Kress's Corner #2 How do gaming venture capitalists really work?

well welcome to the second iteration of Eric's one-on-one I have uh Jason here from Convoy um and again I've decided to do these interviews to help uh you know fill in some gaps from Mr Mishka leaving but the goal for me is to learn about things that I am interested in and this was a thesis that was set by uh Mr Levy uh who is kind of the reason he does it as well so I am bringing people in here just to understand what they do get kind of a real scoop in there try to avoid the pr fluff um and again to see how they fit with the ecosystem and see how they're innovating in their fields um so why am I interested in Convoy well Convoy is one of the OG uh VCS in the video game Space um and you know the current market is is slightly challenging to say the least you know IPO uh the Market's absolutely

closed M A is coming to a relatively screeching halt although that may actually pick up soon um and again there's a ton of money that was invested by the VC community over the last few years in this kind of unprecedented bubble particularly in the gaming space and other spaces as well but basically the question is how do VCS work in general and how do they work in such an environment so again we have Jason Chapman who's a managing partner at Convoy he started Convoy with his brother Josh which is interesting um and then also Jackson Vaughn uh welcome Jason tell me kind of a bit about your background the founding story you know the the uh synthesis and Genesis of uh Convoy and how long you've been working at this thanks for having me Eric uh and you know I also want to just kick off and say I'm hopefully I'm not your second victim as you sort of proposed as it might be for this conversation so hopefully I can hold my own um been a long listener be Constructor of fun it's been a minute since I've

gotten a chat with you guys on on uh on the podcast so enjoy these one-on-ones with you and so thanks for having me um background for for me and also for Josh and Jackson we all three have a very similar background which is a little unique where all three of us grew up in uh Africa Latin America and Asia's kids so Josh and I are the son of a US Diplomat so that's why we moved so I think of it military-ish background just in embassies instead of military bases Jackson was the son of a you know an NGO worker kind of in a similar format and it happened that we uh overlapped in two countries with Jackson in Bolivia and then in Mozambique uh and so we did not live in you know and a lot of people think of the embassy life they think of like the James Bond movies of you know him running in and out of Western European embassies that are beautiful that that's a little different than the uh the reality of how we grew up um you know I loved our upbringing

um so it's a big part of who we are and and kind of who shaped us to be what we are today um I would tell you also that's where we fell in love with games um so we grew up in a lot of places where gaming was a huge part of the culture um and you know after school I would go across the street to an internet cafe and play games with people I played in leagues um and that was a huge part of who I am today I still play video games every single day I think it's a tough Market to be in if you're not actually a gamer yourself this really is a an art and a passion and I think a dedication in that you know if you're not part of the ecosystem it's tough to tough to invest into it um so let me fast forward we all three uh went to the states for for college we ended up doing a bunch of different things I eventually ended up working in research at IBM my background's quite technical I uh convinced Jackson uh to join me in my same research division so I actually recruited him in I looked really smart to my bosses at the time when I got him to join

and we were in the division that worked on predominantly machine learning applications within the larger Enterprise and a lot of applications that we worked on ended up being in games and so that was kind of our first for you into the what I kind of call the infrastructure and back kind of underbelly of games and so that's what got us hooked into the business side we always always were big Gamers ourselves personally um then we kind of started talking with Josh who happens to double as my real life brother um you know we often have been interviewed and questioned about what's it like to work with your actual brother um and I have to be you know you know that sounds super cheesy but I'm very grateful to him for being extremely strong in a lot of areas that I am not um so Eric you can press into that later if you want to but wait a bit but everyone wants to know who's smarter oh man uh I think on Mondays and Wednesdays I'm smarter because he wakes up a little slower I think Tuesdays Thursdays he's probably Smarter on Fridays it's a toss-up so I think it

just depends it just depends on the day diplomatic diplomatic you heard my train you heard my training yeah no uh in all seriousness I think it depends on the topic I think you know we lean heavily on Josh uh who had a background at BlackRock and Morgan Stanley when it comes to sizing at markets also he is definitely a Visionary um whereas Jack and I I would slot a little bit more in the engineering very technical uh backgrounds uh we we like to see how things are going to get done in the near term right and so that's a good seesaw for us as a team um but yeah so we all three ended up kind of doing something different um and while we were uh in New York City at the same time um Josh uh Jack and I had this idea to start writing about the industry um and so we started writing in about 2016 about about games about where we thought gaming was going and kind of what we thought gaming needed um and truthfully Eric we had a lot of people start reading that that we didn't

deserve to listen to us we had you know we were under qualified but we had a lot of hot takes um which uh you know my any advice to anybody who is a Content producer have an opinion um because gosh like that's what people want to hear like even if your opinion's dead wrong and I've been wrong about a lot of things um publicly and you can you can research it to see what I've been wrong on but have an opinion have a have Augusta to do that um started writing that and then through that honestly we had some people contact us from the industry some you know big angels and former Founders in the space that said hey look we think you should raise a fund and we'll be your first LPS and so it's kind of an unconventional story and that's how we got going that's really cool I for the record I actually I grew up in Saudi Arabia so I kind of understand the nomadic lifestyle of uh xpass which is a different unique background um we're in Saudi Arabia would you grow up Eric uh in the east east coast jubail and then I went back to Saudi in in in

