Panel: 2020 M&A and Investment Overview, Expectations & Consequences PG Connects Digital #2

the panel is going to be talking about some pretty interesting things around mergers and acquisitions uh this year and you know holy cow this year has been you know a heck of a roller coaster so what kind of investment overview overviews expectations and consequences are we looking at for the balance of 2020 um one of my favorite moderators is is going to be hosting this panel ella romanus would you please introduce your panel and take it away hi um hi everyone thanks for joining us uh i think we're almost there with all our panelists right so i'm going to ask initially we're going to start off uh asking each of the panelists to tell us a bit about themselves um but i particularly like to hear about one or two recent deals that

you've done and kind of what what excites you about that deal what you're interested in at the moment um who wants to go first jason oh am i at the top yeah i mean it's uh it's uh interesting to see uh some of the deals uh that are still uh happening uh even uh amidst the the pandemic i mean my guess is those deals were sort of you know a year in the making as opposed to kind of a came about from a zoom call but uh obviously the most recent one the the the peak deal with the zynga i mean that's a monster deal that's super interesting and to kind of see how uh zynga has adjusted their strategy uh over the years but i i guess we'll get into that uh i mean my my own active investing days uh you know are kind of uh done at the moment we we had execution labs which was a very early uh seed stage fund we did 25 uh deals

in uh startups and often we were the first external money into those uh into those studios uh so a very you know sort of incubator accelerator-like investment process uh it's a little bit different than uh some of the approach that the other folks on the panel are are taking so that's super quick for me brilliant who wants to go next uh michael sure my name is mike chang um i just celebrated my 10th year in gaming i fell into this job being the number two m a professional for electronic arts i really did help a friend's startup that startup planonomics was ultimately acquired by unity in terms of the largest deal i've done to date is for ncsoft it's the third party publishing deal with harmonix their game fuser is about to come to fruition and be released this year it's not an acquisition but why is this relevant in this panel my number one focus is acquisitions but acquisitions are the right tool

in only some instances other instances it's investment third-party publishing or some other some other form of business development deal so for entrepreneurs and for our audience i think it's very important to have a clear sense of which path is the right one for you to achieve your long-term goals right and uh david how about you oh is it mute oh you're all mute there we go is that better all right well i'm really glad to be here i think there's you know quite a bit of uh dysfunctionality going on in our current world and um daily work and it's it's fun to at least be part of something that is growing uh doing well and and making an interesting contribution i don't think games have ever played a bigger part in the daily lives of people given covet and the shelter in place and some of the other restrictions have been put upon us um

my name is david bloom i'm with ignitio capital we're a boutique investment bank we just focus primarily on m a um and what we call i guess the lower middle market independent game studios we've seen just a really great environment over the last few months certainly the people interested in growing their business through acquisition are healthy doing well feel confident in the future they've seen the covet lift in their games downloads daus retention and of course uh revenue and ebitda but that's been the same with our clients as well um i do think that we are hampered with uh performing a proper due diligence given you can't get on a plane and um most companies wouldn't be comfortable going through an entire deal transaction without doing a site visit getting to know the senior

team leaders and that sort of thing so that's definitely an issue we have had buyers tell us straight up that they would do a deal over zoom i don't know if i believe that we'll see but there is that kind of positivity in the air um i guess you were you were asking for some examples um i guess from from our side the last deal we closed was a uh acquisition by still front a swedish public company that acquired candy writer um and their primarily their franchise property bit life which is a unusual game to say the least and that it's a text based virtual life game and um had quite a bit of novel attributes uh both in in performance and in the way that it virally promoted itself and uh addressed a unique market in terms of text-based games so um that was a bit of an unusual one but

uh fantastic property in terms of uh performance metrics and and ebitda and that made it quite attractive so that deal was started before covid but did not slow down and was not in any way delayed because of the problems with covid but in that case we got site visits and other things under our belt before the the covid restrictions in all fairness so it was largely something that just needed to be finalized but you know overall the top message is it's very positive and there's a a really healthy environment on both sides well it's good to hear and seance how about you yeah my name is shanti burgel i'm founder and managing director of the venture fund that invests exclusively in games and game related businesses called the transcend fund um so we were started actually in the midst of the pandemic in in excuse me in march of this year and have been actively investing ever

