Kress' Corner 5: What is investable anymore in gaming with Moritz Baier-Lentz, Lightspeed Ventures

laughs all right welcome everyone to crest's corner I think it's number five um today we have Moritz from uh light speed uh joining us to talk about the VC world uh again this the whole point of this is to find people that I am interested in and subjects that I'm interested in and talking it through with people that are experts in those areas that's kind of what I do for my life for my business again so hopefully not to be PR fluff um of course some of the ones we've done in the past have been a little bit too PR fluff for me but uh anyway my my goal is based to understand how Moritz and Lightspeed fit within the ecosystem and how he's helping the industry and innovating and moving the industry in the right direction so why am I interested in Mr Moritz at light speed light Street or light speed am I messing this up light speed okay so the Visa I think think the VC

landscape has changed pretty dramatically over the last six months and it seems challenging at best I would say companies were funded that in my opinion make absolutely no sense and most of them at this point are probably starting to run not most of them but a lot of them are probably running out of money and out of funding options if I were to guess um and my problem here with the industry right now is like from a VC perspective what is actually investable right the mobile market seems uninvestable because of Apple's Mobile gaming recession uh continues and other changes to that privacy will happen blockchain is on a respirator right now and all these um these issues now coming in terms of regulatory issues are going to be even more could be even more challenging uh going forward VR died once looks like it's dying again so and the only life support it has from Facebook and I think Facebook's about ready to pull that plug pretty soon um and then the console PC space is

amazing and huge but it's hit driven and very expensive and tough to pick winners at the VC level um and that you know that leaves kind of enabling Technologies which I think are interesting but that's kind of a crap shoot at best from my understanding so I guess the broader question I want to know from Mr Moritz here is how do you navigate the BC business so we have Moritz um who is a partner at Lightspeed uh to hopefully answer some of my inane and rude questions um he joined Lightspeed after three years stint at bitcraft uh started his career at IBM I believe for seven years then got business degree went to Goldman Sachs which we won't hold against them because no one likes Goldman Sachs and we um and then sorry then went to Big craft and then for three years now is a light speed just a few you know what six months ago um so tell me a bit about your background holistically and then uh and then we'll go from there Mr Moritz

yeah thanks for having me Eric um should be a good discussion you already touched on a lot of sore points in the VC uh gaming industry and totally happy to unpack them in detail for our listeners today um in terms of background I think the most important thing uh to know is that I've just been a lifelong gamer myself I love this stuff I'm In It For the Love of the Game no pun intended um you know 20 years ago I was playing uh multiplayer online games as soon as I got hold of the internet we got connected rather late in that small town in Germany that I was growing up in but once that happened there was a welcome Escape into you know precursor of the metaverse might forever be a precursor of the metaverse um but Diablo 2 was my game of choice and um yeah played that probably for six seven years five hours a day um financed my way to undergraduate and graduate education with uh selling

predom items back then on eBay all right so my first question for you actually is on this point because there was no ranking boards on Diablo 2 at the time right uh they were they were so they were competitive letter seasons in the closed better net so there was a there was a game to get to level 99 oh oh so it's a speed run to get to 99 versus yeah it was like more like a two-month three month Speed Run depending on on how far we are into the letter system yeah and so so then also if you once you get to a certain point once you get to a certain point like there's a pretty tight-knit community and I think I think you can among those hundred that qualify figure out who who has the upper hand at any point in time got it but from your background you basically finished with the equivalent of high school and spent five years doing this before you went to college is that accurate uh not quite so this was during High School I did in

fact delay uh College by a year just to have more time and play video games more my parents were cool with it at the time they had actually not graduated high school uh both of them so my bar was finishing high school which I did but we never had a dinner table hippies or something I mean like games full-time before College I mean you clearly had aptitude right like you're a smart dude well I didn't care I mean this is a whole conversation for another podcast maybe but I mean first of all the The Vocational track especially at point in time was much more viable in in Germany than it is in the United States so not having a high school or college degree was not might nowadays be the end of the world even in Germany but certainly was not at the time when when they uh were going through their uh professional and academic career or maybe not so academic career um but yeah it it I did not actually

have anyone in my immediate family who had gone to college and so um I did pretty well in high school I even got a scholarship a Fulbright scholarship for uh for any college which you know college in Germany isn't particularly expensive but a full-ride scholarship still helps my parents and I actually rejected that scholarship because we thought we can't afford a scholarship we thought it's something you have to pay money for we didn't even understand it's something that um pays for school so anyway I mean there was there was a different time but yeah I also not only did I delay for a year I actually also didn't end up going to a proper College um I I did a mix of a vocational training and a you know Community college-ish Education that was basically a bachelor's degree with an asterisk in partnership with with IBM and only later when I applied to Stanford for business school I realized that the U.S higher education system did

