Harry Hamer - Demystifying Venture Capital: How to get prepared for discussions with VCs

[Music] hi I'm Harry if you might not be able to tell I'm British so a apologies for brexit I can't stop apologizing for that b my accent's quite thick so if we need to clarify anything if I go over anything too quickly just let me know afterwards um okay so why am I best place to talk about Venture Capital I've been a VC for the past seven and half years uh I've been at lvp for the past five years I sorted off actually in Tech VC investing into anything and everything with in Tech um yeah CED series a companies from e-commerce to fintech insure Tech even did a hardware company system on a chip monitoring

um and then moved across to lvp 5 years ago and I'm a principal here uh vent Capital itself I'm assuming that you know some level about or or something about Venture Capital that there are the foundational uh elements there but essentially Venture Capital it's a form of private Equity financing you take a stake in usually early companies that they've just been founded 30% of the companies we've invested into were pre company formation and reg registration uh we'll take a a sze of the company an equity stake usually uh for the most part Venture Capal is minority there are some people who are a bit more aggressive um but we'll put in money and then uh I'll go on to exactly how we are unique but at least for us we also provide other forms of support um which I'll go into later but um moving on with the show okay there you go um so why are we able to talk about venture capital

probably because we pioneered at we are the um we were the First Institutional fund focused on gaming uh this was about 15 years ago uh there were generalist funds who dip their toe in usually at the late stage where there are games in Market there's products there are metrics there's Revenue to go off um but there was really nothing at the early stage proper Venture Capital rather than say private Equity um and the thes was twofold one that Tech VC was scared of gaming arguably still is especially post um Financial correction A couple of years ago uh and then the second uh being that we can help out companies that there's a lot of great gaming Talent within the industry often people never started up their own company there wasn't necessarily that culture there was the publisher developer mindset and the background of lvp um the partners as well as now our 15 years experience means that we're able to basically best

position ourselves to help companies with hiring product strategy game feedback fundraising Business Development you name it uh we get involved so we started off 15 years ago we had some good early investments into uh Unity supercell amplifier playfish and that helped build out the model we're now on our third fund uh which is 80 million fund and we're now closing in our fourth fund that will invest out of had 19 exits during that time 61 investments in total 580 million raised of those Investments and roughly 30 billion in equity value created by those Investments um I'll move on to the process of at least how we work and also is probably representative of how most VC companies work um but we assess thousands of deals um and we're spread

across uh two different continent we've got Europe and then we've got North America um yeah so here's the team uh I gave a little bit of background as to how we were formed but it was essentially the two Davids uh David Garner who was employee number 11 at EA he dropped out of college to join EA he scaled um uh the business in Europe he was the first boots on the ground uh in the UK and spill that from nothing to over a billion a year in Revenue uh and David ly who was um one of the founders of Criterion software which developed renderware Need for Speed franchise um they required by EA early precur to Unity which actually led to us investing into Unity he was um board director and non-exec um chairman uh for a time at unity and then we've since then bolstered the partnership we've got um Ara who is in Berlin uh he

was head of Studio at playfish um head of basically Western Studios and operations for Gom and then Matt Bilby most recently who's out in Vancouver he uh was coo for World studios in charge of FIFA for a while um and with the fourth fund he'll come on board as a general partner there's me uh I gave a bit of background to myself uh we've got six in the investment team overall including uh gsu's new analyst and then we've got the operations team uh who helped support the fund and the DayDay Administration for people who are wanting to reach out to us I mean any of us are are fine to to reach out to we've got a form on the website I'll go into exactly how you should position yourself and who to talk to but um the yellow highlighted ones are the people who actually do the investment so please reach out to us rather than the the GRE green or um teal people they uh they appreciate it but they don't do the

investment uh how does a VC operate there are the three s's essentially there sourcing screening support um so on the sourcing side got as I said over 1,200 that was last year probably higher this year um on a prated basis and that's based on are they preed seed are they gaming um do they have the ambition level so actually that's a smaller subset of all the deals that we see again the deals we evaluate and this is properly evaluate where we have at least one call um with them it's probably close to 70 now uh that we uh we go through that process with those companies and then that's result in around 2930 uh active Investments we have along the bottom um so we Source those deals we uh we evaluate do we want to invest should we invest and then once we

