changing everything and it's very very exciting. Um but I would say that in that world for the model to work I think you need

to be directionally correct. Use your your uh you know whatever skills network uh analytical ability to pick and choose what your portfolio is going to be. But I think and again I'm in fund one. We'll see if it bears out. But I think you need to be in the right zip code to make money. You don't need to get it exactly right. I think a I think a a more seasoned venture capitalist will sort of say, "Oh, no, no, no. The only way you make money in this business if you is if you own a big piece of a company that goes public. And if you're going to do that, then you need to um then you need to pick exactly the right company." Uh we'll see. I don't I sort of feel like we've had a few exits already and they've been good. Um and uh I think we're a fun one. I think we're doing just great. Um, but I do uh anyway I sort of uh I don't know. It's probably again kind of a long answer to a short question. Uh I don't know. I'm kind of like uh I think we're

I I Yeah, leave it at that.
Yeah. No, I'm I'm just curious because like often times you feel that venture capital is more it's it's like being a gambler and a salesman at the same time. So you have to be selling to your LPs that who give you the money to invest. You have to be selling to the founders who need to consider you as a value added investor. And then you have to place a bet on on few founders out of a you know [snorts] thousands that they will achieve. Especially when we're talking about early stage there's not really any numbers to to go on. So you making these gut feel gut gut feeling basically decisions. Well we tend to be thematically driven. So we know what we're looking for. If you don't know what you're looking for I agree with you. It's pretty hard. Um,

what was that old George Harrison lyric, right? If if you don't know where you're going, any old road, any old world will take you there. Um, and uh, we have uh, and there's another expression that we like, you know, strong opinions, loosely held, but we have uh, on the one hand strong opinions, the other hand, we have flexible mental models. So, we typically know what we're looking for when it walks in the door. Um, sometimes I have to restrain my entrepreneurial uh, you know, instinct, which is, "Oh, I've got a great idea for a business. Let's go build it." I was like, "No, no, no. That's not your business anymore. You like, you got a great idea for a business, you got to find the entrepreneur to go build it." Um, we may incubate a company one day, but I don't have the bandwidth to do it. So, um, uh, and I would say on the, you know, your point about the the salesman versus gambler, on the on the entrepreneur side, we

don't really have trouble, right? I think that as I scan the landscape of VC funds that focus on video games, I think we're literally the only one that has the kind of operational expertise um, and experience that, uh, entrepreneurs crave. I've been on lots of boards and uh you know in all humility I'm everybody's favorite board director because I'm usually the only one on the board that's actually built a company or run a company. Everybody else's finance and they're there to be you know I some of them never even speak I've been on one board where this top tier VC like never in in the years that I was on the board never said a word. I was like what are you doing? I mean why are you here if you I mean they're just babysitting their capital and they were completely unhelpful. So for entrepreneurs, it's really not a hard sell. Um, and we, you know, we don't, we don't really have trouble getting even in competitive situations if we want in the company, people seem to want to with one

exception, people have always made room for us. So I'm not worried about the entrepreneurial side. And by the way, it's a really easy thing to diligence. We talk to our entrepreneurs. I think they see the value. Um, and on the LP side, at least for fund one, it's harder when you're pitching the fund, it's harder to sort of articulate that. Um, because you know, entrepreneurs in the video game business know who we are in the LP business, like, oh, another fund. Um, which is why funds like ours that are both, you know, we're on fund one and it's a relatively small fund, you know, it's really relationship driven. Like I think everybody just about everybody who's an investor in our fund is an investor because either they've known me um in the firm or they've gotten to know me in the firm and they just kind of want to be in business with us as like nobody needs to have a video game venture fund in their portfolio of funds. Um they do it because they want to do it and they want to do it. I do

this as well in my own personal investments. I mean, I make investments on the basis of who I want to be in business with. And um and I think a lot of our LPs are the same way. And I think our job ultimately will be to extend that network of people who want to be in business with us. Hopefully, um, you know, attract like real institutional capital. Um, and um, but even then, I sort of feel like we have a really unique selling proposition. I feel like I'm pitching my fund here and I really don't [laughter] need to. That's That's the life of a VC.
Well, I I kind of proved your point, didn't I? That's my life. Like I'm I'm pitching. [clears throat]
You have to be pitching it every day.
But but to go back to I mean to go back to your earlier question, that is kind of like a big difference in the uh private equity world. you know, private equity world, guys like not guys like but funds like ours with that kind of pitch is not too unusual when you sort of say, "Oh, you're going

to be you get help with operations and you're going to really, you know, got, you know, somebody's going to come in and roll up their sleeves." And I think that is more usual in the private equity world for sure. Um, which I guess, you know, I I have the private equity background. I guess I just borrowed that um for venture capital and it seems to really resonate. You know, I will say also for generalist funds, if you for VC funds, if you were pitching a B2B SAS business, you can go to any number of VC funds on South Hill Row and they'll say, "Great, here's our operator who used to run a B2B SAS business. He's going to help you or she will help you build your business." Um that's common. If you did it in video games, it's just not around. they're not avail they're not there. Um and so you know even for a generalist VC firm I guess maybe that's you know one of the reasons we don't have trouble getting on cap tables because um the generalist VC