not uh fully recognize what I thought was a bachelor's degree so I I did my graduate degree in the US without having a college degree if you want so all right the first [ __ ] in the armor I suppose um but uh okay so you end up going to IBM where you're doing strategy work for a while um and then you went to got your business degree then you went to Goldman where you did the gaming practice like what deals were you doing at Goldman yeah so my my big deals at Goldman were actually for what I was brought in and and hired for which wasn't gaming but in the price I.T um so the big ones that I advised on were Dell's acquisition of EMC which I still uh think stands as the largest tech deal ever at 67 billion dollars and then IBM's acquisition of redhead was I think a 34 billion dollar deal which was special to me just given my own tenure at IBM um and then we basically were ramping up

the gaming practice um I think transactions during my time we did uh we sold zenmx to Microsoft um the Roblox and unity IPO happened in around I think 2020 this is just when I left uh gold medal but yeah I mean transactions really picked up I think 2020 21 22 and then it's the same practice that then later advised on my Microsoft Activision acquisition or at least attempt thereof it looks like that's not going to happen every day it seems to be less and less likely I mean what's your opinion on that do you think yeah I mean I don't I don't I don't follow that okay as much as I used to um seems like they're gonna get the most pushback from the UK regulator yeah um but I don't have a particular opinion beyond what what what's uh what's publicly out there yeah so anyway the first douchey question I have is like if uh like you were only a big crap for like three years that seems like a short

time at a VC firm Maybe I'm Wrong right but you establish relationships with these Investments and you like you build these this trust and you're on boards and you're like you're doing your thing right as a VC so moving isn't it kind of pretty traumatic to move from one BC to another like in the Midstream or is that not true yeah I mean like I think as a general career advice you probably only want to join a VC firm when your plan is to stay there forever or at least for a long time um also internally the way uh you know Kerry and and investing works there's certainly an incentive to you know as a as a VC professional uh solve for long stints um even even just financially speaking in addition to obviously relationships forming with portfolio companies with investors at the fund and that was certainly my plan um and you know don't don't get me wrong and I think we've also interacted during

my time at bitcraft like we we were loving what we were doing it was all started from a place of passion and care about the gaming industry at a time when you know gaming VC wasn't really a thing yet like bitcraft was one of the few first specialist gaming VC firms around 2019 2020 there really wasn't much gaming Venture Capital when when all this started and then scaled this together with the founders to the most active firm in 2020 21 and 22. so my my plan and you know my plan was to stay there I was very happy there I still in close touch and good relationships with all my my former colleagues there um but rather serendipitously Lightspeed came with an opportunity to you know lead build and lead a practice for what is a very established big firm in the in

the global VC landscape a generalist with now I think over 18 billion dollars in capital under management long history both in Enterprise and consumer investing and frankly an offer that was a bit too good to pass on just in terms so it's all about the Benjamins right at the end of the day like is it kind of like like that like because it's the same opportunity well I I don't know I did no I and it's all it's so financially it's always very hard to compare these things because um you know a larger funds are also hard to turn into um you know 10x funds 50x funds you can do that with a fund the size of bitcraft it's harder to do with a fun the size of light speed that's just a reality yeah and so I think financially these things are very hard to compare but I think you know the opportunity to effectively build a practice um to build a brand and kind of like put

your own spin on this it was very similar to the work I'd done at Goldman uh to now do it again in VC it was just very compelling setup and you know with regard to your your comment on relationships I mean the my portfolio companies a lot of our investors too I'm still in super close touch with those are all relationships that don't go away they might actually become commercial relationships again because as you know a lot of these companies seek multiple funding rounds uh before there is an exit event and you know we're hosting events even this week and then at Dyson GDC and one of these uh welcome guests and right and that's it in that sense it's kind of like investment bankers right who have all the relationships with the biggest companies or big companies and so they can move move and set up shop somewhere else and just maintain those relationships like there's no you don't get cut off from that right so that helps yeah I mean

like there's a bit of a different dynamic because a lot of the companies I invested in I was sitting on the board that's obviously no longer the case so these are Big craft Sports seats so that the advisory role and the involvement is a different one but also when I left I sent a very clear message to all my portfolio companies saying that you know if I can be helpful going forward that they should not be shy to reach out and I think right all of them have been almost in like bi-weekly touch with since I since I joined big Craft's cool with that I guess I mean it's also in their interest right like these are all things that will maximize the success of their portfolio companies too yep I mean it makes sense I guess the biggest challenge I would imagine with Lightspeed is because you're a small uh fish in a big pond right where gaming is not a vertical that they are focused on and so versus bitcraft which is basically all they do so there's a chance that they will not give you the resources and or the funds in order to do what you need to do or do you have a certain allocation of a

certain amount dollar amount that that you can use towards gaming uh so with this the all the Investments across sectors and GEOS come out of big early stage and growth stage funds they're no harder locations for any sector per se um but if you just look at what they've done historically um you know lightspeed's no stranger to gaming they've made uh 30 Investments over 30 Investments I think over 300 million dollars of capital deployed if you just look at the last two years some people actually online have gone through the exercise of uh looking at the last two years and then multiplying that and you know assuming a certain follow-on percentage to kind of like back into what is possibly the the allocation for gaming um you know there's plenty of capital not just in the early stage but also in the in the growth in late stages that we can deploy in gaming and I think you know Lightspeed wouldn't be running around with big PR as soon to be launched