in in 2000 and I also have a twin brother but by for the record I am better looking and smarter than my twin brother nice which which is which is just truth right I would have assumed I would have assumed I would have assumed um so anyway so describe actually your the one the one thing like you have the three Partners but what what is the actual full team that you do to run all the money that you run yeah so you know right now across um our three funds and then a couple other vehicles that we've set up um we manage about 270 million dollars um so that's the AUM of the firm um we have a team of seven who are full-time uh there's three Partners there's three other uh people on the investment staff um you know we have a principal and then two uh two Associates um who help us process deals um and then we also have a person who heads up our platform our platform you know a lot of people Define this differently think of it as portfolio

support post investment so you know once the once the check has been written a lot of times the investment team and we like to consider ourselves very involved we decided as a firm to invest heavily into that so we're actually growing and building out that team which is after investment made how do we make this operator successful so it's a good outcome for the fund that's really cool and I happen to know excuse me know Danielle right um who works as an associate there I will say Danny is smarter than me and Josh so I'll confidently say that so you know we are we're grateful that she joined our team um and you know we we do have a firm policy that we only want to hire people smarter than us um So eventually they'll probably just displace us out of a job but that's uh it's been she's been a great pickup for us um and really stretched us to think a lot of different ways on different topics and um that's kind of what you want on your team she's got opinions so kind of going back to that she's got got takes and that's what you need it's funny because because I actually get approached by a lot of people on LinkedIn because of the podcast and she was happy to be one of

them who listened to the podcast and reached out and said hey I'm working at Activision I'm doing strategy work and I have this opportunity to join a VC and I'm like dude go to the VC what the hell are you doing at Activision what a terrible job it must be awful it's like you gotta go work and that's how I first learned to Convoy a few years ago and so like for me anybody that's like willing just to reach out and be that uh I wouldn't say even use the word aggressive just seems like a negative connotation but being that aggressive and being that forthright and then also being so eloquent and and smart about what she's doing I mean I think she went to Harvard or something she's no dummy right she's she was a McKinney I don't know she had an amazing background but uh but anyway anybody that does that I hats off and uh and I usually respond because I'm just impressed by that kind of Gump absolutely I uh I have you know I've told a lot of people you know raising our funds um you know I have the firm belief after

going through um this and building this business you can get to anyone in the world you just have to try hard enough right um you know we live in such a connected economy um eventually you will get in front of the person so you know case in point back in the day if you were listening to somebody you know on radio or through some medium it was pretty hard to actually get in touch with that person you know today I always kind of tell people when you know I'm trying to you know be helpful to especially you know people in college or you know earlier in their career I say you have no excuse you've got every tool possible to get to that person these days um so the reason you don't get in front of the person you want to um it's related just on you um and that's you know I think a lot of successful people especially in their younger parts of their career today are fully capitalizing on that yeah quick Corrections she worked at McKenzie for two years and she's a Industrial real engineering degree from poly state which I think probably you know made you like her right is more of a technical background I suppose you know I I have

an affinity also for people uh that just hustle um and I think like you know Philip and Taylor and Danny on our on our investment team and danuka um all kind of embody that where you know they they show that gumption that that kind of extra mile um and so something we're really proud of actually today is that we've had uh no one leave Convoy since they've joined so we have 100 retention since we started the firm four years ago and uh we we really plan to keep that way something's a little unique about us is we only hire people especially on the investment team that we plan on making Partners one day right like we have to Envision that um we're not hiring a kind of a churn Factory to spit people out of proud papa yeah yeah right so one of the the one of the interesting Parts about Convoy from my perspective is that your focus historically at least has been on um more technical side more like middleware and enabling software

enabling Services et cetera et cetera and not really focused on the gain side itself um and I imagine you kind of said this already part of it's probably your technical background but are there other reasons why like you're focused more on that side of the business as opposed to the content creation yeah so there's there's a lot of reasons um I'll I'll uh the the top-down of it right is um hey look you've got three billion people in the world to play games uh it's about 38 of the global population I think it's setting up just under 8 billion today um one just off the bat there whatever you've got three billion people using uh we think it it demands people who are focused on funding companies that support the infrastructure to service those three billion people so that's just the first point the second point I tell you is um content is a red ocean um just generally speaking it is a red ocean if you look at you know the number of games released last year on Steam it's you know still

you know topping over ten thousand on the App Store um I believe you have over 900 000 games on Google Play Store it's over 400 000 games like it is very very hard to pitch that you're entering a blue ocean Market which I would definitely prefer as an investor um that being said you can do quite well in content which is why a lot of people do Chase content um is you know it's incredibly scalable it can go up really quickly I mean look at fall guys look at Rocket League kind of out of nowhere hits um and I understand the desire for us we've just determined as a firm hey look that's not our backgrounds uh we haven't run Studios um and that's okay like you know what we think we understand this other side of the business much better and all the other couple things I'll highlight here too is it's uh it's a slower build for most of the businesses that we invest into right you're not going to see typically uh you know 12 months kind of