firms typically don't have in this sector they don't have an operator lying around who can help help the uh entrepreneur build their business. So, um I don't know. It seems to it seems to work for now. If we're successful, I'm sure we'll invite competition. Um and, uh you know, I'm kind of I'm confident we'll be we will be successful, but it's still unproven. Uh so, I don't know. Um maybe in maybe in another maybe in another world, you know, it would make more sense to do it in private equity. But also, I will say that when we started the fund, and I think it's still true, we didn't see a private equity opportunity. Like, it's not a target-rich environment for private equity. It is a very rich environment for VC. Um, so kind of just made sense to do it that that part of the the capital stack. Got it.
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investments are really focused on on the intersection of AI and gaming, which makes sense. That's the uh the future. How do you view the current situation with AI where you know people like Sam Alman and and Zuckerberg have basically called it out as a bubble. Harvard, McKenzie, everybody keeps saying that you know the size of investment compared to the results that these AI companies are delivering and with the risk of how every company is so interconnected whether it's Nvidia and in parts of Open AI that is being owned by Microsoft and so forth kind of creates this sort of a situation where the expectation and the investment sizes are not very connected at this point. So, do you view that as a risk for your investments? Especially since you're investing into companies that are early on in their in their journey.
Uh, you know, when you were speaking, I had like six things I wanted to say and hopefully I can remember them all. But, um,

okay. First of all, bubble to me is about valuation is not about opportunity. The nature of the opportunity. So, um, we'll put that to the side for a second. Uh, you know, all that saying is just like it's a little expensive for what it is. Uh I think that what everything you just described all that capital is a boon for uh the kind of companies that we back because if you put invidia to a side at least the guys building data centers and LLMs and foundational this or that uh they're spending hundreds of billions of dollars killing each other for dominance and maybe in the long term if one of them actually gets dominance uh it won't be good for people building applications on top of that but for entrepreneurs building applications on top of that they're all giving this stuff away for free more or less and it's hundreds of billions of dollars

of technology that some guy or gal um cooking up a business plan in their basement can get access to for very little capital. It's never been easier or cheaper to start a company today. And if you're going to do it on on some AI platform, uh you'll get all sorts of support and that's kind of that's an enormous benefit. Now maybe again down the line, you know, maybe there's a monopolist. I hate, you know, we don't like to use the M word, but maybe there's somebody that has dominance down the line that really begins to uh take economic rents as we say in private equity worlds. But um it's not today. And by that time, you know, there could be some really really interesting companies built. There's no doubt in my mind there'll be multiple multi-billion dollar companies in the sector that come out of this business. Um and they're all being started today. And uh and the opportunity is created by

kind of the so-called bubble, but I don't think it's a bubble. And the last thing I wanted to say which I think was.3 and I don't know what the other three were but um uh you said something about adoption being slow. I forgot the words you used.
Uh more like the like the results coming in from uh from companies that are adopting AI tools. Yeah, I think the history of things is certainly in the first PC revolution. Uh, and I bet you could find evidence of this in the industrial revolution also. Um, which is that you know initially these technologies are used to basically do what you were doing before only better, faster, cheaper. Um, which is certainly the initial use case for video games of AI. we can like, oh, we can create art quicker. We can I mean, never mind the quality, but um which is getting really good, by the way. Um

but it's not until you reorient the workforce and reorient what you're doing and see the possibilities to do new things that these things really begin to take off. And uh and I think you quoted Sam Alman or he said something about Sam Alman, but he's also sort of said which I believe uh that these things happen very very slowly and then very very quickly, right? It kind of takes a little while and then all of a sudden is like boom and the whole world changes. Um so the fact that you're not seeing the immediate results today, a doesn't surprise me uh and b uh doesn't bother me. Now, are we in some sort of uh um hype cycle? Pro for sure. For sure we're in a hype cycle. I mean, not a day goes by where there's not some kind of crazy announcement out of OpenAI. Um and you know, Sam Alman, you know, says it's

above, but he's like I mean, who's out there beating the drum like literally every single day? Every time I see him on a podcast, like, dude, are you running your business? What do you I like this is your entire business hyping hyping AI. So, um, you know, and it's like I'm, you know, it's not really the way I do it, but I'm not Sam Alman, so good for him. But like, you know, we have our heads down and we focus on our business and he's out there beating the drum. Um, so we're probably in a hub cycle. We're probably in some sort of bubble. Uh, but bubbles can last a really long time, by the way. And um you know Warren Buffett used to say you know the market can stay irrational longer than you can stay solvent. So [snorts] um uh yeah and I will say you know in terms of how we're thinking about it today we've had our you know our investment committee the last two investment committee meetings in our firm have been about uh valuations and you know is it becoming time for us to maybe sit on our

hands for a little bit and sort of wait I don't know that that's a great strategy in the venture capital business but it's it's a topic of conversation. Yeah. And the other part that you know have few angel investments like 20 or so but there what I've noticed if I've invested into AI
20 is not 20 is not a few 20 is not a few Mishka.
Well it's a you know u but still
you're t shy of a of a of a of a full portfolio. Well, you know, and anyways, like uh like with with uh with my limited knowledge and viewpoint, like investing into AI companies have been challenging because they didn't seem to have the same type of a mode. Like they started with something and suddenly what they believed was their unique offering is something that the platform offers for free as a part of their service. like

how do you view the modes of individual um AI companies the sustainability of their modes? Uh I think a few things. First of all, every I don't think this is not an AI comment. This is just general entrepreneur comment. Every entrepreneur that we back I have the same speech to which is like I guarantee you by the time all said and done whatever business you're pitching me today is not going to be the business that you ultimately end up in. I mean it just almost never happens. which is why it's one of the reasons why, you know, most VCs sort of say the most important thing is the entrepreneur, right? I mean, you know, everybody hates a pivot, but you need an entrepreneur that's going to navigate and you need an entrepreneur that pivots when they need to. So, uh, you know, I don't I don't mind it, which I mean, we're we like entrepreneurs that can navigate within a space. Um uh but it's not um [snorts]