invest um we we support them uh then as a bit of a background as to uh capital and VC within gaming uh as I mentioned there was a period of time before 2012 where nobody was really investing into games or if they did it was very much at the late stage or it was Angels or people who actually knew about the games industry um uh who put money in it was the idea IDE that games are a hits driven business which is ironic given bench Capital itself is a hits driven business there's such a high rate of failure that you need to have companies that can 10x uh and the the magic at least what we pioneered was diversifying a gaming portfolio uh so that we we diversify that risk so that we could get exposure to those winners um then I think with mobile that um really brought the

attention of gaming to a wider audience uh gaming was able to benefit on that wave of adoption of of uh of mobile uh and then over the probably second half of that decade uh there was a greater abundance of capital parly driven by low interest rates um but also a lot of people flocking and at least seeing what we had pioneered and done um with inv Venture Capital within gaming um there of course the Esports metaverse crypto uh hype Cycles there's also now a little bit with AI which again I'll go into later but um all of those also meant that there were the specialized funds even within gaming that only focused on VR or crypto or Esports uh I think now there's been this reset which is the next phase it's difficult for them to deploy and also at least have a long long-term sustainable future um given the the size of those

those markets or should I say submarkets um and then we're at now after well a couple of Wars now we have inflation High interest rates increased cost of capital this um this affects VC and the financial markets uh limited partners I invested into VC firms unfortunately I'm not obscenely wealthy or at least not yet we have to raise from other people uh those other people usually public public um public companies or asset managers or Pension funds they're able to get higher returns basically by throwing it into uh bonds it's less risky so there is that added premium that is required for uh for VC and so therefore there's a a reduction in what they allocate to to VC and that's hit basically all um private financing uh as well as the fact that there was definitely within the hype cycle Animal Spirits people uh following

on thinking that oh there'll be somebody else who will bail out this company that they will uh do the next stage of financing uh even though I'm not properly assessing this company and so what happened was there was a WID scale collapse in growth financing for lat stage companies where there are products in Market there is revenue um as well as the uh the multiples that you get on those Investments reducing in line with what was happening within the um the public markets uh in 2023 yeah investment within the games industry dropped by 79% a lot of that was driven by crypto metaverse completely collapsing but also the were spillover effects into what are classified as more traditional gaming uh spheres like PC and and mobile um and of course they've had their own challenges which I'll go into now um so setting the scenes I'll probably set

up the challenges uh I don't want to say where I think the market is going um a because I'm not a founder and therefore I don't have to but also um be uh that that is the role of a found of that's role of you um to to come and pose actually solutions to these these challenges I think the big one at least within traditional uh platforms uh this being PC mobile console is distribution distribution is King and um these markets are saturating and they're saturating very quickly um so we' got two charts here one on PC uh in terms of the uh percentage of revenue generated by the top 10 Publishers on Steam so as we're seeing there's a calcification around uh the larger incumbents and those people who've got larger games um uh and that's gone up 20 2% between 2022 and 2023 and it's

actually similar happening on on mobile and I think the more problematic thing is also there's not a change in those charts where uh business models are moving from premium to games of service uh those incumbents or or their franchises um those Publishers aren't moving down and up it's the same Publishers who are capturing more of the revenue uh again here's more of like a theoretical framework where uh this this is what happens to most platforms it happened to social gaming happened to console in the early days um but this is also what's happening with PC and and mobile um so there's the there's the content Supply which is increasing uh amount of user time has increased uh Revenue has gone up um but then growth rate has started to tail off just