Gaming website practice sub-brand team Etc if they weren't serious about this got it um all right so this dovetails nicely into where the opportunities right I mean do you kind of agree my assessment of the landscape yeah overly cynical but I I I I I it just seems like a scary place to be to invest right now um and and you know I have lots of questions around this but like what is kind of the strategy for you guys going forward right given where we are versus the past two years from an investment perspective I so I agree with all your cynicism and I can also go into kind of like the same buckets of where there's opportunity and where things are a little bit trickier or where things from my perspective have been or seemingly over funded in the past two years I think what I disagree is it's not a scary place at all it's the largest consumer category it's growing nicely it

has strong Tailwinds generational and technological Tailwinds that you know will will bring us probably 10 growth over many years to come um so there's certainly value and uh and and and an expected increase in value and I I also think that a lot of interesting Innovation is coming from smaller players versus inert incumbents so I think I think the the tricky piece is rather finding those pockets of opportunity but I don't think there should be any question that there'll be a ton of amazing gaming companies that are born like you know in this in this 2020 to 2030 uh vintage I just yeah I guess from a total addressable Market perspective like the Tam calculations because part of the reason I want to talk to you is like what is the fundamentals of venture capital investing in general right like this is a broader topic right but like when you're looking at the market and you have your pre-revenue

pre-earnings I mean pre-employees in the early stages right it's like you basically I guess one of the key metrics has to be how big the market is for a particular product right or particular service or whatever right um what are they going after I mean the founders are important obviously that's a huge part of it but like what Market are they going after or what Market they're creating and so that's that's my biggest concern with BC right now is I just don't see where the new markets are for them to compete in right so as I said earlier you know VR is dead mobile is tough you know and and the Triple A's are basically dominated by huge companies that have in unlimited budget basically um so do you see other markets that I'm not thinking about that that have opportunities for smaller companies or is it just them chipping away at the big guys with Innovative cheap products that that that can gain market share or I don't know tell me what you're thinking

that depends a little bit on on the sub segment but like let's let me take you through how I kind of like segment the landscape and what I what I'm focused more on and what I'm maybe focused a little bit less on um but you know also like along you know just just one commentary on on your previous messaging I think Tam is somewhat overrated um like you know these term slides I don't really particularly care if something's like a 5 billion or 10 billion or 20 billion dollar or 100 billion dollar Tim it's always more helpful in the early stage to think about things bottom up versus top down and and rather look at a pipeline of the first customers paying 10K 20K a month for whatever it is that you're building and kind of like building building up from there if you're looking at a studio if you if you have the right people and the right Talent they will inevitably go after

sizable opportunities and the right talent for my perspective is an extremely high bar so I've um you know to your comment on on PC console and mobile I've personally shied away from mobile investing in the past almost out of preference I think now it's a really difficult uh area to invest not just because of ATT and all the the stuff that's going on on the distribution and marketing front I also think for investors especially in the early stage the coupling between talent and Commercial Success is is very loose in Mobile compared to PC console we hope that there is somewhat of a coupling in PC console that's the other thing that as I think VCS and in gaming we have to admit there isn't enough data there there haven't been enough Triple A fund like VC funded game studios of let's say you know 30 50 people with the same

amount like 30 50 million in funding to go and release a AAA PC console cross-platform game very few like second dinner is is one that came to Market and they seem to be doing pretty well um but this industry is too young to have this verdict and so uh I think will be a lot smarter on if whether this all works in about a year or two when another 5 10 15 have come to Market but on the game Studio side for me it's 80 percent quality of team and the quality of the team is the question I ask is effectively have these team members who are starting out and I love to do game studios in the seat you know we were not shy to lean in early uh frankly between the seat the A and the B oftentimes the only thing that really changes for VCS is the price which goes up by two three four five x but the market way too wait aren't you

way too big to do c in in a like we have we have allocations for everything we have a we have an early station we have I think 800 million allocated for seat so so you know dude that's all big companies all big companies are all big companies are small at some point you're never gonna get it because no no I tell I tell you why not because the bar to get seat game Studio funding is has your founding team has your game designer you know game director or or or also and or the producer then one of the instrumental figures in creating uh you know commercially successful game previously and the air gets extremely thin and I don't mean has been has has been involved with