you know home run in a B2B business that's okay we like that because it's a little bit more defensible too there's more of a moat those users don't uh leave quite as quickly and then the last thing I would sort of highlight on on just on content investing is it's often the most expensive entry point in the market you know if you're looking at when you're trying to get into gaming as an investor most people are you know gravitating towards content and that is where most the capital goes and therefore you're getting 40 million pre-entry points on seed round versus 10. and that that's less attractive to me um so for all those reasons uh also paired with probably that most of the other funds in the space do tend to focus in content um we like to stay and kind of swing at our pitch uh and so far so good and we'll probably just keep swinging at it well what what are some of the most successful companies that you've invested into with exits uh yeah just like one or two that come to mind yeah so the some of the best companies to

date that I'll highlight to you that are still live positions um which are things like uh game fam which is the largest publisher on Roblox this is something that we did really early in the seed we actually had so much conviction we LED their seriously you know Joe Joe is Joe is phenomenal we're seeing Joe evangelist yes yes if you if you know Joe we love Joe Joe is going to be here in Denver hanging out with us in about two weeks um so we're excited to see Joe so that's a great company out of fun one um that we backed and honestly I I I love I love the vision of kind of bringing professional operations to a novice field which is kind of what I would classify what he did so well and he navigated such a such a tricky landscape right whenever you're you're trying to produce value for kids there are a lot of landmines right um and I think he's navigated that super well that's one that I love to highlight um another company that I would highlight to you is Carrie first based

out of Africa it's the largest publisher in Africa they built a really incredible payments rails to allow people to actually monetize that user base um so we LED their seat extension did a big part in their a as well this is company that I think is going to the moon and very excited about them uh-oh I lost you Eric oh I was supposed to interview them and uh and and I I said no but I think I probably have to do it now if you're if you're if you're talking them up so much they uh they're they're pretty great I would go get I'd get on I get on a call with Cordell or Lucy one of the two Founders Lucy I think yeah yeah they're pretty great Lucy's also going to be here we're having our our Summit here in uh in a couple weeks for our investors and a couple oh very cool yeah so we're we're getting a couple our companies kind of speak to our investor base so we're excited about that so um Lucy will be coming in as well cool

yeah um all right so the the one question I always get asked is how do VCS work right how do they actually make money and how much money do they make and we're gonna obviously speak uh we're gonna basically not what you make but this in general what you make if you and we're just I'm just gonna set this up for you and I want you to just kind of walk through how absolutely VCS get paid and how what what their annual salary would be depending on how much money they raised okay so if you have a 100 million dollar fund assuming you have one LP a limited partner is the ones that invest in the fund uh you know I don't know small off Family offices I don't know whatever mutual funds whoever else invests in this all right you have a hundred billion dollars you have two general partners um and the staff right and my question is how do the economics break down over the life of the fund how much yeah do they run what is the management fee the care like without getting into The Godly goop of all this numbers like what how much money do you make and and how do

you make that money all right let me let me you know this is a question I'm glad you asked me ahead of time so I could try to break this down simply because it does get uh into the gobbley group of numbers here but assuming you have a hundred million dollar funds so that would be classified in Venture as an early stage fund I know that sounds like a ton of money uh it is a ton of money but in the scope of venture and also just general Asset Management that is microscopic on on the scale right what are the economics so typically 100 million dollars you have a lifetime of the fund it's either somewhere between seven and ten years what does that mean essentially in that fund those investors are signing up saying hey look we're going to give you this capital for this period of time at the conclusion of that we're hoping that you've Unwound all your positions return to us the money we'll see where we're at typically what happens is you get an annual two percent management fee for at least the duration of the investment period And so what is the investment

period it's typically between on the low low end two years on the high end now it's probably about four years so you get about two percent a year to manage that fund and so two percent of a hundred uh that's you know two million dollars a year at that's your you know your operating budget to to to work with and then here here's here's where the answer becomes a little bit wishy-washy um on for you Eric on what does a venture capitalist make it really depends on what the venture capitalist decides to do with that money right um in the sense of well one are you going to staff up are you going to get a bunch of investment investment members to build up your team that's one um two uh are you going to get an office space are you going to travel a lot are you going to go to conferences are you going to host conferences things like that um and then thirdly I look at you know how many partners do you have right um that's another huge element to this so you know theoretically in a in a

world you know if a yeah they're really just two GPS with a 100 million dollar fund and they chose to never have an office never travel only pay themselves they could each make a million dollars a year I I will tell you I don't know anyone personally who chooses to do that um well hold on a million billion dollars from the management fee or a million dollars from the management fee plus the returns the assumed returns that would be just off the management fee right because if you're looking at two percent right I will tell you I don't know any fund that does that because okay because at the end of the day you know that would be a pretty short-sighted move right um maybe you could get away with that for one or two funds but at the end of the day you then do need to actually start thinking of how do I institutionalize how do I operationalize how do I get help so I can process more opportunities um how do I get in front of the best deals you know I I would tell you it'd be very hard for myself Josh and Jack to do that without our team and also the providers that we work with to help us

achieve that kind of best return because really what most Venture capitalists are hunting for is Carrie right and what the definition of carry is so let's just kind of go with that 100 million dollar example most funds are structured this way and this is called you know the European waterfall method is and this is what I'd say is very LP friendly and what most funds today are structured as which is I will not take a dollar of carry until I've returned 100 million dollars to mile piece right so in this scenario um after that it's an 80 20 split so let's say assume I returned 200 million dollars um the GP would have a right to 20 percent of that 100 million dollar net right and so that's what what we're really hunting for is those big opportunities those big exits that's like the holy grail for for Venture right and so it's very lumpy that's really what you're hunting for all right