because suppliers started to meet demand this is driven now without more fundamental Innovation to a quality race that it's just higher budgets especially for triaa um you look at know Spider-Man 2 and I think it's just wiped its face once you take into account marking spend even though it's hugely successful they're really successful and critically acclaimed games last year that will maybe again just return what they had invested in which just shows how much cost of have gone up and the amount of content as well as quality that is required um it's harder to also have those viral moments maybe for smaller Indies you can leverage streaming um but for the most part you do have to expend a lot of money um on marketing both uh during launch but then also before launch building up that Community um and then that just increases risk for us as investors thinking okay how much Capital how much money is required to scale this sort of

business what are the margins that we can expect mobile because there is Performance Marketing let's to say PC uh that's led to a race to the bottom where a lot of people are competing it's a bit like Game Theory everybody is uh competing pushing up cpis and so it's uh almost incumbent on those companies thinking how far down the line am I wanting this payback to be I invest into this user and I'm getting Maybe 2 years 3 years this is um a couple of years ago with the the Casual Market of Match 3 that they were spending on those time Horizons um and that makes it extremely difficult for startups with limited resources and marketing funds to compete on that sort of level um so at least in within our own portfolio there were some games that were good but they couldn't compete with the amount of marketing spend that was being put into the market um and then that just leads to to innovation and then the cyle

repeats um that uh especially for those companies in the market there is little incentive to to move it's the innovators dilemma that they're happy um recycling their own Revenue into existing games building bows out rather than having the risk of launching a new one and losing all that money um so I've set the scene as to ourselves and The Wider Market but um what exactly do we look for and I'll talk through a little bit of the uh the process of what we assess and how we analyze companies and then uh I'll go into some recommendations for uh either common mistakes or uh what I think you should do in terms of structuring if you are going out to Market and fundraising how you do that we have five main pillars uh to evaluate companies the first is fit with us are you ambitious enough I Do you

want to build a 500 million plus Dollar business um are you at the right stage that there are companies that still come to us and uh ask oh we're raising a a 50 million round do you want to invest into us we are a a seed stage fund so we put in check size between 500k to two two and a half million there is some flexibility above and below that but often uh people come to to us without actually necessarily researching our portfolio how we operate and then also getting stuff that isn't within gaming I don't have to tell you about it because hopefully all of you are are gaming uh people here but a number of just random reach outs from people who uh who aren't within gaming is is quite incredible then we go on to Market uh is this a fundamental Innovation is it opening up um a new platform is it a growing sector maybe it's Geographic maybe it's

genre maybe it is on platform uh what opportunities uh are there to leverage go to market that you have this um Community early on what do you have to to prove that um in terms of data and that actually overlaps with the the team uh what does the required domain knowledge for uh this particular company uh what is the ambition level um for them uh have you work together before uh have you founded companies or built games before there is a a definite um risk of people who haven't either built companies or built games before that there is almost like a 6 12 month first Pancake where they actually figure out okay how do we construct the right team um how do we build a game um uh which we have helped out with before uh but that's just another layer of risk um then there's product what is a game like uh what are the monetization plans we

don't have to see any first playable or any prototype it's nice I get to play video games for my living which is great fun but when we invest um all I think the majority of our investments have been a couple of people in a pitch deck uh that is really all that's required um then moving on to the financial opportunity which was alluded to within the fit uh what are what is the required Capital to to bring this product to Market maybe it's a game maybe it's platform maybe it's Tech maybe it's Services um what is the the price deal how much are you looking to raise what is the exit valuation what are the comparables of uh any company that is similar to yours exiting um because we are investors and I'll come on to it later but at some point we do have to make some money back uh and then the box below really shows us the the difficulty of um of uh of how we invest because we

have so many failures uh that we need every company to basically be a a fund returner so with an 80 million fund that we have 15% that's a generous assumption on ownership we require 500 million uh exit because most companies will fail of around uh 70 to 80% um of VC investments will go to zero or they'll 1X so you require uh the winners to really uh be um knockout hit and to be home runed in order to return all the capital that you've you've lost uh common mistakes uh this actually relates to what I was just talking about before the I am not a big uh I am a VC stand but I wouldn't say that um VC is right for everybody uh I think it can be wrong for