since um and so in a way you know like life and lockdown is all we've ever known is a fund um and we're as everyone said you know business continue to benefit from you know kind of this sad situation um and you know we have done investments with folks that you know we have met sparingly um we have done i think one where we have never really met the team like physically in person but we knew of them for quite a long time so the topic of like how do deals get done in lockdown i think it's interesting i've spent a lot of time actually with the m a folks um kind of after they do a deal i'll call them up and say like so did you do this in lockdown how did that work um and you know to be honest i think most of the deals are actually not being done you know kind of start to finish in lockdown i think a lot of these deals are you know kind of deals that have started prior to lockdown um as david's did um and they're kind of flowing through um and so i think the real impact of kovid will probably be felt you know like in the third quarter fourth quarter um in terms of like what it means for m a but the business

overall is super healthy we're seeing it you know kind of investments we're doing you know we i think are unique and that we are a new fund and so we we can't really afford to slow down because we're starting from a dead stop um but you know like i think even other games investors that we speak to um have expressed continued enthusiasm for the space and they're also continuing to make investments despite the fact that they can't meet with teams in person um so rmo is we do early stage meaning seed to series a uh so let's check sizes from a couple hundred k to a couple million we invest globally all platforms and jim how about you hi jim yang so i'm based in seattle i'm with cd capital uh we're at shanghai based investment bank primarily what we do is help companies that are looking to raise late stage investment series b series c or m a in terms of a couple transactions that we've done the largest that we've done is that we were sell site advisors for applovin when they first sold to orendo huntai and then subsequently out to kkr

we also earlier this year did a raise for sky mountain entertainment down in la and yeah it's definitely an interesting time uh we've kicked off a couple of deals post covid and so i've started doing some outreach and had some conversations with folks that haven't even met in person before just through zoom so uh folks are curious kind of what's going to happen and whether we're going to be able to close uh let me uh get back to you in three to six months whether we can actually get these closed okay well i mean that was thank you for the introductions actually i felt that was very positive you all seemed quite upbeat about the current climber which is really good to hear i think what i'd be interested in knowing chanting you touched on this about you know how things might change going forward perhaps in the third fourth quarter of this year perhaps into next year it'd be interesting to hear from all of you kind of what you think your activities and plans will be going forward and are they going are you planning for any kind of change in what you're already doing

um you know over the next 12 to 24 months we're gonna go in the same uh you can if you like go for addition that's our memory [Laughter] yeah i mean obviously there's a lot of things to factor and and the unknown element of you know how long and what this you know what the sort of tail end of this is going to look like you know obviously you can change that uh to a huge degree uh i mean at this point i'm i'm working with a bunch of startups uh in independent studios that are looking to raise and and i mean there's a couple issues there i mean there's going to be a greater pressure on bootstrapping and extending your runway based on your own kind of reserves own savings uh you know sort of the the love money pool or pot of funds uh to extend runaway and and sort of try to minimize as much uncertainty as possible uh by by running a closed beta or doing

your soft launch collecting some metrics to kind of reduce uh uncertainty and and potentially raise uh investor confidence so that that's kind of one piece is like oh crap we have to do more with the little funds we have right now or kind of the bootstrap funds that we have and then the other piece related to that is uh the sense that there's pressure to raise more money as as opposed to less because a lot of the investors are concerned about the next round and they don't want to just give you you know 9 to 12 15 months they want to you know they believe you should have 24 plus months of runway just so you have that kind of buffer to run the operations run the studio find success um but you know if i if i'm raising one million that's kind of one story one risk factor you know one set of economics but now if i have to raise two plus million

or you know whatever the math turns out to be i mean that starts to change uh investor appetite uh and then if you add on that this kind of weirdness of like well i never actually you know had a dinner with the founders never kicked the tires at the studio and now and now i have to put in more money and so so that there's some weird things to kind of balance in that i think i think if um you know if there's something truly promising that there is that potential but uh these are some of the things you have to think about in sort of the next kind of six to 12 months if you're planning to do a a raise and the factors you need to look at okay i can't remember who was next michael look um obviously uh our my korean compatriots 4 000 of them are back in the office so south korea is taking care of things taipei's taiwan is taking care of things while we have not uh they're they're back in the office for ourselves here in the west we expect no travel no e3 no gamescom whether it be our bellevue