you know we don't we're not backing that entirely. We we are we are uh thesis driven. We're also entrepreneur driven and so okay you're within the sandbox but you know we've had a company that um we backed for whatever thesis we had of the video games and they ultimately pivot pivoted to defense and they're not involved in video game industry at all. Now, would we ever back it a defense business to begin? I never say never, but it's not really our mandate, but now that we're in defense, like, all right, it's a growth industry. Go for it. Um, you know, for better, for worse. And um uh so we don't mind uh that navigation at all. uh the really the truly treacherous part is it's still unknown to us and I think to the industry where uh horizontal ends and vertical begins and uh you know every time you look around like early on

people were building oh we're building you know a video generation model we're building an asset generation model and and you know you wake up the next morning it's like there's some some announcement from AI I open AI or or um anthropic or whatever. It's like, oh, we can do that. And um these models are so powerful uh and so flexible that it's very it is treacherous to sort of navigate all of that. And so we spend a lot of time thinking about are the modes that we're talking about, never mind the pivots, but the modes that we're talking about, at least theoretically, are they going to be around or are you going to get eaten? So a foundational question we could ask is okay assume today's models are 10 times more powerful than they are. Is the company in question uh benefited or diminished as a result? And um we look for companies that obviously are

benefited and a few easy examples not easy examples are all difficult. A few things to think about are one um uh does the does the company in question require just multiple pieces that have to come together? Just kind of there's kind of an old saying in the media business there only two ways to make money. aggregation and disagregation, but are you kind of aggregating a lot of or orchestrating um a lot of disperate parts that come come together that are unlikely to be um developed by at least in the short term or medium term by any one of these foundational models. That's kind of one way to think about it in our business. The other way to think about it is creativity. Um I'm quite confident that AI is not going to develop the next greatest hit video game. Um, and that kind of creativity needs to be human. And so, you know, is is that kind of

humanity humanity is the wrong word, but is that kind of human input the uh critical to the business? And I think those are areas that I think um are protectable from something that's fully automated. Um there are a few other examples of that, but um it's something we think about a lot. It's it is treacherous, but if you can navigate your way, then you can take advantage of the kind of things we were talking about earlier about all these um hyperscalers competing against each other and providing this kind of technology either cheap or basically for free to application developers. And I don't and I don't um I don't want to overstate like how important what we do is because like when you think of applications for LLMs like protein folding is is like much more powerful than making a video game in terms of its contribution to humanity. Um but uh but in our world

it's very cool and I mean we just sort of accept um you kind of accept where we are.
I just watched an episode of the studio. I don't know if you've seen it.
Yeah. No,
you know the whole thing was like this the studio director is dating this, you know, this pediatric oncologist and is convinced that his work is just as important as hers. [laughter] Uh it's it's sort of it's sort of a hilarious episode. I'm sure Seth Rogan is working something out in his own psyche through this episode. Um, but um, people do need to be entertained. So, here we are.
Anyway, we're kind of we moved around a lot there.
It's a part of entertainment. Um,
yeah,
you've talked I'm curious about like, you know, the founder being an important aspect of your decision-m because yes, you have a thesis, you try to look into the future, understand how this business model would work, but in the end, it's all about the founder because likely

they will need to pivot and figure out their business. How do you evaluate the founder and feel confident that this is the person that can give a birth to either this or some kind of other business that they will need to pivot to?
Uh also a great question. Uh also an unanswerable question. I'll tell you the way I approach it because because every VC will sort of say the most important the important thing is the is the C is the founder or the CEO. And um I spent a lot of time trying to think what what do they mean by that cuz I'm new to the VC business. And where I've sort of come to is um you know I've managed uh people and been around kind of entrepreneurs at more developed companies and I sort of have a sense for what a mature entrepreneur and manager of a business looks like andor like who I like to be in business with. Like are they my kind of person? I sort of like

how it made it personal like do I want to be this person's partner because that's sort of way I think about it I don't really think and one way to think about it is it's just a portfolio the other way to think about it especially if you're somebody in my position and are into it you know mostly maybe in part but maybe mostly you know for the mentorship like does this person have potential to run a big business and does this person uh is this person somebody I want to be with in business with and is it like my kind of person and I kind of I sense the aggression I can I like I can sense the ambition um and I can sense the intelligence and we always say like so we look for intelligence we look for grit um we look for passion um but first and foremost we look for integrity and if you don't have integrity nothing else matters and that's hard to do when venture capital can be a speed dating kind of business um so you rely a little bit on tuition a little bit on you do your diligence,

right? Kind of there's a a limited number of people you can call when somebody's, you know, out of college or, you know, 30 still and building the business. Um, but I sort of have personalized it and I sort of like, you know, uh, is this is this does this person have the right stuff? Uh, and it's an ephemeral kind of thing. Um I'm sure VCs, a lot of VCs have like uh you know tick the box kind of ways of um uh you know really determining you know who has the right stuff. I have my way. Um and again, you know, I have a beginner's mind about all this. And so um you know, I will course I will course correct um as we go through this. Um so far I have there's I don't think there's anybody in our portfolio that I I think

we've made a mistake on. I think we're so far our judgment's been good. And again, sort of comes back to kind of the thesis of what we're doing, which is, you know, if if you're in business with us, you're not we're not a typical VC. You're not when you know, when they say value ad, they mean, oh, we'll be your outsource corporate development department and you we'll make phone calls for you. We'll do that. But the real benefit is the judgment that we have through years, decades of experience in this business. uh which you can't buy and you can't uh you can't license. Um and so I had we had one company we're looking at and the entrepreneur says tell me exactly what you're going to do for me. It's like you're asking the wrong question, right? You you come to us uh for judgments. You'll come to us because you want to look around the corner. You come to us because you want to avoid mistakes. Um you do not. We will do it for you. We'll make phone calls all the time. But don't come to us because you think, "Oh, we're going to