people and I've seen how it misalign incentives um for a lot of companies that they're encouraged to scale too quickly um go down routes that they don't uh or they shouldn't really go into uh there are businesses that can sell for 20 to 30 million and be lifechanging for companies but um that isn't the kind of company that we invest into in those cases look for Grants non-diluted funding debt publisher money uh keep the equity and uh don't let VCS push you into something that you don't want to do um uh again 100% of that versus maybe a smaller percentage of zero where VCS push you down a a trap where you don't want to go uh and also you take up maybe five 10 years of your life um it's something that you do need to think through thoroughly um that's a nice segue on to publisher pitch a lot

of pitches that I have got uh people are trying to straddle both sides I hear um people give me a publisher pitch rather than an equity pitch uh it's only about the game that they're building it goes into the law I love that fair enough but that's what people are leading with and they don't talk about what the underlying company is how these games link together um if this game fails what do you do a publisher doesn't care as much about that maybe it cares it succeeds so they can ear the IP rights and sqls but uh we are investing into that underlying company on our five 10year Horizon we're assuming that most games will fail even the best developers probably have a hit rate of a quarter um in terms of being really successful um so we're really coming into this assuming that your game will fail and that's fine but it's it's working out okay uh what will the second game be how do you leverage those learning how do you build basically an effective team to

uh to to jump off into either the second or the the third product uh exit verion we are long-term investors we've got a 10-year Horizon but at some point we do have to exit um it's not we don't require that you come up with ideas now but there needs to be some acceptance that we will jump off at some point um but hopefully after after 10 years it will be realized whether this this company can uh really do well that hopefully it will be meaningful for both you as a a Founder him for for us um but that's just as a as a heads up um uh on VCS that they will expect for U that there to be some realization then another game company just uh a lot of pitches similar to the publisher pitch where uh we're doing this game but we're slightly tweaking it

or um I'll ask them about oh isn't this similar to this game um and uh not having uh sufficient reasons for why this failed in the first place uh or what will change about why you're uh you're building this um and then for us think about like the next if we're requiring the uh 500 million exit what is the Enterprise value of of another game and often within a competitive space um can that deliver a $500 million return for an incumbent I think it will be challenging um without it being fundamentally Innovative and new uh again similar to The Lifestyle business you can get a decent size um return DEC style business with that but there's also higher execution risk uh if it is just another game or it's uh comparable or very similar to a number of games in Market then finally uh yeah buzwell binko it

was worse a couple of years ago where everybody was throwing blockchain and web 3 um onto game ideas that were uh that haden't succeeded before and thought that these were things to unlock them there's a bit more Fire Within the the smoke of AI but again slapping on a a label with a new technology without having some first principles thoughts as to why this changes the value proposition why this unlocks something uh is is one of the the challenges that I I find when people uh to say oh it's AI for this um uh and often these people who have slapped it on uh don't have the backgrounds they uh they're looking to just raise the money rather than thinking okay how does this affect our business uh okay and then running through the uh why how and do of

funding uh the why as why you doing it now how are you um how much you raising now how much is required in the future uh what is the time between those raises what are the Milestones that will enable you to deliver um and raise on that traction uh how much dilution are you taking on that um I mention mentioned that before um and the valuation that you can command as a company relative to the amount that you're you're raising and then also just time uh a lot of people take three six months and that is probably on average to to raise so Trying to minimize that where it will distract you and it it can distract you from doing your job which is operating a business and and uh building a game building a product the pitch itself uh there is a bit of

salesmanship um involved and the Americans are unfortunately still better at it than us so I'm wanting us to be a bit less humble uh we look for that ambition level on the kind billion dollar company side uh and so therefore we need to see what is the wider vision for this company um where do we hope to be in 5 10 years uh what are those stopper points where you're able to raise more money uh how do you craft that narrative to bring on the investor uh early on and convince them that this is worth their while uh it's definitely better to be Marite um and loved and hated and be controversial rather than everybody accepting oh this is a this is a good idea because often the thing with good ideas is uh why haven't they been done before or uh that they probably have been done before being honest um 15