office of 200 people whether it be san mateo whether would be aliso viejo down in southern california whether it be in south london um we'll see about slush and generally i get to see jim jason david shanti at these different conferences so i'm missing the fact that i'm not seeing them in person but we continue to evaluate opportunities there have been a whole lot of video conferences emails and game tests going on uh some people ask how can you get to know a management team remotely number one my answer is actually through these web conferences i get to know how a company handles adversity and number two i get to know if these uh these management team members i'm dealing with have kids or pets oftentimes because they're running across the screen um you know i went back and actually started thinking about and i'm picking on ea here the four deals that i did at ea and how much actual time i spend with management dinner is like one-on-one time not not follow-up time on phone or video conference the majority of them i only spent like eight eight or ten hours and it'll

spread across a number of members of management it just wasn't just the ceo so yes it's a little bit different but it's not an insurmountable task now certainly at the end of the transaction we've started a few right now where we're going to have to within a few months make some decisions here and maybe if we get very serious we will have to figure a way to ship the team out kind of quarantined for a great period of time going out there and then quarantine coming back we'll see what happens right david how about you well a great answer from a panel of experts uh is i don't know um you know i'm looking at the numbers this morning even because we're in washington i'm also in seattle out here with jim and we were the start of this covet thing in in the states and we don't seem to be handling it very well the last couple weeks and so there's a lot of concern that we're going to go back into maybe some more tightening here um if we don't get a handle on

the most recent directionality of this uh virus but that puts a lot of unknown in terms of continued travel restrictions and ability to go see people face to face and like i said i i don't know if somebody's willing to go through an entire process over zoom even if i'm told that in a conference call by by an experienced you know savvy um acquirer so we don't there's a lot we don't know here's what i do know what we will have several transactions that will close this year um one of which has already been started and we expect it you know to close and it has not also been delayed although again it was started before covet um and we have other processes that have what i would say higher energy than they've had in the past in terms of um momentum and conviction but whether we can finish those due diligence processes and put something into a closing cycle it's really hard to know and i just don't know um i think the the more important thing um for most of people on this uh

audience team is uh fundraising and i think you know jason brought up a lot of great points investors aren't sure either you know they've they've got a primary duty just like we do to their own kids now at home homeschooling and their own personal portfolios and then they start worrying about their company their venture portfolios and those need a lot of work and a lot of mechanics right now and they don't have as much time looking for new deals so it's not their first priority all of a sudden and that's a primary change with venture investing right now that you see everywhere is you know they're just like us their first priority is their own personal situation and then they've got a corporate portfolio that may need extension of runway or more money than they thought or you know we don't know when the next viable funding window is going to look like so they've got to put more money to get them to that funding window and that takes a lot of work out so it's going to take stills a little bit more time for them to

stabilize their current portfolios before they spend the majority of their time looking for new deals and new investments um i think a counter trend to that is that we are seeing more early stage funds formed and and getting active um you know shanti being a great example but you know ed freeze at one of ventures has been doing deals over zoom and was on the call like this at our last um pgc talking about um you know un unabashed by the current events he's he's going forward and putting money into deals and finding syndications and i'm coming across new small funds being formed every day which is really encouraging um case in point i came across one that's just focused on infrastructure just the services the tools and the platforms that help game companies get to market and monetize and scale and i thought that was really unique and that's a really great focus because some of those businesses

take second you know seat to some of the game projects that we all get excited about and like to watch and and review so i think there's some positive things but i think there's also some challenges that we just don't know going forward and i think this is what really makes entrepreneurs shine is that they rise they figure out a way to innovate uh be creative hustle scrap and that is a bigger separator it's it's harder to start a company in these unknown charted times it's harder to fund a game studio but um if you do it um you know there's a big payoff and so i would just encourage everybody to you know just stay scrappy and and uh fight and claw through this and be a fast learner because we're all going to learn this in real time together and uh chanting i mean obviously you've just started but it'd be interesting still to hear kind of how you think or if you think your plans might evolve over the next 12 to 24 months yeah so a lot of the factors that uh