but has been instrumental in I.E created the franchise ran the franchise has been the leading game designer of a game that previously grows 200 billion 500 million a billion this is this is one of my big questions and I've asked guys at Big craft and play and all these guys about this Anton and stuff and uh like what what seems to happen at these VC firms particularly the bigger ones is you create Frameworks so that you immediately say no to like 90 of the [ __ ] that you see right and so it's way more it's more like 99.9 okay okay like I get about 10 pictures a day and you don't you never even see these pitches right you have like your minions like look through it to make sure that no no no I look at every game Studio there's no [ __ ] way dude no that's impossible no it's not impossible no it's not you get 10 10 pictures a day if they don't attach the deck you ask for the deck if they attach the deck you look at the deck it literally takes about a minute to look at a deck so

that's 10 minutes of your day we work 8 AM to like 8 pm at least and so that's a fraction actually of the work of the day it's very easy let's actually get to that because I'm actually really curious about this as well like what is what does what do you do on a daily basis like if like there's no investing going on right now right or very little right that's not true either that's not true all right yeah all right let me I think it's actually actually right now uh q1 there's a lot of so far what I've seen uh in January and February I think the in terms of Supply it's well in the life and capital is there so things will get funded capital is definitely there there's no doubt but everyone's kind of I feel like people are kind of like bracing for impact or worried about stuff but honestly so far into the year not at all the case from my from where I'm sitting yeah okay so as a venture capitalist you have like you know the biz Dev hustle right you know the hustle of it all right dealing

with other VCS dealing with uh you know like boiling the ocean type Biz Dev work right then you have like strategy right then you have like reporting your work and then due diligence on these deals and I'm sure tons of other things that I'm missing like Could you actually give me a guesstimate as in a given month what percentages you're doing in each of these things like I just I'm curious as to how yeah it's a VC's day or month is kind of allocated yeah it's a good question so people will do this very differently and I think people also worked a very varying degrees but I I work so much that I have to take care of myself to some some extent like this this easily bleeds into like weekends and you know I usually start at six a.m and I usually don't switch off my stuff before 9 pm uh that's at least Monday through Thursday um Friday is a little a little more

chill but like I have sometimes like 10 hour blocks on a Saturday that's just like everything that's left over from the work so I think in terms of hours per work it's probably easily 80. plus um and then oftentimes days are segmented like today until now I've had 30 minute blocks uh from 7 A.M till here and I have six more after we're done and then kind of like 5 p.m I can actually start any work that requires real thinking like Focus no diligence would be possible before 5 PM on a day like today for example um and so how how does that break down um the the thing that's fundamentally different here than um than what I used to do at bitcraft a big chunk at bitcraft was also um raising money into the fund because some that you know companies forget that sometimes too we we fundraise just like

startups to those investors whether that be family offices or um you know High net worth individuals and then for larger funds institutional investors seven wealth funds strategic investors too you know many of the big gaming companies are also investors in funds because they like to use VCS as the ice and and the years of the early stage landscape so for for a lot of funds that's probably like twenty percent thirty percent of their work is fundraising themselves luckily even though I enjoyed that very much at bitcraft um that's no longer the case at light speed they were very strong integrated fundraising function so kudos to those guys for just bringing in over seven billion dollars last year which will be fine for another year or two um and uh so that that's pretty much non-existent for me nowadays which I'm not sad to lose that part

um and so if we have a hundred percent Pi you know I'd say 30 40 is um meeting companies looking at pitch decks spending time on diligence asking questions looking at the answers um and I would include in that also just screening the landscape like if you are VC who invests not just in the seat stage but also in series a and series B then things don't only come to you you can also see what else was funded in a seat stage or a stage and then so you can you can see if these could be possibly interesting candidates for the next round so I'd include that all in in this forty percent looking at like pitch book and and seeing what deals have been done yeah not Pitch book like fans of our size have a lot of custom analytics tools too so you know at light

speed we have a team that's just focused on building analytical tools for investors to help them with activities like this um so it would try and have a bit of a data Advantage too as a firm um but yeah then uh you know a lot of our deal flow is actually the first look at a new Venture so how for that you can't really have an outbound motion uh for that you need to build a brand and a presence and that is I think what you described as you know networking or Biz Dev like for me at light speed that's now what what is gaming at Lightspeed what does it mean like are we how do we present ourselves what is our unique advantage and why do founders want to go with us how does that get articulated does there need to be a specific light speed Gaming website what is all the pr that we're doing to tell even people that we're now so focused on gaming you know with that in engineering had a nice Splash across