I will tell you that you know that does not come in a sweet straight line it's typically like big moment you wait a while another big moment that's typically how that occurs right and so like okay so holistically you basically get two percent management fee for the first four years so that's like you could pull a salary of let's say for 100 million dollar fund of like 600 to 800 000 somewhere around there then of the other other parts of that management fee go to building the organization right operations hiring people like Danielle et cetera um but then the whole goal is to get that big payout right it doesn't come at one lump sum but let's assume I think you told me at one point that 3x is kind of the general average performance of a VC firm which seems high to be honest but let's assume that that's the average that's that's what people are shooting for but yes average man I think a lot more people would be in Venture for a lot longer okay okay all right so yeah that's what I thought that makes more sense to me now but anyway so if it's 3x that means that that 100 million dollar investment

becomes 276 million over the 10-year period let's say and you discount that back to the present or you average that out over the years that's like a billion and a half dollars plus the management piece so you're talking about like two million dollars a year in theory that you could be making from being a VC but obviously it's very lumpy and and you get big paydays at different times it's a good business that's the hope that's the Hope right I will tell you is um it is a good business um I would tell you it's a little lower than that because I think uh for anyone who is a business owner there's a lot of expenses that come along the way so I would probably half most of that and say take 50 of what you probably are saying and that's probably a little more realistic for people to expect um I would tell you that generally speaking when it comes to running this business it is a funky one because you don't really know if you're really good until about decade out right that's really when you kind of get that feedback loop of like I'm very good at

this or you know I'm very bad at this right um and I think that's what's interesting about this business it's not a super quick feedback loop because if you're taking a specialty approach with technology driven Investments um you got to let the maturity of these companies kind of play out right all right and I'll I'll tell you even with fund one we've had companies you know rise up and Rise down we've had companies kind of stay low and then rise up really quickly and you're like that came out of nowhere um and so you this this is a game of surprises right just generally speaking that actually leads right into my next question it's like what makes a successful venture capitalist I I have been investigating the space you know going to Big craft talking to play talking to like some of these other guys um very very impressive people just in general in terms of clearly intelligent stuff but I I I break it down in a few different things and and I know what the answer is like generally speaking it's all of it but like there's industry knowledge there's obviously relationships with both VCS and

obviously LPS but that's kind of a given right you know Biz Dev like the boiling the ocean thing of going out there and meeting as many companies as possible Right but then there's also deal structuring negotiation and diligence and all that other stuff like again I know the answer is all the above but like you know what do you think is the most important you know like maybe rank it I don't know just like talk about like what makes a like in your view a successful VC and what other things am I not thinking about yeah I would tell you a couple things that I think make a really successful Venture Capital firm is Obsession around process um so you know we process to date about 700 deals a quarter right like that's what we did last quarter let's stop there for a moment yeah that is a lot uh processing right yeah what does that even mean you know like 700 companies that you're reviewing in theory and interviewing and getting on Zoom calls and talking about and looking

over documents like that seems impossible for what six people yeah so six six on the investment staff uh you know I would tell you hey we just don't sleep ever you know uh I do I do I do have a life I try to keep two um so the way that you know we Define process is we received the opportunity it hit our desk we call our deal desk across the team we process this deal and say look it might as well just be like we'll pull up the deck we'll look at it and these are deals by the way that fit our thesis uh in fit gaming they're in the gaming sector um so we look at it we're like hey for these quick two reasons we're out right like we do that a lot um and so not all these deals are we on a call with that'd be you know unsustainable um a certain percentage of those do make it into a first call though right um and we actually do jump on the call with with quite a few companies um I think the peak in a quarter is probably close to like 150 across the

the six of us um where that's the first step and then obviously start whittling it down to like what goes the next step what gets to investment committee which is where we make the decision to actually vote on an opportunity to then make an investment we make about 10 to 12 deals uh 10 to 12 Investments a year so that's kind of our average um and so how do you Whittle down from over you know 2 000 opportunities to 10 that that is that is a not just an art but it's really a process and I'll tell you we have very defined processes on how to move stuff forward and I think that is often an edge that a lot of people miss and mess up is because hey like you know what just being in the right place the right time making sure you weren't tired when you looked at a good opportunity and passed on it um that that's a that's a discipline and so something I tell you we focus a lot on is discipline of an investment review and and this is something that's caught us um on our team