that the panel is bringing up are quite real but they're i think they're they're always the same factors right so it's just a question of balance and the balance moves with the business ecosystem right now the business ecosystem is in a very weird uncharted place but the balancing act is still familiar in a lot of ways so it's like um you know how do you think about runway risk how do you think about market absorption how do you think about the size of something and when it might be acquired those are all still kind of the same and so how do you path around that is not an unfamiliar question for you know i think a lot of folks from all the different parts of the ecosystem whether it's investing or acquiring or you know kind of service providers what have you so i think like finding that new balance is you know kind of the the task in front of everybody and it opens up new opportunities for each one of those actors so people who are more aggressive right now as an m a buyer may find themselves all alone in a process that nobody else is willing to compete for and you're like there you go advantage for them same for us i mean like i don't think i would have imagined

a scenario where i would have been you know kind of competitive with the biggest funds in the world um and yet we're all on zoom calls so their big fancy office doesn't matter right now so like i look about as good as they do on a zoom call um and so like i can compete with any fund in the world anywhere right now i'm serious like i have people coming to me and saying like will you lead our round i didn't expect that to be true um i expected to be a small fund um and kind of like seeing you for my supper for the next year and a half and people to like you know kind of not really know who i was um and so you know like the fact that that's not the case that people are actually saying you're like oh well you know uh in in the big scheme of things what does an investor provide and like how do i get to know you i'm basically on a level playing field with everybody else um and that's true you know like no matter how many zeros your your company has behind it um and so you know in a way like michael said you know like there's a flattening and a quality that kind of like comes into focus an environment like this it's quite different but the balance is all the same you know like so it gives people a

different way of looking at that balance i think um and so but the questions are real so like as jace is saying like you're gonna run into investors who are very concerned about runway i think that's that's absolutely true um but to be honest you know like i think a lot of the fashion over the last couple of years has been frankly kind of dangerous the idea that you could just raise a little bit of money and go from kind of like train stop to train stop without really thinking through your plan and you know kind of not really understanding how you're going to come to market how are you going to hire and how you're going to think about your cap table those are all really healthy hygiene practices that should have been there anyway um and are now being forced back onto people because that's the way the business cycle works um and so i think that's good um i think that's actually a pleasant you know kind of side effect of all this yes there'll be effects on you know valuation yes there'll be effects on a lot of things and as you as an entrepreneur pathway through it it's going to be different and a lot of the opinions that you used to hear that were just kind of received wisdom that was always true

are not going to be quite as confident or they shouldn't be um anymore because like this is different um that said you know like there will be you know i think a strong business macro behind all of us so i think we can we can all kind of take comfort in that like unlike um most of the folks you know kind of in my neighborhood for example that are directly impacted and you like have to think about you know kind of more pressing personal issues i think the rest of us get to kind of live in a in a pretty luxurious you know kind of world where you know like our business globally is directionally healthy and like our personal circumstances as entrepreneurs investors acquirers may map they're kind of like different pieces of it um but i do think that like we're all um able to you know kind of continue to make games sell games you know like buy game companies invest in game companies none of that has been directly impacted and our overall market is comparatively speaking amazingly healthy um and so yes

there's some balancing that needs to be rejiggered but overall i would say okay and jim is there anything you'd like to add to that sure you know i say uh historically whenever you've had a recession deals investment m a tends to go down uh where they do happen it's folks focusing on distressed assets and in this situation is definitely not the case you know i was concerned that uh with kovid the deal activity would take a dip from everything we've seen um it really hasn't you know folks took some time uh the first few weeks shifting to work from home operationally and so some of the conversations where pause has slowed a little bit but since then things are really picked up i think you know when everyone's stuck at home folks are very willing to engage and jump on a zoom call to chat looking for reasons to escape the craziness at home i know i am um and uh definitely there's gonna be

challenges so i think when deals get to the due diligence side or when they're trying to set up management interviews it's not going to be as efficient as having it in person but i think you know folks are getting used to having these video discussions and from everything that we're seeing it's continuing to move ahead uh you know definitely personally i do miss all the conferences i see all these faces typically in person you get to hang out and have drinks and dinners that part i do miss okay well i've got lots of questions but uh just wanted to open it up to the audience if you do have any questions please uh post them in the chat channel and i will keep an eye on it and i will prioritize your questions over mine but uh let me know i'm gonna carry on so um just thinking about mergers and acquisitions for a minute now i know that early stage developers may not immediately see how this relates to them so i just kind of wanted to put this question in context before i ask it and you know in reality mergers and acquisitions is all about long-term thinking and potential for exit