various Outlets that all takes time too right and so events like on Thursday this week are rented out uh Dreamland in Malibu a location that I love I wanted to do something a little bit differently than than Malibu really yeah my Lord yeah um great location we have a big concentration in Santa Monica anyway you have Riot games here you have Activision Blizzard here and so instead of bringing them together for some what's the purpose of this meeting in Malibu uh it's bringing a hundred gaming Founders together uh rented out the place uh rented some classic arcade machines and just having a good time together okay all right so this okay this is this is the part that's really interesting so you're basically putting these things on in order to attract current and former employees from some of these bigger companies as potential Founders right or their founding many many of

these many of these are founders many of these are portfolio companies some of them are actually bit craft portfolio companies to your kind of like earlier Point um and so so basically you're going through your entire Rolodex or getting people to do that right and finding the people that you really want to have invited selected these group and send them out these invites to come so that when they decide to fund their next round or they start their new startup their first call is to Moritz that's a mildly cynical but otherwise Fair summary that's that's it that actually wasn't cynical I I got lots of cynical things to say but that one is just makes sense right okay yeah I'm just trying to understand what it takes in order to build the pipeline of quality that you would need to be successful in this in this world yeah most of the the truth is that the deals that come to be ultimately Investments are so much more likely to come through something like this versus

you know a contact form on your website got it or it's it's just they're just reaching out yeah to a myriad of yeah VCS yeah I got it okay yes that makes sense since we're on the topic of throwing killer events um there's another one uh that we're labeling gaming CEO Summit uh in the frame of uh GDC uh game developers conference and in March and so this one I'm co-hosting with my previous colleagues at Goldman and uh in partnership with Microsoft Sony and Niantic uh were inviting 200 gaming CEOs uh rented out a big place in San Francisco and this is a hundred uh public and scaled private company CEOs on the one end so today's leaders effectively and then the other 100 are what we think are the 100 most promising startups CEO event only should be good fun too that's insane that was epic and this is this this one we're splitting

cars with Goldman Microsoft so niantics it's not even that I get Microsoft I get Microsoft and Goldman I don't really get why is Niantic involved the Niantic is the leading company in extended reality gaming so I mean if you I think we can all agree that that is the next platform the question is just probably on the timing uh mobile AR for now obviously in in the absence of they've much anticipated and always delayed AR glasses well I mean Niantic do they really I mean do they they have like location technology not AR technology right I mean it depends on what you call AR right like people call this mobile AR um anyway that's interesting so you pay for this out of like some marketing budget at Lightspeed to do these events and and grease the wheels of the industry it's money well spent yeah I it's not no it sounds amazing and of course my invite it's not even it's not even that yeah maybe you check the spam folder Eric but like if before you get too upset I'm happy to have you obviously

no I'm really not that upset but it sounds like an amazing event like uh I and frankly I go to these type events all the time it's really fun and they're all good fun right and you meet really interesting people I mean I it's a pretty it's also like we're not there to kind of like run down some corporate agenda or pitch or anything it's really it's really just making sure that who we think are the most interesting and most promising people in the industry at least think of us when their friends ask them who would be a good person to reach out to to at least consider so the goal for all of this is not to whistle our way into some deals very rarely um it's really first and foremost just to be on the radar and to be a name that comes to mind when someone of that statute asks around or when some of

these companies are thinking about raising their next round got it speaking of brand and marketing um I have to admit I have never seen in my career of 25 30 years someone like has marketed themselves as well as you have like I I looked at your LinkedIn profile and I am just in and all the things that you're doing the marathons the where all the charity work and stuff like that I I I am in awe in awe and I and I mean this really I mean I it's like it is amazing and so and I know that's part of like the whole thing of like introducing light speed introducing yourself to like a broader audience and I think it's amazing but I have to ask like do you like have a PR agency that does this [ __ ] for you or you basically is this the architect of your own design because I need I need the better PR I think because anyway so if you do all yourself we to be honest like the the push in January I was almost a little bit scared how could

it turned out um because we I think off the off the outlets we contacted we actually had a hundred percent coverage we we reached out to like 20 or 25 and they all covered it and and a lot of them with uh profiles and kind of custom write-ups and interviews um so yes I'm very lucky to have an awesome PR team marketing NPR team at Lightspeed a team of three that has relationships with all these outlooks and so the way the way I wanted to do this was you know obviously we're shooting for some some good like well-established industry Outlets but at the same time I didn't I didn't want us to lose track of where the audience really is which is a lot of the gaming native uh sources like you know game makers um navic invest game and so I want to make sure that that we had all those covered too um you know even I I was reflecting about this a little

bit because I think what worked out very well was the marketing team coming in with the initial relationship and then in some cases we actually didn't immediately get a response or um you know didn't get the response we we wanted I'm also someone who's just ruthlessly persistent and for some of these Outlets probably pinged like 10 15 people before you found someone who actually really likes the topic and really likes the story and then some of them that we thought were dead I just didn't want to be dead so I I went the extra mile and some of them came around with actually some of the favorite articles the information before they put out this thing was more or less a no slash Maybe and then yeah so so most things as most things in life the more you want it the more likely it actually happens and then you can I can tell you what doesn't work it's just like