and you guys have like some kind of framework you've built in order to like make those yes no decisions as you go down we do you know and I'll tell you a lot of that's uh a lot of work but on our side but we have a very defined framework for how to move opportunities forward and get them in and out so we say like Hey look you can only have so much on your mental plate at once um you've got it you've got to scoot stuff off right right if it starts stacking up you're gonna make bad decisions and um we've actually reflected at certain times you know we study our like historical you know precedence for us of hey when did we when do we make our best investments and what do we make our worst Investments right and there's certain correlations with how much time was on our how much how many deals are on our plate at the same time like hey we don't have capacity to actually review these things um so I've sent we spent a lot of time obsessing about this uh you asked other questions about what makes a good venture capitalist I also think um you know just truthfully Network this is there's a lot that is unscalable

about this business and you need to know people um this is definitely a business where getting to know the right people who will refer great opportunities like Eric you know you and I know each other you see an opportunity in gaming you know it'd be like hey like you know I'm not going to lead this round as an angel myself but I do know these funds and you know you hope that you know we're one of those funds right and that takes time and that just takes years and so you can't really like uh put NOS on it and just jet into a new industry then that's what is emote right for funds like ours that have been around for a while where people do know us um we've managed to not piss everyone off uh and people still continue to pitch us and enjoy working with us so that that just takes some time right right yeah I mean I guess uh yeah I mean what's interesting about that is that that's what I started to uncover pretty quickly is like you know we're talking with these guys it is it is a Corp Dev exercise more or less of

establishing relationships you know talking to all these people that are influencers in the business so that you are you know the first name that comes up when these type of opportunities happen and I think a lot of people miss that uh it's not as simple as just putting up a a shingle and saying I got 100 million dollars from the Saudis and I'm gonna start investing in gaming um so yeah I that's kind of was my impression as well and how would like the boiling the ocean idea and when I when I talk about boiling ocean I mean it's more like the meet and greets like going to like like my biz dead friends at Sony go to these conferences like GDC and they have back-to-back meetings from sun up to sundown and and past that every day of GDC I mean is that the type of activity that's required in Europe you know I've done that so I've done that I've done that at every you know conference I've done that GDC back when E3 was really a conference um yeah let's see how that goes

um yeah we'll see how it goes uh you know flash pocket Gamers you know all these groups right like all these places I've done the the Mayhem approach right and that is an approach I'll tell you that is not the approach I typically take I like to take more of a very concentrated bet on I think that you know Eric you and I are going to have a great time together and I'm I want to bet that an hour and a half with you is worth it right and I really you know distill it down to having like six meetings a day like that's what I like to do at conferences it's you know just three meals um and then there's three meetings in between and I kind of hone in on quality um that's how I choose to do it um and also I've noticed keeps me sane because I think in Venture Capital you know there's there's always the next deal there's always one more opportunity and you know are there any opportunities that you've missed that you kind of like you did a postmortem on your process and realized how it slipped through and oh man yeah absolutely we've missed

companies some great companies right that would have made us a lot of money and um and like hats off to those operators for for crushing it um but yeah we've definitely missed you know uh billion dollar opportunities uh pretty early on right and it the ones that kill us aren't the ones that you know you know sometimes it's out of thesis for us like it's a it's a Content studio and that's not something we focus on that's that's easier to live with the ones that are harder to live with where you're like I thought that this founder couldn't do X they did X right and they proved me wrong those are the ones that you're like that's tough yeah so we've got a Wall of Shame I can't tell you the names on it but we do have a Wall of Shame and that's that's true that tests your metal right that tests your your self-worth and self uh I've done some long walks Eric uh yeah afterwards and uh you know I've I've gone on some of these walks with my wife and you know talking here through it and she's like you know I she's she's helped

me mentally process through some of these these misses um and I think that is stupid yes uh it's not not a uh not not relaxing walks let's put it that way but I think that like those are the moments where you learn that this is just part of the industry you're not gonna you're not gonna have 100 batting average um you're never are going to find perfection you're always going to miss something and you have to live with that right and I think that is that's the hard part about what we do is just missing and then you know seeing the groups that did move and then you're like oh no that could have been us you know and that's the tough part about this job yeah no doubt um yeah you know one of the concerns I have about VC in general um you know obviously you're going to get some big wins but um the current market is absolutely horrendous right the IPO Market is shut people aren't requiring that many companies and and the big and I said this earlier but the biggest thing is that there's these VCS that have come into the business these huge ones and I won't name names but everyone knows who

they are um that have basically created unprecedented levels of supply for gaming like we haven't seen VC and gaming since the early days of freaking mobile and a little bit on VR but that was like kind of a really short so it's like all these guys came in with all these money investing in blockchain investing in VR not VR as much but like free to play and maybe some Mobile and other stuff I'm sure you've been involved in so it seems like it creates this artificial bubble and now we're in a market that is down like some of these companies are down like 80 percent 90 so yep how do you navigate these Waters and and more importantly how do you communicate to your LPS that their 100 million is now worth probably 50 million in current market conditions or is that I imagine you don't do that but I you know explain to me like how that process all how do you manage this during these uh less than ideal times let's say yeah I'll say a couple things like You're 100