we're going to develop your business plan for you and we're going to we're going to do all the NBA stuff for you and you're not going to have to do it." Um, we're not outsourced labor. We're outsourced, you know, se senior uh judgment and wisdom, which is like, you know, I I don't really mean to be arrogant like that, but I just sort of put it as kind of, you know, what we offer.
But but there are very different type of VCs. Like I know VCs that will do funding decks like spend a lot of time doing the decks for the founders who are just so deep into the product and they're like I'll do your deck because I know your audience who you're going to be pitching to other VCs so they do those uh there are these larger VCs.
Let me tell let me let me tell you something about that. I'm on the other side of that a lot and I see it immediately. I see the behavior. I was like oh you were trained by that by that you know by that incubator. You were like I just sort of see it. I'm like it's freaking annoying. I'll tell you what, it's just like being on the other side of that I I kind of like, you know, you're not we don't fund those

businesses. We're not you're not getting the real person. You're getting you're getting the embodiment of the general partner of the accelerator program. And so like this is the way you go raise money, right? And among other things, you're like, oh, so a you kind of realize you're not getting the true entrepreneur and b you realize, oh, I'm in an auction. The only, you know, by winning an auction, you lose the auction. And so that's not kind of that's not the game we play at all.
I understand. I I've just seen series 8, you know, raises of tens of millions being done with uh with VC partners actually doing the decks for the founders and that's clearly a value ad because the the founder was
Yeah.
working on the product.
Yeah. Yeah. No, no, we do that to unless we don't do it for them, but we provide feedback. It's like um and look, there's a part of there's a part of what we do that I think actually negatively selects, right? You don't want entrepreneurs that kind of are leaning on you all the time. They're they're

just not a good entrepreneur if they're leaning on you. But you want entrepreneurs to sort of say like, I got this. Leave me alone. I got this. And then every now and then you run into trouble. like I know I know you got this but are you open to just a little bit of feedback because what you're doing here is not going to get you the money you're looking for um or unlikely to and so we our hope is that you know at that point so okay what do you have what do you have in mind do you have a suggestion uh
so I have a question regarding that turtle fund one is I believe $50 million fund the one you
we pronounce it ta
tier
tier yes
t fun one 50 million
and how do You view these larger funds that have hundreds of millions and uh gaming funds that have hundreds of millions under not under management just to be invested. And they have built out a lot of different services almost becoming like a little bit like publishers. Like you have talent people

there helping you out. You have corp dev people helping you out. You know pretty much everything except psychologists. Maybe they even have those, but they start having like marketers and and offering the the whole suite of services. Like what's your view on on that type of evolution? Great. We're we're we're we love having those guys around. First of all, they're we need a downstream of capital for our companies. So, you know, those hundreds of million dollar funds are generally not investing at the at the stage that we're investing. Um they invest at later stages. So, great. In fact, we just had a company that has raised money from one of those. Um, and uh, we'd like to think they'd like to see us on the cap table and, you know, we'd like to see them on the cap table. Doubt's great. So, I think um, that's all fine. Um, that works for us. And in terms of the services they offer, also great. Go for it. I'm a little uh you know I I think the jury is out a

little bit on whether that all that stuff works for the VC in terms of their own economics. Um you know I'm a big believer of if you're going to build a business, build a business. You should have all that stuff. You know ultimately if you need help periodically, great. Um but you know in in the short term I don't know that it's uh in the short term it's fine in the long term you need to build out your core capabilities. So I feel about if I were the entrepreneur I feel about that the way I feel about outsourcing generally which is it's fine for uh non-core activities and you want to focus your resources and you want to focus your attention on your core activities. where you run into trouble is when people start to outsource what should be core to their business. And if you think like you just said creativity, if creativity in a video game is absolutely core to your business, if you're outsourcing that, you're really lost. Now, it's not to say like I've seen creative people all the time, which is like game's not working.

We don't know what's wrong. We need to call in a doctor. Um, and you know, in Hollywood be a script doctor. I don't know what was in the video game business. And there aren't there aren't a lot of them. So, if you have people that can really sort of say, uh, look, you got a real, uh, you got a real onboarding problem and you need to, uh, you need to, you know, fix that, this, that, and the other thing. And it's typically these aren't straightforward answers and, um, andor they're not cheap answers andor they're not quick answers. Um, and they require work. And so I don't, so on the creative side, to me, that's again, that's sort of judgment and wisdom. But if you're outsourcing, excuse me, if you're outsourcing creativity, you're outsourcing what's core to your business. And I think that's a mistake.
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We're talking about other funds. Um, you know, the normal question is terra like why another gaming fund? like what do you when when you started it and as you're running it, what is the uh the opportunity that you feel others are missing where your fund is strategically positioned in?
Uh well, we talked a lot about kind of the the value that we bring to the table. Um the other thing that we're completely focused on is the is the intersection of AI and video games. Um and and we think that the change coming is massive. We think by the way it's not just entrepreneurs, it's the incumbents too that need to pay attention. And I think this is one of those situations where uh you know can the can the incumbents embrace the change

quicker than a startup can get distribution? Um and uh and I think the jury's out on that and I think there there there are real kind of structural reasons for that. Um the good news is that the for the incumbents is that uh you know certain IP that is really well entrenched in the community or even in the mass market I think is fine provided you know they don't fall you know provided they incorporate AI. Um, and I don't think anybody's ignoring AI, but um, but sometimes there are structural things that are really kind of problematic and I think that creates opportunity for uh, for startups and I think it creates exit opportunities for startups ultimately. Um, and so uh, that whole kind of intersection of AI and video games is kind of important both for LPs which tend to be the incumbents as well as for