minutes Capital Source how are you raising the uh the money is it through VC is it through non-ed funding uh there are lots of Grants out there and and tax reliefs uh if you're going through the VC route uh usually that will require somebody to lead I they price around they set the terms they uh go through the legals there'll be somebody sitting on your board so you got to work out okay who do you actually want on your board there have been some companies that I know who have regretted rushing to the finish and they've ended up with a an investor on their board who just doesn't understand games and they're building an MMO and they'll ask oh how does Candy Crush relate to that and um for you want somebody who can help you you it's fine enough if you want to basically get the cheapest money around but except that there are some disadvantages of that and if anything there can be consequences down the line where they push for an exit because they don't understand

what's happening um and they they lash out and uh potentially try and remove people from the the company uh then execution this is just the the literal process of the fundraising uh we have a process with our portfolio companies where we get a big long list of the investors that we know um we do some early tests and I'll cover it in the next slide as to the pitch and getting feedback uh and then working out the waves of who you go to uh to get feedback then the burner group of people that will provide good feedback but you don't mind too much if they don't come in then the people that you really care about who are more conviction L um and then those people who are driven by fomo fear of missing out uh that they will then try and rush to the finish and you're able to get a bit of competitive pressure amongst them all and related to the raise timing ensuring that that is is pressed as as possible you don't want to be stale bred

on the Shelf uh that there is that signaling oh you've been raising for uh for many months now why haven't you you raised and uh VCS are uh quite not necessarily rational but driven by heris uh and so those kind of uh mental signals can be um off-putting for any investor uh then tips just go big or or or go home if you're pitching to to VCS don't feel shy of um selling yourself and selling really what you want to to build um keep it simple and throw out the big thing early and then you can explain how you get there later on the number of times I've had very smart people uh overe explain things to me and uh get unnecessarily bogged down in the detail it's quite as standing I I want to understand where you're going and then we can pass out and break through

how we get there in the first place um because more often than not when you're digging through the weeds it's then then harder to express and and say how you'll get to the the big point in time uh do your homework work out the funds that you're pitching to do they have other investments in the space are they directly competitive uh do they have particular thesis in that area uh that's usually a good sign that they have expressed oh we love Co-op we love um game f outs in this particular sector and then try and Target those VCS uh and then also be able to respond to uh questions on who are the competitors uh how do you differentiate from them uh then delivering on when you make promises this goes to the credibility Point uh where You' said we're going to do this within this time frame uh actually following up on that um it's just good hygiene really um and

that gives us confidence that you're going to be able to execute in over the longer term we extrapolate that out on the mar zones on the budget that you've set out warm intros again BS are htics driven uh and a lot of them are lazy and so the easier you make their lives um in terms of getting that intro and getting a warm inbound I that you reach out out to people who know them or if you know people who know them getting those intros uh it sets up a almost a better call versus being uh completely cold just reaching out directly to them um uh by having that warm intro shows that both you're well connected and also um that your tenation you're able to network and uh get that intro then as I said M might get somebody within a VC firm who loves it it's there's a slow death of people who say oh it's a it's a

good idea but I've got these questions uh you need a couple of people to really love it um in order to drive that within the firm uh and you don't want to spread yourself too thin where nobody knows who owns it within the the VC firm uh then on the deck have a smaller deck uh to send across and then go through the larger deck in detail on the call uh that helps provide the momentum of okay this is moving forward that there isn't this stall in communication after the first call uh and then also you don't give everything away um with the first email uh focus on Smart money if possible that's just a general cetus parabus if you got to VCS offering the uh the same term sheet then you would prefer to have somebody who's able to support you best um be able to introduce you to other investors or to other game companies other portfolio companies who