both of which are crucial aspects for anybody raising investment to think about um so you know on that note it'd be really interesting to hear your thoughts about kind of notes for notable investments or m a transactions that have been announced this year and what the significance of those is on the landscape an easy question you want to start go for it so let's go through the deals that happened in recent times obviously zynga's acquisition of peak is quite notable right now still front as david mentioned has bought candy riders mermaid kickstart applovin did a deals machine zone they've got to deal with as well scopely with their existing partners play uh digit and kind of a more of a stranger fox next if you look among the americans uh ea activation take two they actually haven't been super aggressive but we all have friends at social point corp dev or take two who are looking for mobile deals activision just hired a new corporate person and ea has open wrecks for corporate folks in fact i was just talking ahead

of va corporate the other day uh glue just raised 100 million dollars for acquisitions over 100 million dollars scope lee raised money for acquisitions as well nicola demasi some of us know is the former uh former ceo of blue mobile he just raised us back looking for targets to acquire ubisoft has done a number of acquisitions whether it be green panda and ketchup and more of the fast casual world roblox and wildlife so roblox is obviously a large large company but private wildlife in south america they've been recruiting corp dev leaders for some time now and as they get those leaders they will then transact in some period of time in the years to come you know the chinese chicken farmers or the construction companies they're out uh so those those buyers from three or five years ago partially because of government demands or restrictions so you see this manifested in the divestiture of jagex uh the current divester of layu so as you as entrepreneurs as this audience grows their business you should consider who might you might be actually into three to five years from now or longer

um you know private equity has come back back when i started in gaming in 2010 private equity buyers were competitors they went into uh trying worlds the ontario teachers pension fund went to the shrine worlds ta and summit they went into big point in germany and they got burned and they went away well they're back kkr led the last round of epic games i think we should imagine epic will raise more money soon silver lake is a leader in unity and i get a lot of inquiries from firms that i would have never expected to invest in games so the dynamic of who is investing and why they're investing right now has certainly changed from 10 years ago it goes in different ways right it'll be a different set of buyers i'm going to point out to app 11 a little bit more of an interesting one you find now ad infrastructure companies who are not buying game studios they're capturing proprietary ad inventory of their own um and that's a very interesting dynamic and we'll see how that plays out over time and i think the overall arching issue for this is discovery uh we only have so much free time in the day we can watch netflix we can go to

amazon prime we can play video games and frankly all these video game publishers developers they're all making games as a service now it's not 20 hour discs 30 hour discs 50 hour discs it's games as a service they're locking in users for years of time so to pull users off into a new game requires great games and a whole lot of marketing what you know i i do have some numbers on fortnite it has exploded right so how are you going to pull a fortnight user off of their game onto something new um uh the challenges of that discovery um are very high so again you i think ultimately great content rules the end of the day but getting your content discovered is going to be part of that challenge really interesting anyone else want to ask about that was a pretty impressive summary i michael there's some some other players that still

really haven't um shown up in the way that they can as well if you're talking about a a healthy top end of the m a spectrum people like amazon and the media companies that have gone in and out and had success and failures but this is where the eyeballs are and that's ultimately going to attract all the players michael mentioned plus a few other industries once they feel like they're either savvy or confident enough to to make critical decisions um and enter into big kind of leveraged transactions or they just can't simply ignore it and you know they're they're in more of a desperate mode to get a foothold as they see competitive uh players move quickly and we've seen that of course in the past this creates a very big rapid succession of deals so i guess i need to state the obvious this is important to the small independent studio in that if there's

not exits then there's not investor interest at the early stages so the deals like candy rider and even peak you know they show that you can build a shareholder value in a pretty significant way competitively with investors putting their money in other markets so this put games in a very favorable view in terms of where do you put your money to get healthy returns and to the degree that the entire market is healthy for video games is the degree that money swings back in and that really does promote large private equity players like silver lake and kkr and others to come and look at gaming and prioritize it much higher but that also filters all the way down to the early stage vcs who have more confidence that they can create games that can have healthy exits in a reasonable shareholder time frame so it all adds up and it's all very good even for the early stage people and hopefully it'll foster more new small funds that focus