our entrepreneurs. uh and uh I don't I don't know that we're unique in that. I think you know I think the world at this point is for all money is divided between people are interested in AI and people who are not interested in AI. Um and there's a lot of money that's out there that's just interested in AI. But in terms of just our port, we jumped on it very early. Our portfolio of 22 companies is 2/3 to 3/4 AIdriven. and um we're not you know we have investments that are not AI when we find them compelling but there's a huge component of that and therefore um and expertise that we're developing and as we go on with their business a network of entrepreneurs that we tap into um we do think there are network effects in this business at the BC business for this area um and um you know I think that focus is kind of somewhat differentiating just because of the the track record so far. Um, and then you know just kind of our our our value ad

that we've spoken about. I don't and I don't like there's like I don't think VC is VC is like it's like any other business. It's it's competitive. It's uh cyclical. Um it's not you know as we said on the top of the call it's not easy. Well you mentioned that the uh the the other part is your operational excellence that you bring to the table. you know, you yourself having the storyried career, having been in private equity, ha sitting on these and having sat on these boards, um, run massive corporations through blockbuster hits. Your partner Justin, he he comes from Tencent. You both you work together, invested in some of, you know, the top companies in in the world. Can you talk a about like what is your operational support in practice? Like give some examples. have you've uh helped operationally these founders?
Oh, um well the easy I mean just in

terms of examples uh the easy thing is like can you make a phone call for me?
Can you call like you you you just listed a whole bunch of companies but you these are all companies we have relationships with. Um can you introduce me um to this company or that company? the um a lot of uh entrepreneurs are interested in the China experience and the China relationships. Um you know, could you help me figure out China? I think it's become really interesting actually in the last uh call it 18 to 24 months when I mean you've seen some of these very high-profile studios uh you know with big budgets uh and great creative teams just faceplant on launch. I mean just kind of com just complete splat and like holy crap how did that happen? And as you dig into it, one of the things that happens is that they uh launch an early access globally. It's

like, "Oh, let's see what happens." And they it gets picked up in China really quickly. And and there's a very high bar in China. And if it doesn't meet the bar, it's like you get you get reviewbombed by a lot of players in China that um they're not doing it because they're being uh you know jingoistic or uh you know for any any motive other than they're reviewing it honestly.
Mhm.
But their bar is that much higher and maybe the game isn't optimized for China. Um, and then the reviews kind of look like crap when they come out. And there's this recognition a that, you know, back in the day, you know, if you got if you thought you had a eight out of 10 or 9 out of 10, uh, you'd launch on early access and you'd be fine. It'd be great success. You need a 12 out of 10 to early access is the launch.
You need a 12 out of 10 to really succeed. And to get a 12 out of 10 these

I I I think there are ways of managing this. And we talk to our we talk to our studios also about like okay how do you manage the situation um but if you launch with an eight out of 10 and you're launching in China you are going to get review bombed um and you need to think about how you're going to launch your game that way and so we we do talk about strategy and about that kind of strategy as an example um and then finally you know especially on the on the v on the creative side because we we uh have basically three buckets of investment which is like um content yes but also tools and infrastructure. But on the content side um you know a lot the capital you probably know has been has dried up especially this later stage. Um and the remaining source of capital big remaining source of capital is is the strategics and all those companies that you mentioned are kind of important relationships that we have and we're able to um help our

studios really kind of access those relationships and then so you know you ask me a question that when an entrepreneur askked me I like you're you're asking me the wrong question because you know but you know since it's you know I'll answer it. there are concrete examples. Um but uh uh you know all of that I think is uh is sort of important and if you're an entrep like you and I can talk about it but if you're an entrepreneur in the trenches it's very hard to see the forest for the trees. Um, and because we see a lot, if nothing, if we were just plain old venture capitalists with a 30 company portfolio, we will already have seen much more than any entrepreneur could see themselves. Um, or at least focus on while they're also trying to build a company. Um, and so we, you know, we obviously kind of can help in that way.
You mentioned China. Um, how does Turtle plan to allocate capital across

different regions? We are probably more international than most. First of all, I spent my entire career working in international markets. I have no trouble with it. In fact, I'm getting on a plane to Asia next week. Um, and do a little magical mystery tour. Uh, and um, uh, so I would say about 60 maybe 65% of our companies are in the United States. The rest are international. um uh of the you know of the the the exits that we've had one of them was in Australia um and so uh let me get you know after co I think it's a lot easier to invest internationally um you know I I got to tell you honestly if I had to do my the job that I do now and do it the way it was done before co meaning you know everything face to case all the time.

I I there's no way that I could do it out like 30 companies that way. I mean, it's the reason one of the reasons that VCs and entrepreneurs have these ecos like nobody has to travel. It's like everybody's in Northern California. You can meet each other. Um it's a little bit different now. Um I also found in the video game business well before COVID that the creativity that you find is really all over the place and you never know where you're going to find it. Yes, there are these hubs. They're video game hubs that you know about and your your listeners know about. Um but every now and then you find the super creative team in some place you'd never expect to find them. Um and like wow, how did that happen? Um, my favorite story about that was, uh, when I was Take Two, uh, it was a game that we ended up, uh, studio that Take 2 ended up acquiring, but it was, uh, a game set in Chicago in the Prohibition era, and it was all,