have some agency or like Outsource it's similar to reaching out to VPS through like Bankers like middleman middleman of any sorts like they never gonna convey the same magic or conviction as you actually hustling to get in front of someone and then like not letting them rest until you at least have a chance to speak on the phone or speak over zoom and then have them make fun like have them fall in love with you just because dude I don't know you're you're a [ __ ] Hustler dude that's what it is like you don't give up I mean I that's impressive dude I I wish I had more of that skill set um all right that's really interesting well but when are we talking about gaming and opportunities and uh we can come back to that like it's still we still need to run down what's hot and what's not yes sorry yes that actually exactly what I was going to do because we got off topic so okay what what is hot what are you looking what are you looking for out there what is hot right

now what's not uh that's my that does a personal perspectives here hot I think content and IP is always hot because that's the biggest chunk of the industry that's the hardest stuff to get right there's a big uh volatility and like a big you know tighter the risk and so most game students will go to zero I think it'd be ridiculous to to state anything else but that's historically been the case it will always be the case they get to zero close to zero you might get your money back correct me if I'm wrong here historically before the last three or four years that's why there wasn't much VC investing in gaming was this too hit driven but also predictable well games game studios have also changed there's a few things that changed first of all you can now raise quote unquote only 30 to 50 million dollars and actually produce a triple A game because you can now use tools that help you get there with quote unquote just that amount of

money when like a lot of AAA shops are spending a multiple of that and also have a multiple of the talent and you can win on fun it won't look as super polished um but it also doesn't have to be at launch because the other thing that changed is games become platforms and become games as a service business models where you can launch something that's good enough and fun enough and then then build on top of that from there I mean just look at I mean fortnite's a good example right like the first because epic has unlimited money they're just like any other yeah but like to to but to create this like first version of fortnite like you can do that with with the right team in 50 million for sure look more it's that's not the way it went down right so they spent what six years building the the initial version of that game and they've it bombed bombed bombed right and then they had a separate team that kind of built this you know mode to copy pubg right and

you're right that probably development costs next to nothing relative to yeah and so you can find these people you find these people that did that and then see if they'd be up to fund something new yeah but it all right but it took iteration it wasn't just like one yeah but like now and so that's the other thing you want you want your games to just to iterate with the audience from the get-go right like I think blizzard for example has a notoriously been a company that's just you know released games like it's done when it's done and like right bury ourselves in the hole for seven years we'll build something epic and then you throw it in the market and people gobble it up no matter what that's not a fair representation of how they were interacting with their audience pre-launch but you know let's let's say it was uh write games different philosophy and and a firm that has trained hundreds thousands of developers uh in um in really building games very in very close interaction with the audience and we see a lot of the riot games uh

Founders literally throw stuff in front of their friends and family like two months in where it says oh yeah all the heroes are not even they're not even like they don't even have arms and legs they're just blocks and like ignore all the ux but just this and then like is this more fun is that more fun than you kind of go from there it's really awesome to see some of these teams and um have we seen any successes coming out of Riot X Riot and actually people we haven't had enough time to actually fund them and have them go to market where we see major successes come out of riot in the next two years launching I'm deeply convinced if not I could just pack my stuff and stop what I'm doing here keep people out of Riot not Riot itself you're suggesting right oh yeah like people who who who left a riot who are building game studios right now like second there are a few extremely right Theory craft just one rape base is

another interesting one they're honestly plenty yeah so but same same is true same is true for epic games same is true for um blizzard same is true for infinity and respawn yeah I mean my only pushback to that um generally from doing this a long long freaking time is that um a lot of the games and things that they do within Riot or blizzard is based upon established player bases that they can leverage and and and communicate with as you suggested when you go outside of that ecosystem you don't have that kind of Leverage anymore but in your defense or your argument I think would be is that like something like second dinner they basically brought that audience with them you know it's like like I mean Marvel was a great IP but they also have tons of people that are that that love what they do and I think that kind of helped them as well so yeah I guess you're right we'll see how how many of them can scale and build successful businesses the other point

that I would make is like you know things like valheim which was an amazing experience by the way great game coming out lasted for what two weeks right because they didn't have the resources to support it yeah um so that's the other concern I have with these type of uh you know software as a service startups right do they have the resources to maintain um I mean the so the the best teams that get funding check the boxes in terms of having previously built and let games as a Services before they also from the get-go think about what the content Cadence is and the maintenance is and like what the lifeops will look like and also what distribution and marketing will look like like you know taking VC funding also means you're no longer taking publisher funding unless they come in in a later round and so that has implications for how you even want to think about marketing and distribution some of the biggest game studios VC funded studios are even building publishing functions in-house