will be able to help you out uh getting a term sheet that's probably the the main thing because then that will drive both the followers people who will come in outside of the the lead um to uh to commit to the round and or you're able to take that and raise from somebody else uh I've mentioned General uh hygiene and then yeah just avoid those common mistakes or have explanations around them uh if you feel like you're straying too close to them uh that's it uh there's my email if you want to reach out to me I'm also here uh until tomorrow and uh I've got to uh turn the turn the tables slide uh because we do a lot of DD on you you should do DD on us and work out who you're getting into bed with uh so just researching working out who are the who are their portfolio companies what have they done uh how do they best support the

companies and also just reach out to our portfolio companies some of the best deals that we've done have come because people have reached out to our portfolio companies and then referred them into us they're very open to uh to talking about both their own journey and then also us uh you'll be surprised at how much information you can get by just asking and reaching out to to people um and that's that thank you very much [Music] thank you Harry for your lecture it was full of very interesting information and hopefully everyone will get something for themselves from it as we know if you don't know what it's all about it's probably about money so so so thank you once again uh if anyone of you have any questions please come up to the microphone and you can ask directly Harry what do you mean saying that uh we have to think about smart money do uh

and another question is it uh about finding a private investor also to the company or uh loan or before I I mean before VC right yes yeah yeah no it's good it's a good point okay I I'll take the the form of first on um smart VY versus uh the compar which is dumb money uh smart money tends to be where there is support Beyond just Financial so dumb money will throw money in and that's about it you'll either never hear from them at best at worst they will try and meddle in the business that they have no idea about so that was my point on Smart money that smarter money either knows where to support companies or basically stand back where those are already experienced entrepreneurs or you already know how to build the game and that will be able to help with other things like uh intr introductions to lat

stage investors or or Publishers um uh so as for indicators of smart money again just talk with portfolio companies who've been invested into by those VCS also look at the background of uh the investors have they invested into games before have they operated within games uh then as for your question on private um financing we only invest into uh Equity or Equity Investments so we'll take a percental of the company we don't tend to do loans you can get loans and stuff on top of equity like Venture debt um starting off uh a lot of our companies have basically just rais directly from us or they've had friends and family put money in um just to get things going but uh there are lots of different options out there you can take loans out early on uh if that is what is required um but it's not necessary uh

often because you can get grants and um other forms of of financing uh but it is a good way of probably once you have a larger balance sheet to to extend that um but also just keep an eye on the terms uh and especially interest rates because those can can rack up and you can end up having to pay a lot more back than you got in and this is somehow how connected with the smart money because I understand that you are a smart money investor and you mentioned that you're providing the support to your portfolio company apart from like you know just providing them with the financials and could you elaborate on the support you're providing uh and how are you an active for smart money investor yeah yeah that's a that's a really good question um I don't want to take up too much time but we uh we have an annual Summit where we basically bring the Great and the good our portfolio companies as well as leading industry figures so we had like lar from um uh

from embracer uh with chrisen seala uh Frank Jabo from from zingga we had big Publishers uh big investors and we brought them all in together um even at the early stage on game ideation uh one of our portfolio companies based Warfare in in Denmark uh they were building out their uh early protype of a game and we pulled together a um a Brain Trust so we had Hillmar from uh CCP a couple of other uh people within the portfolio some outside who are experien in mobas to give feedback um uh but then also we help out with hiring uh if you need another person to sell because especially with small companies it's a bet you're not going to get if you're a potential employee you're not going to get paid nearly as much as you would a larger company some of that promisees in terms of options that this company will uh be able to to

realize the vision and it's highly risky and so we've helped sell that as well as assess the the right candidates to to come on board and then when it comes to exit we know most of the the main people um when it comes to that and so we have helped out where Founders have wanted to exit with introductions constructing that um that exit uh yeah I I'll stop there because I don't want to um sell lvp too much okay um one one more add additionally because maybe I didn't specify that uh um asking about smart money I think I I thought about what's your um uh what do you think about company where there is some private investor or family friends fools it's it's okay but when when there is some some private investor are you also investing in such a company or it's uh