on gaming as a as a core investment thesis and i think there's all the rationale is in place for for that to happen given that games is going to outperform so many other markets um even across tech that it's going to be a very attractive place to draw more investment dollars yeah i know yeah i'd like to add in on that so absolutely you know like i think games will be a bright spot for a lot of investors and like hopefully for buyers as well um but the the dynamics of social discovery or you know kind of distribution and all of these like really are you know always have been in some respects at the core of our business i mean making great product is kind of you know like and of course you have to do that or else like why would anybody care um but the nature of like the gatekeeping and the nature of like how things get found um has always been you know like um a thing that has shaped the way that our industry has moved

um so like whether it was back in the like i come from i've been in the games business almost 30 years now and it's like i used to work on platforms that went on cds and into boxes and the gatekeeping was all done you know like at the um at the retail level um these days you know like thanks to digital and the explosion of kind of con content and um and and device penetration you know the opportunity space for creating your own franchise and then leveraging multiple techniques for getting it to market is unprecedented large um and so like whether you use you know discord twitch reddit you know a triller tic toc you know like instagram the list of things that you can use in order to connect with an audience and create fandom around whatever it is that you're making um is unprecedented and so like the ability to use money um and buy traffic and basically have your game discovered that way is also unprecedented and quite sophisticated and that was one of the very first channels to reach scale in a meaningful way and then be turned

into as michael kind of talks to um you know a competitive advantage in distribution but it's not the only one and i think one of the most interesting things about you know kind of investing in early stage companies right now is the ways that they're kind of mapping the emergent landscape and turning it into strategic advantage for themselves in terms of how to connect with an audience and how to turn that audience into a long-term fandom how to bring people into the thing i'm making and connect with them over a period of time this is the really big opportunity in games in my opinion and the toolkit isn't necessarily dictated to you by a platform and the platforms know it so the platforms are reaching out to game developers and doing deals and offering more competitive publishing terms probably than they ever have because they themselves don't have the same gatekeeping power that they used to um and so the diffusion of all of that creates an even bigger kind of wave behind which you know like i'm you know ecstatic to be investing right

now i think this is probably the best ecosystem for games i've ever seen um and like i said i've been doing it for almost 30 years jim did you want that yeah i'd say yeah it's definitely a very interesting time in terms of the buyer market uh and investors so you have your companies like scopely zynga that you're doing acquisitions to consolidate into space but there's a couple of players in the space that are doing some really interesting things so michael mentioned app love and machine zone before i think you know this is a trend where i think you'll definitely see more of this where in broader media you have the distribution pipes companies that are picking up content so you're the comp cast att's of the world but in gaming you haven't really seen this you have some of the console players microsoft sony they have acquisitions they scale up internal to dev studios but really that's to drive their platform differentiation um whereas uh you have applovin i think iron source is probably gonna go in this direction also so it'll be interesting to see whether you see this consolidation of distribution and content moving forward

in games and then also as a reaction you know what are some of the big gaming companies going to do um because these distribution players these ad tech players are kind of coming into their space um it's also interesting you see a company like playrix based out of eastern europe russia where they've been doing a lot of acquisitions uh under the radar and they're already a huge multi-billion dollar company right and then you have you know the european public code still front embracer eg7 there's a whole cohort of public companies that are essentially doing um let's say multiple arbitrage where they're they've got high multiples on some of the public markets in europe in the nordics and they're able to buy up companies at lower multiple similar to i think what some of the the chinese companies were doing let's say three four years ago um i think one particularly uh interesting area is the private equity funds as we mentioned before you know they have skipped out of uh games over the last couple years but recently whether it's overlay

kkr blackstone cvc they've all dipped their toes in the gaming space i think because there is a flood of capital out there with low returns generally they've avoided gaming but now a lot of the game companies have gone to the scale and to the predictability of revenue where the private equity funds have started paying more attention so um and all in all it's a very exciting spit time in the investment m a space uh there's a lot of big players out there that are looking to do uh uh deals so um i think it's good times to be in games thank you that's really very comprehensive um just so one thing that that has been touched on but not not fully covered here the public gaming companies yeah activation take two their stock prices are at all time highs um so that multiple arbitrage gym references if you're buying a company a two to three times revenue multiple or 10 to 15 times ebitda and yet you're trading much higher