right like over the last two years you know Venture Capital firms raised records amounts of money you know like last year I believe it was around 128 billion was raised in BC uh and that is you know dramatically up from the you know I think 74 billion roughly raised in 2020. right we're talking about astronomical amount of money that was that was poured into the private markets and so that's that's the the backdrop so if you think about you know if we go back to kind of our earlier discussion around you know you've got a two to four year investment cycle a lot of funds are sitting on that money right now right they've raised these massive amounts of money and guess what they have to deploy it um they've got to deploy this money and that can be good and bad uh so the good part of that is hey for entrepreneurs a lot of these groups still have money to to go get to go raise from which is good for especially the companies that deserve it it's not

like there's no sources of capital out there the bat the bad parts is you know one uh well there's there's a lot of uh there's a lot of speculation on it it's actually a lot of that money is available to those funds so so something that happens often in Cycles like this is you know the price if you think about who gives money to venture capital firms there's kind of a couple profiles there's um there's endowments there's there's corporations uh so think of you know think of like a Microsoft or like uh an Activision or like groups like that um that's a corporation then you've got uh you know private money from like Rich families um and then you've got typically like Sovereign wealth funds those are kind of like the four archetypes and you've also got like Pension funds across the board as well that I'll kind of want those into endowments and Pension funds um a lot of those groups just got hammered uh in the public markets right like they got they got hit very hard you know we're down you know just under 20

year-to-date on the S P 500 um and and a lot of those people are telling funds uh you know I think especially you know the larger funds like I would be surprised if if they're saying hey like we would appreciate if you didn't draw down Capital too quickly right so that's that's not not uh out of the scenario so I would tell you like there's a reason a lot of people are moving slower right now there's a lot of reasons one is um you know fear because the market is unstable and they don't know what is coming next um that's one um two we haven't bottomed out potentially on valuations yet um so you know this is why if you look at um gaming deals done last quarter versus a year ago at the same quarter um you know series a deals were down about 15 in volume we're down about 47 in series b um and we're down about 67 in series C for gaming deals right like a lot less

transactions occurred last quarter than a year ago the same question right right um so there's a lot of reasons for this and it's actually a really fascinating study it's like people raised probably more money than they should have for these funds um then you've got a ton of uh groups that fund These funds who are getting impacted by public markets and interest rates and that is a whole other discussion um and so a lot of them are just kind of freezing right um and I'll tell you A lot of that freezing is something we saw also actually when covet hit right so you know when covet hit in March of 2020 that's really kind of the month I'd say like the the markets really reacted March and April and May you know we as a firm chose to continue to allocate um you know we we actually were really grateful that we did that um we backed some some great companies in that time frame and uh you know we're going to continue to allocate during this this downturn too um the things that just you have to account for generally is there's a

realignment on valuations right which got a little bit uh out of control I'd say in 2020 and 2021 for a lot of groups and so something that you know we as a group watch pretty heavily is our average weighted Dollar in like what's the valuation that we're getting in that and then what's the industry average and then we want to stay at a certain ratio below that right and so we are very honed in on that okay so you can track that relatively accurately with yeah a certain like web service like pitch book or something so uh kind of a combination of a couple things but I'll tell you I'm a big fan of CB insights uh you know so shout out to those those guys they have they have some great data over there on on the private markets okay cool yeah I've been I'm hoping they gave me a discount for saying that next month I feel like I just gave them you know some audience this is great all right so more specifically I I guess this is a similar similar question to what I asked before is that like unprecedented levels of demand

unprecedented levels of capital in the space bigger VC firms that are spending like drunken Sailors and bringing up valuations that's like one side of the coin right the other side of the coin is that maybe some of these companies or individuals or or spin outs of riots and the uh you know the content guys and specifically you know Riot and all the blizzard people who left and you know like the Exodus that was blizzard for the last couple years um do you think some of those companies how do I say this maybe maybe they weren't the right and people to invest in but people were so desperate to find Investments that they were funding like straight out of you know really early like isn't that a huge risk like you have a capital valuation risk but you also have a quality risk of of the type of Investments that were made because people were less Discerning you know I think I think this was really highlighted in web 3 and games right so right so yes yeah so I think I think

what we saw yeah what we saw here was um gosh there's a lot there but I think what we have we saw here is generally this a lot of people in web free were hunting for a new use case outside of uh financialization or financial products so defies I think there's a lot of great use cases for web3 in that field they thought they found games right and and a lot of them found that games was going to be the onboarding of users to to leverage web 3 technology and so I think it's really easy to kind of be down on or crap on like an industry when it's at its low point which is definitely it's in a low point right now um but I think what happened was a lot of that capital from web3 flowed into games and they were like oh my goodness this is this is our this is our usage savior right and they funneled money money money money and pretty much anyone with a pulse in 2021 and 2020 pursuing

uh games uh with web 3 had a strong opportunity to get funded and right right and I think a lot of groups raise money that shouldn't have raised money right and that's just that's just the fact um and so I I'm assuming you're saying this because you were not one of those people that were investing heavily in web 3 because it seems like you're pretty confident that you're avoiding that yeah no so I mean we did several deals in web 3 in 2021 and 2020. um I'll tell you we learned a lot from it and I think I would stand by every investment we made in web 3 because to me like it's really easy to say like a comment on this macro Trend like two things can be true at once that was very unhealthy and bad but then do I think that web3 has some interesting use cases that can be better for the player based Long Haul yeah I think that I think there are some good use cases like one in particular that I'm excited about which I think Sky