you know yellow or red light for you sorry just if I can understand the question if there are existing private investors in the company is that a red no uh it depends on how much they own of the the company I've seen some bad deals where they've taken the majority of the company it means that it's very difficult to raise further funding lat to down the line um because the founders have got little incentive future investors will want to ensure that they are incentivized and that will lead to a recapitalization of that company I the people who invested if we were to invest we' get diluted down um from that uh we'd also look at who the investors are I think it's understandable in uh when you are raising money that you raise from local investors uh that isn't too much of a a big deal but I think it's just understanding the why why you raise from there how much and um what percent of the

company they own hi Harry um so um Boris love from uh Indie studio in uh in Serbia and uh we're looking for Equity investment technically and uh I I want to get your perspective on um so Superstar teams versus you know uh new indie teams with really solid business foundations and advisory boards like where do you see uh the tend your tendency leaning towards yeah um that's a really good question especially now uh because we've seen some flameouts of of Superstar teams um I don't think those two things are mutually exclusive uh you can have the Superstar teams that you invest into of you're requiring the the right price but um yeah versus say the solid Indie teams with maybe they've got a product in Market I think they there can be some decent returns that can be realized but then it's working

out okay what is the entry price for for us investors where it makes sense uh C can this 51x the company is there that exit route that is viable um so there been a couple where we've invested into it and it has been protype SL um uh vertical slice stage so we invested into Steel City interactive who um uh actually I don't know whether anybody watch to boxing a couple of nights ago but they built a game called Undisputed um that was any team they scal to 20 30 people plus and we invested into into that um I think there are great opportunities on both sides um with experienced people there's lower risk um on execution uh verus say the Superstar where it's a lot more volatile maybe they'll go to a billion more often than not they will not um so we we actually have a bit of a mix between the

the two and in this environment um uh I think some of the more traditional or experienced Indie teams uh can have an advantage uh as I was saying in in a mature Market execution risk is is all and how do you get to players maybe you have an existing community that you can build on uh you don't need to learn on the job with uh the games that you're releasing um we've had pictures where they've released a game in one genre and they're able to build from that there's nothing that uh drives learning more than having a game in market and everything being on fire so that it's quite nice to actually see somebody who's being battle hardened by that and then even with the the Superstar teams they're often expecting a team of 4050 to coales around them if not more than that uh and that often leads to uh it becoming project financing rather than VC financing that it's all on this this one game uh so

I've kind of talked around your question but I was trying to outline like the pros and cons of investing into both I think both are viable so um I'm going to take a step back to your first word deifying Venture Capital so I'm come from an art background so I'm very mystified um you were talking about a term sheet yes and I don't know what that is and I don't know how I would create one so is there templates that that's a great question cuzz I think at this the start I have presumed some knowledge of VCH Capital so I was going into the the nitty-gritty of it and the Sausage Factory um term sheet is usually issued by an investor and somebody who um uh is putting a large amount of the the capital that you're raising usually over 50% into a company some companies do issue their own term sheet if it's usually where there's a party around where there's no one large

investor to lead the investment into the company but a term sheet it's a non-binding usually um legal document that outlines this is what the company's raising this is the valuation of the company so maybe seeing a a 20% uh dilution for for ease of of mass uh one on five or 2 on 10 so 2 million invested 10 million post money valuation post money pre-money I'm really running through this quickly apologies um pre money is the value of the company before the investment when you put in 2 million obviously that goes up to the post money because you've got what the company's worth plus 2 million in your bank um and it also outlines other legal terms such as uh and what will happen to the company after the investment usually the lead investor will have a seat on the board so um I view that as a positive because it enables the company and the founder to think with some rigor about

what's happening within the company reporting back to um uh to the investor but it doesn't even have to be reporting it can be a dialogue and that's what it often is saying okay we've had problems with this how do we solve that um if you're just talking with your investors or investor uh within the uh Bard meeting then you're probably doing it wrong if anything you want to have that ongoing dialogue um other things with a term sheet yeah it just it sets up the lawyers so that they don't spend too much time and spend your hard eared money uh on legal fees so just ensuring that uh there's a framework we have the bbca documents within the UK there's the mvca uh documents within uh North America and us and and Canada for the Baseline legal documentations that you um you use for Investments um but just setting okay this is roughly we'll invest and then we'll kick it to the lawyers and that will take 45 to 60 days