uh, you know, gangsters, mobsters kind of orientation. And the guys that developed it developed it were in the Czech Republic and grew up behind the Iron Curtain. Had no access to any of the stuff at all. Their whole, you know, their knowledge of Chicago, never been to Chicago. The knowledge of it was just kind of what they were able to read and consume. Um, and they maybe that was a benefit, but I when we went to acquire like the studio, I'd go visit them in the middle of nowhere in the Czech Republic. It was like a 2-hour drive from Prague. And here are these guys developing this amazing AAA game, you know. I mean, in my perspective, it's middle of nowhere. From their perspective, it was like the center of the world, I'm sure,
but um
I don't think so.
Uh but you never know where you find it. And you've seen lately, you've seen, you know, countries pop up. You'd never see it. Initially, it was like on mobile. Obviously, Israel is a big one. Um and then Turkey shows up on mobile. And now

we're seeing, you know, we've seen games developed got, you know, Pakistan and um, you know, I don't know where, but I just uh, you know, and to me, there's a part of me that just really likes to smile about this because, uh, the democratizing uh, digital economy uh, is, I think, better for the planet. It's better for humanity. Um, and uh, and it's, you know, its own way it's kind of democratizing. Although I, you know, when I talk about democratize, democratizing video game development, I had one LP sort of say democratize. You mean commoditized? I was like, well, no, I do not mean I say it' be commoditized if it wasn't for the power law of what we do. So like yeah maybe 98% is commoditized but 2%'s giant and huge boots and you know our job is to find that 2%.

So uh yeah so we go everywhere um for a small team we have one of our GPS is based in Hong Kong to cover Asia um just if nothing else it's the time zone that matters time zone differences. Um, and uh, uh, we have companies in the UK, we have companies in Canada, Australia, um, Europe. I mean, we're kind of, uh, we've looked at companies in South America. Haven't pulled the trigger yet, but but we're excited about what's going on in Colombia and Brazil. And, um, it's uh, it's sort of everywhere. It's harder for us to really diligence the entrepreneur. So we have to think about that. Um and it's harder for us, especially with time zones, time zone differences, to really add the kind of value that we'd like to add. So that all factors in. So it's harder to do it. Um at the same time, valuations are better. Uh development costs could be a lot

cheaper. Um we we're quickly coming to the point of view that it's almost impossible to develop a AAA game in the US at in a cost-effective way. um offset of course by you know AI if and you know not if but when the you know I I'm of a mixed mind about whether costs are actually going to come down as a result of AI. I think certain costs are going to come down but other costs are going to go up. So we'll see how that plays out. Um so we see a lot of uh cost benefit by doing it internationally. Um, and honestly, you know, there are territories where people work freaking hard because this is the only this is their this is their one opportunity and like their next best opportunity is like is is not anything like this, you know, it's driving a cab. I don't know, but it's um it's big. It's important. It's their lives. And I don't, you know, I don't know that that's as true for entrepreneurs in the United States. It's

it's it goes from like being a passion project because you love games to being yes, I do love games, but also this is my life and I need to make this into a business and it's not okay if this fails,
right? Yeah, I agree with that.
I'm not going to go to Google after this after this failed and say, well, I did a startup and didn't work out. Can I get my 600k salary now?
Yes. offset by uh it's creative business and I do think uh the United States is still and will be for a long time uh a the center for creative activity and there is it's really hard when you're just um I think the I think if you're uh a creative person in a territory where there isn't a ton of creativity because honestly there's you know creativity comes with wealth you know general wealth And because you have the ability to kind of think more expansively, you're not

tunnneled into what am I putting on my uh dinner table tonight. It's very hard to be creative that way. But if you happen to be a creative person living in the country like that, you're not going to find other creative people to kind of really riff off of. It's it's I mean that's that's also hard. Um never mind uh finding, you know, sophisticated um you know, technological talent. So, uh, you know, it's it's all it's all very dynamic. You know, all of that is offset by the tools just get bigger, better, stronger. Um, you're able to do a lot more with less. And, you know, people talk about, you know, when we going to see the first billion dollar uh single person company. Um, but if you believe that's going to be true, then you probably will believe that that company could come from a place like Pakistan. So, um I think it's all super interesting and we um we take our opportunities where we find them. It's a bit of a higher bar to do it internationally,

but we're not uh we're not averse to it in any way. Yeah. And then you asked about China. We have we have one we do have one studio in China. [clears throat] And that that gives you nice visibility by having investments into different continents and different countries of like how how they're working and and better understanding. And so you mentioned that making AAA games in the US with the current manpower needs is pretty much impossible. What other areas do you feel are overheated uh geographically?
Oh, you mean expense wise?
Whether it's expense or whether it's talent. uh whether it's the dynamics that they haven't shifted to uh the next model of of operation. Yeah, I don't know. I think certain territories in Europe for example are just not entrepreneur friendly. Um and uh and andor not capital friendly

uh and so we uh are cognizant of that. We are required I think by some of our LPs only to invest in OECD countries also. So I should I should mention that. Um uh so overheated like I mean there's a whole AI thing you called it in a bubble. I mean that would be overheated. Um and it's not by the way it's not like it's not like they're overheating for video game companies. I mean, one of the reasons that it's uh it's expensive to make video games in the US is because top talent gets poached all the time from big tech. So, you got a guy who like starts a video game company like, "Oh, always want to make video games." And it's my passion. I'm going to do it. And then, you know, Meta comes along and says, "I'm going to double or triple your salary. Come over here." And it's very hard to turn that down. I don't care how passionate you are. Um, so, and I don't know that that exists in it. It does exist in other territories but not to