Mavis kind of pioneered was potential profit sharing with their with their player base um and that was something I was excited about right um and so we made some Investments um and I think all Investments we made we can stand by today um but I'll tell you we were extremely selective because we got hit with a lot of the same nonsense that got funded um by groups that honestly just don't know anything about games right right a lot of groups and other things that just don't know gaming um but there's some really smart operators who are you know looking to incorporate web 3 into their titles right like there's there's a lot of great operators from traditional you know traditional gaming doing this who are smart and are doing this softly um but I do think I do think that web3 got the better of gaming in 2021 we learned a lot we've course corrected um and I think there will be a place for web 3 technology and games in the future which is why we're not out on web3 but

it's also the reason I chose to not you know as a group you know Josh Jack and I we chose not to raise a fund dedicated to blockchain gaming and this was we were actually one of the only funds in games that chose to do that so that was a little bit different um and I'm I'm really glad we did it's not because I don't believe in it I just think it's too early yeah you know that the player base is three billion Gamers versus I think you know there's a generously uh the highest ad I've seen is 30 million people in in web 3 titles I think it's cool yeah yeah it's Eric 63 I think it's closer to ten um I don't think that merits us raising a whole dedicated fund for that strategy that makes sense that makes sense so actually under those guys like what are you most looking forward to we we talked you know a big podcast about the metaverse and Matthew Falls like vision of what's to come and sort of thing so are more opportunities around enabling

Technologies for that interesting to you or are there more content in plays in that world that are interesting like what what I guess to the extent that you can share it like what is your kind of a longer term strategy over the next like five years right um yeah I would tell you um you know without giving you my best stuff Eric for you just to go invest into on your own right um yeah yeah with my gazillion dollars in my bank out hey so Eric you know Eric was outlining kind of uh the sole LP method you know he is actually the soil tree of Convoy that is 100 a joke um that we might have to edit that later um that's in trouble somehow um but you know generally speaking um what excites me the most is I think there are a lot of Industries out there that need to learn a lot from gaming on how to manage engagement with your users right there's there's no other activity in the world that commands uh this type of Engagement or this percentage of the planet that we have in common with you

know in the sense of what the heck does 38 of the world do that's in common other than games like you know besides eating drinking and walking you know video games is probably the most common denominator that we've got and to me that is like the backdrop for why I'm so excited for games to infiltrate things like education um so that's something we've pushed a lot of time and money and energy into is uh gaming will eliminate the textbook the way that you learned Eric the way I learned in school is not the way that kids will learn in the future and I think they're drawing their inspiration from gaming because games know how to Captivate an audience um so I'm very very excited about that I'm also very excited about soft medicine with games so things about treating things like ADHD right anxiety disorders there is a lot of evidence and a lot of data that is pointing to the fact that games can be actually a core

part of that treatment plan which we're really excited about um gosh there's a lot of other Industries too that I'm excited about um but those those are some of the ones that get me most fired up today um because I think they're in dire need of help uh right and I think gaming can do that and so I I don't like the word like the gamification of whatever X Y and Z I think just let's let's use like real terms like this is why I hate to turn like metaverse because it's not defined by anyone well that I've ever heard but um you know like let's leverage the engagement tools that games has figured out for industries that probably need to work on engagement for the better the betterment of our society right which you know leads me to like why education needs to learn from games uh and not that I know as much about you and I'm close to what you probably know about but from an education perspective is that all these private schools in in San Francisco are focused on teaching to the

kid right and and changing the way the curriculum works like you're an auditory learner you're a visual learner whatever and they they change the entire Dynamic of how people learn based upon what type of kids you are and in the traditional way that's impossible right to do it but with technology and interactive you could actually make custom plans for the different types of students that you have and if so much research going into this um from the education perspective I yeah I I can imagine connecting the dots with interactive and helping kind of facilitate that at a much broader level because it's not it's not as expensive if you're doing it you know from a the technology perspective than it would be at an individual level a classroom you know I I 100 agree I think like it's just the amount of time that it's wasted in the classroom and also it's just it's just shocking to me and like let's let's use technology for this right like and you know I have a lot of personal you know friends who are teachers and a lot of teachers in my network and

um you know I've never been so bearish on our public education system holy crap did you see the recent data on the performance for Math and English in in in the entire country they were just it was just published a few days ago it is horrific I mean everyone they are performing at so low levels it is like catastrophe right it is it is and and I look at all the money we're spending and this is all we're getting like we're not doing it right let me just say not to get political but we're not doing it right not at all not even close yeah this is where I you know I look at you know what's what's solvable here and a company in our portfolio that is going after this head-on is a company called Legends of learning um you know currently five percent of elementary schools in the US use this uses to use their platform um actually if you're looking for another guest who's probably smarter than me you should go talk to Vadim uh who's the CEO um you know I'm trying to line your