um was there anything in particular else you want to clarify within the term sheet gu sorry please use the mic if you can oh yeah like you were saying to prepare you know prepare the term sheet so who would I be preparing that with before I go to like who do I have to get a lawyer or uh oh I'm I'm not able to go that um the prepare part that's only if you're issuing it your yourself and that's quite unlikely there are templates which are online usually you'd try and have legal counsel for that they can also help you out uh us has some templates as well as UK I'm less familiar with Poland I apologize but there are lots of great lawyers um here who will Who will help you with that uh actually maybe a good guide for negotiations and think about

term sheets there is a book called Venture deals by Brad Feld and Jason mandelson and it runs through all the different terms that are within the term sheet how VCS operate how they negotiate this is what I actually recommend even though it arguably is not in our interest or at least it's um potentially shoots our in the foot with having a harder or Worse deal for ourselves but I I think it's better to be honest up front um uh I recommend that to anybody who's approaching or thinking about fundraising get that book have a read through uh the tag line is how to be smarter than your lawyer uh and ensures that again you aren't spinning too many cycles and you know exactly what's going into that legal documentation uh Hey rafo from F games and I have a question you mentioned having looking for an internal Champion within the organization yeah so would you mind share any tips how to find one especially in a case where your first meat was a

Miss ah it's um politics is within every organization so trying to find another champion within a firm that maybe has already pass on you is difficult ideally you have an organic process with another person that you meet up at an event you see where they're going not in a stalkerish way uh and that you start chatting with them um you're able to come back with uh with something that's changed or updated for the better that we made this progress with the game or the product that we've had this Revenue that we've had this interest so that they reevaluate it rather than just coming back and saying hey we're raising again but nothing's change uh then as for the specking out of who you should approach uh I there have been arguments within venture capital on this uh cuz technically the

more senior you go the more decision-making power that you have but also the less time they have uh the more biases that they also have that they've seen it and either will go yes no on on things and usually it's it's no so I think there's some value in going mid layer either principal myself or to associate um I wouldn't turn down those opportunities be introduced and chat with them cuz they've got more time it's more significant for their career again miss on the politics side if they lead a deal if they bring something to the partners so ideally you convert somebody within that you look at their past history whether it aligns well with what you've done and also look at talks that they've given articles that they've written do they say the same thing as what you're trying to pitch uh it's also a good sign if you actually Flagg that up say hey I read this and uh we're

basically saying the exact same thing as long as you're not completely paning to the audience um oh time's up uh so it just shows that you've done your research and that you're a a smart and and resourceful founder so uh yeah that that's that's all the recommendations I've got can I have one more question uh we the time is running up but we'll have if it's a short one we can have this one and the short answer as well so you talked about like the specifics of like what to do and what not to do how to prepare and so on are there any like trends that let's say there are ideas that you're already going to kind of dismiss as you're as you're listening to a pitch or does it s uh strictly come down to Innovation all those other things that you talked about uh I like to think that I'm not too Prejudice I won't dismiss anything quickly out of hand I think the are very difficult markets red ocean

markets like pure gaming content you're doing a a matchy game there okay even though that's a largish market there are also just so many large incumbents and you're fighting against that marketing spend um Esports as well um we haven't invested directly into that I think it's very difficult to scale a venture scale business um uh those are more of the the things where it's very challenging to get a pitch right um some areas of Interest I mentioned before on gamei apps AI is quite interesting but more on the user side rather than for big companies to cut employees I'm not interested in that both ethically and personally but also uh that's not changing the game that just lines the pockets of of larger companies I don't think startups can really compete maybe over a couple of years with product enance ing Innovations um AI might

unlock something on the distribution side with streaming and multiplatform stuff again I said that I wouldn't pitch you what I'm interested in but those are some things and I'll will stop there so that I can allow uh everyone to flip the room thank you so much thank you once again