the same to the same extent that it exists in the United States. Um again that is offset by more and more because of AI within the big tech companies. You're seeing revenue grow at uh impressive clips but that the headcount of these companies are stable. they're not growing. And uh you're seeing more and more efficiencies at the hyperscalers themselves because they recognize that they don't have to hire the kind of people that they used to have to hire. [snorts] Um and I think, you know, maybe that will offset the kind of dynamic we were just talking about. We'll see. But I also think that's going to happen at studios. They're going to studios are going to have to hire fewer few people because they're going to need fewer people. This is a whole societal question that we're, you know, it's probably beyond the scope of what we're talking about here, but this is happening. It's definitely happening. And this Yep. It's a big philosophical question. I I I kind of am wondering all the time like

you have these tech moguls that are essentially if they succeed then mill hundreds of millions of people lose their jobs and if they fail the market collapses. And it's kind of a weird position. It's like heads or tails and the society loses. I have never heard it quite phrased in that way. Um, got to think about that one. Um, well, I will say this. If they win, because I'm such a techno optimist.
Mhm. Yes, people will lose their jobs, but you know, we you're not accounting for the new jobs that are created. And um I think the issue on the new jobs that are created is in this uh revolution, let's call it, if we kind of compare it to the PC revolution or the industrial revolution, is the speed in which it's all

happening. So in the industrial revolution, you could have been a peasant working on a farm and you could go work in a factory and it's not like life was good in the factory, but you were able to retool yourself and reskill yourself. Uh PC revolution initially also you could train yourself. It took a little you didn't have the kind of time but you still could move physically to get the right job and you could train yourself to get the right job. Um this is happening so fast that you know one generation used to be kind of like if it wasn't one generation be the second generation. So if you couldn't retool yourself, your kit's good. But it's happening so fast that uh it's going to be very difficult to retool and reskill certain uh certain jobs. But if you are flexible um I think there are new jobs. I'll give you one uh anecdote about that uh which I've uh which I I like to tell which is that I got a somebody put me in touch with a

university student who was looking for some career advice and he was studying game design and he basically called to sort of say am I going to have a job when I graduate or all the jobs going to be or all the jobs in game development going to be gone and my answer to him which I uh I thought about after I sort of thought about it afterward and kind of uh really believe it, which is like look, if you think of yourself as a game designer, maybe not. But if you think of yourself [snorts] as a creative designer and a creative engineer or creative um professional uh and you are given these enormously powerful tools, you mean you're given the tools of a Greek god. You sort of snap your fingers and a world is created. What could you do with that? What can you think of? What can you create that has never been thought of before? And if you think of yourself as a creative

designer with enormously powerful tools, the world is your oyster. And you have a huge future. So part of it is sort of is the reframing of things um and seeing the opportunity, not looking backward, looking forward. And if you do, these are incredibly exciting times. And you will have uh not only a job, but I think great success. And you know, when AI first started coming out, uh people said, "Oh, jobs are going to go away." And I likened it. I'm I'm an amateur painter and so I likened it to uh painting and um and modern art. And if you ask an art historian, what was the genesis of modern art? They will say without question, it was the

introduction of the photographic process at the end of the 19th century in Paris. And because all these artists were around and they paint portraits and landscapes because to put things on people's walls because you know humans enjoy images as you know. Uh and then the big question when the photograph when the photography came around was like well what do we paint now? And that question about what do we paint now was the beginning of modern art at large. all of it was like okay you know figurative art landscapes are out what's in what do we do it ended up being a massive creative explosion as well two massive creative explosions one was the birth of modern art and the other was that photography itself became its own art form and I see very similar things happening with video game development um [music]
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and AI which is I think being able to use AI effectively within the development process will be its own art form and I think that it's going to create new experiences uh nobody's ever thought of before was never possible before um and you know one of the things I'll tell you thematically what we think is possible possible and we're sort of

thinking through now is I think we're in a world today where there is the next Walt Disney company is going to emerge out of if you think about uh character AI uh intelligent NPCs companions all of these are personalities that speak to you uh that interact with you maybe ultimately they're they're physical robots that are your friends. Um these what drives uh the behavior of these uh characters or companions uh is creative and um I can easily imagine a world where uh you know the next Mickey Mouse or the next Spongebob is not any is not an animated character but it's one of these things. Um, and they could be they're very very powerful.
So, if you were imagining the the next

Mickey Mouse or next entertainment company and how that would look like, what would um next wave of breakout gaming companies look like? We've seen early hints of it. I haven't seen it yet. The I haven't seen the thing yet, but the thing is coming. So we've seen experimentations for example in what uh what's been called single person MMOs. So like a lot of people like to be in MMOs as you know uh but don't really like the interaction. They're kind of there but they'd rather sit at the bar and uh you know nurse their beer and not talk to anybody. Um which is not what I'm mostly built for. Um but if you can build an intelligent NPC and we have investments in intelligent NPC companies. Um, if you can have an intelligent NPC playing a game with you, you can have a million NPCs playing a game with you. Um, so we think of it initially as like, well, that is a great solve for the cold start problem. Like

if you had if you developed a multiplayer, if you built an MMO or a freetoplay MMO and the issue was like, well, how do I get my first million MAU? Well, we can, you know, you can create it a snap of a finger. Um, and then what that creates is kind of like, can you develop a world where you're the only player in the world? You're interacting with a million others. Um, but they're all NPCs and and it's not we think of something we call the video game touring test, which is really can can you tell an NPC from a human today? You probably can't tell an NPC from a human, but I think that, you know, the time when you cannot tell the difference is around the corner. So uh so that's kind of one example which is kind of single player MMOs. uh these companions you can imagine uh you know right now you kind of talk to a companion but uh I could easily imagine a world where it's not right now you talk to companion it's basically you and I talking uh as we are now um but what if