podcast up for the next uh the next 10 episodes um just just keep pushing your book dude just keep pushing your book it works with me I'm fascinated I want to learn I will bring this guy on you will have you'll have a fascinating conversation with him but see the problem is that I am such a compared to these people that like he's just gonna put me in my place so I gotta I gotta do a lot of work to prepare for like talking people like this you know so yeah you gotta prepare more for him than for me for sure no I I I look at this and you know I really do mean this Eric like I think I think gaming we've often been slotted as uh like it's just fun you know and and I I mean I play games every day and um you know gaming is at the core about enjoyment and fun but that doesn't mean there's not a lot of lessons there we can't learn about how do we manage and get people motivated to do things that to eat their vegetables to to do their math homework to to work on English right

like to work on their anxiety levels there's a lot that we can do with from and learn from games um and that that is something we get very very excited about um also I am a I'm a big fan of unification tools I think that that's one of the best notes we have to avoid uh potential Strife in the future and so you know something you know I was kicking around the other day with my team was I was like you know if if you know unfortunately we ever do enter another you know War at the global scale like what will that look like with all these multiplayer online games where you're playing with people from the other country like that's that's never existed before now what's what's CS go what's valve gonna do you know like and I find that fascinating and I I would like to think Gaming's Gaming's another mode of of of protecting against that um I think there's Arguments for why it doesn't matter at all um but you know for me personally I look at games is is one of the great moats we

have from uh Mutual uh Mutual self-destruction um and that's a societal tool I think that we haven't really explored to the fullest extent yet that's funny when you when you said that I was that was like terrifying right like all the Espionage that's going to go on behind the scenes on TS go you know when these countries are going to worry about it that's where my head went right it didn't go the other way where oh yeah we can't do it uh Eric I I might be I might be too uh uh glass half soul on this one um but I I do like the I do like the concept of um get you know and this is definitely speaks to my personal upbringing games is a common denominator uh I've I've played tons of games with people that I do not speak the same language with right right for sure and having common denominators is always a good good way to sort of break down the barriers of kind of demystifying the other right you know and like I think

that that is something I'm hopeful for for like us uh going forward is that we can leverage gaming for that for that Society like positive impact no and I yeah it actually could begin with education like it begins with playing games with each other but education is like seems like an easy win to even even playing games with people in like Peoria right it's like a different experience or my son playing games with this guy a kid in Alabama he for like three or four years he was playing Roblox with this kid from Alabama that like lives out in a trailer you know it's like and listening about his life you know it's like how else do you get that kind of exposure to things and I know this is a very obvious thing but it's the same idea it's like you know and and it was and it was really good for him to learn how other people lived you know it's it's hard to do when you live in San Francisco I think that's that's a great point I mean it's just it's a way it's a great touch point for people early on uh to experience things outside of their neighborhood right

um this is the other side of that which uh makes you want to protect kids from experiencing things that's outside of their neighborhood but um at the same time like generally I think it is in that positive um and you know something I I'm super bullish on yeah I yeah I'm definitely gonna look at this Legends of learning him on um all right I think we're gonna leave it at that um the last question I'm going to ask on everyone is like in what way do you think your product and service kind of helps solve problems or innovate in in the interactive industry like what is your position and that helps you kind of like facilitate uh innovation I think you know at this at this time when early stage Founders launch a company uh and they take money from people they they are taking Partners early on to help them think through and shape their vision of their company their product uh who they hire where they go to and those entrepreneurs

I think should demand that the money they're taking isn't dumb money right and I would hope to think that Convoy is smart capital in the games industry that we're not just a passive check that just sits there idly by because that's not what they need at this stage they need help right like they're when they're launching a company you need tons and tons of help and I think that convoys fit in the market and that the thing that we're doing to help Innovation is we are we dedicate ourselves to becoming you know not as expert uh not as great as experts as they are at their craft but we're we're a voice that you should listen to in the room and I think that that is something we try to really stick to um I I you know we spend a lot of time of like if sometimes we've passed on companies we're like we got nothing to offer you like you shouldn't take money from us and I hate doing that but like

sometimes that makes sense where I'm like I'm trying to do you a favor you should go get somebody knows a lot more about this than me right um so anyways I I hope to be part of that movement of VCS that are smart money um that aren't just kind of cheerleader checks on Twitter um that we are actually in the trenches with them you know battling it out uh and and helping them through really tough stuff because you know launching a company in good times or bad times is hard and I'll tell you this cycle um is going to be tough for a lot of a lot of companies to go to through and I always tell like the best way to ask for a a check on a VC is don't ask to talk to what whatever founder reference they have asked to talk to a company that shuttered down under their portfolio to see what they acted like that's that's when you get the real the meat of like who are these people right like are they are they jerks are they unhelpful um and hopefully like you know hopefully I

stand the test against my own my own kind of qualification but that's something we really try to do is not to abandon people when they need us very cool well thank you Jason for taking the time to chat um and I'm sure we'll we'll speak soon and good luck with your conference next week thanks Eric appreciate hi to Danielle I will hopefully I'll say something smart at the conference hopefully let's keep people coming back um all right thanks thanks for your time appreciate it bye now