um you know but that that you can only do once you really reach a certain scale um all right anyway so so PC I want to come back to the original question so we at least give that to the audience right um uh I think PC console Cross Pro platform AAA gaming content and IP hot my perspective I'm with you on the mobile I mean if there's only hot or not then I would have to choose not right right now I think it's a really it's really hard uh to make a case for tight coupling between talent and future success on the mobile side it seems a lot like a it's a lot Wilder West than this is PC console and then layer on top of that ADT and distribution issues right now it's tough um not so hot also web 3 not so hard also XR you mentioned those two I think on

web3 what we've seen in the last two years um you know was a bit of a and you know everyone it's easy to just say like oh the variations were crazy and you know and like you know many funds including bitcraft we're very active on on the web 3 front there were also a lot of very good bets that were made in web3 you know they're not all bad um but I think the two things that were wrong or tough or at least um you know need to get need we need to get right on web 3 gaming before it can really take off a two-fold one the business models were I don't think I don't think a lot of these business models were like predatory to begin with I think some were obviously Rock poles and never well intended but a lot of them also just didn't get it right because it's really hard to get right but you will also know that like the last business model we changed we made to free to play that

also just didn't happen overnight and like for the industry to figure out that pay to win is a big no-go but uh pay to have a funny hat that looks cool in front of your friends and you'll ask your mom to also get some money to buy that same cool party hat like that's apparently the way to go for microtransactions and uh and the free-to-play business model yeah that's 95 of the revenue generated from the store is paid a win right pay to progress like I think on the mobile side yeah but you're on the mobile side always right yeah I'm a I'm I think everything I say I'm always a little bit more but even on the console side like all the FIFA Madden all the NBA 2K you know it's all pay to win I pay to progress but I I I think I think the I think the overwhelming the overwhelming micro transaction revenue on the PC console so I just not pay to win but it's it's Cosmetics but maybe it should be you

know maybe maybe these these are things like no one thought I mean I don't know at the time I doubt that many people thought that Cosmetics would be such a treasure Trove right and so 100 but so we same same on the web 3 side why they you can't get this right in the first year so I think some of this needs more time I think there's there's a chance to build sustainable viable economic business models and so that's one thing that needs to get that people need to get right is that some is there any hard roadblock to get there I don't you know I don't I don't see why that would be the case the other no no no I'm gonna continue now so so we could we make some ground on this question um the other thing is people were just fine with folks building video games that didn't know a thing about building video games and I think that is the biggest mistake that was made um

I look at a web 3 game studio and find that you want to use web3 but you're still a game studio so let's come back to the basics so what is your design director who's you know who's who's responsible for production what have they built previously building games is super [ __ ] hard and and honestly the web 3 rails are not easy but also not super [ __ ] hard so it's it's the big challenge here is still building a a great game that will have uh that will attract eyeballs for a long time 10 years plus because it's a media format and so the the value comes from the sustainable attraction it creates like web3 from my perspective is more a value distribution topic than a value creation topic the value creation comes from building something that is fun and a long lasting way so fine if you want to be a web 3 game Studio I will basically look at you as if you are

a game Studio we can talk about the quality of your game design shops and what you've done previously and then we can also talk about you're back at uh and and other topics and then after all of that we can talk about whether you want to use web3 or not like honestly if you're building something AAA there's like a one and a half years of pre-production and then you go into production there's enough time to build in web3 if you're down the road to site then that is something you want to do but you what you won't get around what you can shortcut is building an outstanding fun video game and so that's that's the biggest I think that's the bigger mistake even bigger than the business models that that was made is that also something that is unsurmountable no if if the right if the right people go after the web 3 opportunity there's no reason why this would be a hard block for for future success in web 3 gaming all right so console PC software's a service uh is a positive mobile is out for now

or like kind of you know Mason figure that stuff out web3 it seems like a no if I were to read between the lines but but possible going forward if you get the right team in front of you that has a good idea has a good gain that's just basically web3 becomes an enabling technology to some degree to do what they want to do type thing yeah so what what is interesting in the meantime of course are our infrastructure place in Webster right right same with XR like you mentioned XR you know XR always feels like it's five years away from mainstream for like 10 years now and yeah I think this last half here was a little bit sobering again if if anything on that front and so um you know as a VC funding of VR game Studio you're basically funding a game that at least today is serving an audience of an active install base of I

don't know something like 30 million devices or in in that range I wouldn't Define that that is active but maybe 30 million have been sold maybe maybe like five million are active so but yeah yeah I think we're on the side so it's it's it's tough to see a venture return case there and then so it all becomes about what are your what's your personal conviction about the um the development of this install base um and that's you know that's where I think you know even with generous assumptions we're all excited about XR like I think there's no doubt that the next platform is you know like I'm excited about an AR future I think screens there will be a time where we make fun of screens I hope so I'd be surprised if not I think that's more likely to happen than not to happen but the tricky thing to get right as a VC is always timing these are 10-year funds and so yeah right so is if the mainstream moment is not in the next three to four years then it's too early for this fund