you know I were in a world and you were in a different world and there were other companions running around and doing different things and programming um you know I hate to use the word metaverse it's a dirty word but not not for me because I'm I'm still a believer. [snorts] Uh, you know, I think that's kind of another example of how video games are going to change. And it's not going to be a blockchain. Um, and I doubt it's going to be a blockchain. Um, but I think, um, all of that is super interesting. And you know, NPCs are always thought of as being within a game and this how you interact with it. But we're seeing a world where those NPCs come out of the game um and are somehow with you and follow you. Um and I can easily see that happening. And that's a whole new form of of experience. And maybe it's not a video game. It's just a different experience that takes up your time. And we're all in the attention economy.
Yeah. We're all in the attention economy. So like what is it that engages

us? So anyway, those are early examples.
Well, you mentioned web or crypto. What are the segments that Tur Tot will not be investing into and why?
Uh, you know, I think RLPs pay us to have an open mind. So, we've we have not done a uh a crypto investment or web3 investment. It's not to say we'll never do it. Um, but we um so we have an open mind. I like you, you know, I would reframe the question because we never say never. Um, you know, what do we what are we unlikely to do? Um, so web 3 right now or unlikely tomorrow could change my mind. Um, gambling is something we sort of stayed away from. Um, I don't, you know, I don't know why gambling uh game like um real money gaming hasn't really taken off in this country the way it's taken off elsewhere. I assume a lot of the demand is soaked up by sports

gambling, wagering, you know, casino stuff. Uh I find that the the even the skill real money gaming uh kind of always reaches some sort of plateau and never really you never really I don't I don't know. Maybe maybe you have an idea. Maybe you can explain it to me.
I understand the thesis. The distribution is quite difficult to be honest with those games. Like Apple doesn't allow them. the uh the rewards are pretty small and the platform holders haven't been as effective, but there are some, you know, real money gaming companies that have been successful. They didn't make it, but they just didn't become as big as we assumed. And as you said, there's plenty of real money gaming, but it's more in poker uh and and other card games and and betting that, you know, men like to do. Um, so that's my hypothesis. I don't know if there's much in match three. Yeah. Well, um what what what web 3 and uh

social casino have in common, at least for us, is that you or at least for me, I don't know about the rest of the team, but for me, you know, entertainment is sort of in my bones and money and finance is also in my bones. But when we see a game that's really where the core loop is about making money and not about entertainment entertainment, we kind of lose uh we lose the narrative a little bit and it's just not it's just not in our bones like you know what is it that's really going to engage versus you know I mean think about the early days of web 3. It was just the whole thing was just one trading you know more foolish investor kind of uh the theory and it's just not what we do. I would say I would say also I mean some some some LPs also kind of not not ours so far but I can imagine uh you know next time around LPs kind of restricting our ability to do that.
So looking like few years in the future let's say three years in the future what

do you envision the fund being?
What's the dream?
Uh you know our our the dream ultimately is to be the most soughtafter source of capital in the video game industry. So that would take us into other categories other than venture. I happen to think venture is the most exciting category. Um but I can imagine other sources of capital that are available and mostly this is driven off our kind of uh off our business kind of expanding but I can imagine it being growth capital. I can imagine it being even you know public equities maybe some somewhere between some source of debt capital. Although I'm you know I look around the table like okay who's the debt analyst around here? Um, and we're not, it's just not what we do. Um, you know, the the the balance for any entrepreneur, but especially for us, is kind of like you want to keep the aperture as wide as possible because at the end of the day, you're in the unicorn hunting business and you want to make sure you're looking uh uh wide enough so that you capture

the unicorns on the one hand. On the other hand, uh you need edge in this business. And we know where edge is and where it isn't. And if we go if we became a generalist fund tomorrow, I think we would fail. And so uh we try to stick to what we know uh where we think we have a competitive edge. Um that I would say is interactive entertainment across um the three buckets that we talked about infrastructure, tools and content. Um and I think we're I think that is very much uh going to be a constant at least for the foreseeable future. But there are, you know, there are other places in the capital stack to play that. And I think we want to be the most sought-after source of capital based on in all humility, you know, being the smartest guys in the room. And so that's that's our that's our goal.
That's a that's a beautiful goal. Well, Ben, I'm so happy that you're staying in the industry because you have accumulated so much experience, gone through all the possible cycles that that the industry has seen, worked on

all sides of the table, and now are helping the um the the young entrepreneurs to to find their their footing. You're bringing the the operational experience that I doubt any other fund has, at least at the same level. So, it's very exciting to see how how the fund evolves and especially your take on on AI and being very bullish on it. Um, exciting times ahead.
Uh, I agree with that. Thank you so much for having me, Michigan. It's been a lot of fun talking to you. Um, I hope we get to do it again sometime.
Yeah, definitely fun, too. Let's let's talk about this, Ben. So, um,
all right,
Ben, how can how can people reach
and good luck with and good luck with your angel portfolio, [laughter]
Ben. How can people reach out to to Terta Ventures? Like what's the best way?
It's really easy. I mean, you can get me. I'm Benfedera.io.com. It's um and the website's terta.io. It's really um we're not hiding. We're out there and we're very easy to get a hold

of.
All right. A link in the description. Reach out the operational excellence in the business. So, thank you everybody for listening and thank you Ben for joining the podcast.
Thanks, Mishko. You did it. You made it to the end of the episode. As a fan of the show, it would help us out if you'd subscribe [music] and leave us a review on the podcast service of your choice. Those stars and likes, while small action on your part, mean a lot to us and help to grow the show. More importantly, are you a member of the Deconstructor of Fun Slack [music] group? If you have 5 years or more of games industry experience, go to deconstructorofund.com/slack and apply to join. Join the games industry best professional community filled with peers always willing to lend a hand or [music] subscribe to our newsletter to get all the latest insights from the deconstructor of fun content creators. Thanks for listening. [music]