and I think unfortunately on XR that's probably still the case now we are making AR and VR Investments um again it's a bit more on the platform and enabling infrastructure side so um you know another enabling infrastructure infrastructure Innovation we haven't talked about is is AI and all the stuff that's happening on the procedural generation front I mean there's enough Buzz about it I just want to for the record that's a hot uh but also for the record I think it's very hard to pick winners that are sufficiently differentiated and not just building on top of existing you know mid-journey stable diffusion stability AIS is a great light speed investment by the way from the Enterprise team and so it's the cool thing about Lightspeed also is that I have these groups uh Enterprise consumer Healthcare you know Healthcare less less relevant for gaming maybe but fintech when when we're looking at

Payment Solutions um with experts who have been investing in AI computer vision uh consumer marketplaces social networks for 10 years and can be drawn into cases where it's not a you know bread and butter game Studio which I'm comfortable looking at myself but is more a gaming platform more gaming technology that intersects with other consumer or Enterprise domains how about edtech are you looking or do you have teams looking at edtech at all um yeah it's also it's also a space where there haven't been a whole lot of breakouts I think I do lingo and what are the ones yeah I mean Duolingo is a great one I I think that's Venture funded right I'm actually not 100 sure I'm not sure either to be honest kids are not experienced and yeah no this this like Green Owl is haunting me on my uh

on my language lessons exactly um are any other like areas of interest for you and so you're basically apologies eight AAA console yeah the way I look at it is game studios I think that one we've discussed gaming platforms that basically look like consumer platforms marketplaces social networks that have a gaming component I mean the scaled examples are Discord twitch that kind of stuff so this is something that that we're looking closely at together with you know that bugs me about those the business model has not emerged for any of those like they don't make money you know I think twitch to this day is still losing hundreds of millions of dollars every year it's like I don't know what what is this model for social I mean besides advertising which twitch I don't think likes to do and discord's certainly not going to do I mean the squads discord's Nitro seem to be

working pretty well and and continues to scale nicely too but they're still super unprofitable well maybe you can't comment but like I don't know about super well I I will say that they're super unprofitable and I will happy to hear anybody else says differently but I know twitch is still unprofitable I mean no matter what they do so um anyway all right um yeah I think that makes sense that all makes and then yeah so that's that's Studios platforms and then on the tech side we've discussed some of the the tech stuff but generally Tech extends into ugc technology anything on the content creation front like I'm also looking at novel forms of 3D creation including volumetric photogrammetry uh Nerf um you know so there's also there's an intersection between uh 3D Vision and AI that I think you know if you if you think about how we create 3D experiences it's so different uh and and so much

harder than creating all kind of other media um and I think that's there's a Natural Evolution that enables Layman to create stuff and historically that's been text then images then video and I think going forward 3D is going to be the next thing yeah it's very easy to create for everyone in quality yeah that's a whole other subject but I I'm I totally with you dude like there's just like there's been really the pain and agony it is to create a 3D World for a game it's just too much it's sort of there should be something to alleviate the bottleneck of what what of creating new worlds and and that is a huge opportunity that there's a lot of innovation happening also on that front and yeah I'm sure I'm sure yeah that'd be really cool to look at frankly all right but we got to go because we are running out of time and I'm sure you're a busy man clearly you're a busy man because you're gonna be working till eight o'clock tonight

um right you clearly have no family right or ah no I have a I have a loving wife who is an entrepreneur herself and uh understands the grind so we got it covered for both sides the children no children yet children are well if we if we do another recording uh next year at this time the answer might already be different for that um wow and then we have uh we have a lovely little Cavapoo who keeps us entertained until then okay all right so last question um what are you excited about as a gamer right because you are a gamer and probably you know uh have a much better gamer than I am I'm sure but like what are you excited over the next few years from a game perspective well I I hope that this rocket League part to Unreal Engine 5 is happening soon there will be uh um a major event in my life uh that's the only game that I play right now is rocket League Diablo 4 is coming out so probably have

to take a look at that yeah I think um but they're five years of your life and sacrificing your education and embarrassing your family you gotta you got to play diab before I don't know I mean I'll continue to embarrass my family so that I know probably not gonna help with that yeah yeah um all right cool well it's been really good to get to know you and get to know what you guys do um I'm uh excited to see what Lightspeed ends up investing in I mean it'll be a real indication of where where your metal is to see what you guys invest with in the next six months to a year yeah we already have uh one exciting first investment that we will be announcing over the course of the next uh three weeks or so all right well make sure you send me the article and I will mention it on the podcast uh like when it happens and uh see see how well it doesn't and I'll give you my two cents if it's for what that's worth awesome anyway good luck in Lightspeed uh and good chatting thank you Eric