there's a whole world of opportunities that you can take advantage of with ncsoft we're sitting on over a billion of cash 2 billion if we want to make more things liquid it's a lot of money sitting on our balance sheets that we can use if we can find the right opportunities so right and so um for for developers who might be earlier they might be raising seed or perhaps they're a bit beyond that what are the kind of key trends that you see so what are the areas that you think investors are most interested in you all well quite a few of you touched on kind of games as a service and you know long-term discovery things like this but what would the kind of areas that you would advise people to be focusing on um you know the investors are looking for i'll jump in here uh i i mean on the one hand certainly for the folks in the audience that are kind of like just starting up or at the earlier stages and kind of listening to us talk about all this late stage mma and big you know private equity deals

you know they might be sort of uh thinking oh that's not for them but i mean this is kind of the the mindset you need to have if you are looking to take on external investors uh you know whether it's angels or vc funds i mean this is how they're thinking right that that's their model they put money in they believe you're going to build a you know company value the the growth of the studio profitability studio is going to increase and you'll be attractive to the next investor and potentially you know m a activity and if you're not thinking about those things at least sort of you know theoretically of how do you build a business that puts you on that path then the investors looking at you right now are not going to want to invest because they don't believe you'll ever get there so so there is a certain kind of um you know planning in that sense that you do have to be mindful of that even though day to day you're just thinking about you know your your ninjas and dragons right now and

is the game play smooth and so on but if you're looking for external investment you you have to be thinking in that kind of long-term trajectory uh and then i i just want to sort of reinforce the sort of the notion of discoverability uh and what what i'm seeing is the most exciting studios at the startup level are the ones that understand that building their community is building their game right and building their game is building the community it's like it's like one and the same it's inseparable and that they're thinking about how do they capture those eyeballs how do they you know how do they solve the discoverability problem but they're thinking about that fundamentally at the product level and the game design you know whether that's something like twitch integration or leaderboards or social aspects or the the metagame and so on uh it's not i make a cool thing

and then two years from now i i ask a pr firm to send out some press releases and and hope you know they we make enough noise about it so you so it's something that i see you know even two years ago when i was doing active investing in the early stage startups this notion of how do you solve the discoverability problem and how do you build your fan base and your community uh over time uh you know that to me that's fundamental and i think a lot of investors whether they articulate that or not it's one of the things that they're they're looking at you know aside from you know are the founders cool and can they execute and uh you know is the game interesting all the sort of the usual check boxes are true but i think now more than ever this idea of discoverability uh is critical yeah jason brings up some really um important mindsets for really uh people founding studios and really i guess the way i would sum

that is think about building a business not a game studio exactly there's people that get really caught up in the game and you know as he said focusing on the dragons and the characters and the the game mechanics um but investors do look at whether you know how to build a business and those are really different decisions and they require different disciplines often aren't very fun to traditional game developers and game studio and creative people the idea of live ops and self-publishing you know i think of it in terms of a success or a value pyramid the bottom is can i build a core game loop that's fun and replayable there's a lot of studios that can do that then you get into can i really understand and design and execute on a monetization layer and that separates a lot of the game studios for i mean just the first look at a game studio that's the biggest separation point whether they can really build a game

that can monetize and build a business on top of that game experience and then you get into the idea that um can i publish that and do i have the publishing infrastructure disciplines those are very different than being creative and going from green light processes to pre-production to post-production and having the discipline to come in daily and look at numbers and bi charts and really make daily decisions about how to optimize what's going on day to day among your player base and then finally you get to the ultimate thing is can i publish worldwide but in a geo specific way that i have expertise in every one of those geographies so i'm optimizing a game i built for a worldwide audience again because you're building a business and can i really execute on that and that creates the most valuable standalone company in the in the best exit by far whether you're really willing to build all that or not is a personal decision and if you're talking about small independent game studios you know

you have to start with what you want out of you know a quality of life scenario and what you're trying to accomplish but if you're looking for that ultimate exit and that ultimate business accomplishment then you're trying to pay attention to all those levels in that value pyramid um so i think you know jason's right on and just depends on what you want out of this experience but if you're trying to you know track those kind of exits that you're reading about and seem kind of mind-bending you know i'll i'll bring this down to really specifics and in the candy writer deal and i think sean and alexis did a a review on this i know they did a review on this yesterday fireside chat but you know when i came across that game i was really humbled and kind of pissed off um they had a clever idea that i never you know i was involved in building three game companies and um we hit all these challenges they're harder now than they were back then but you know they took your contacts and put

them in the game so when you encountered somebody in the game fiction in the story arc they were from your contact book and so you know if you chose to be a a drug lord and you needed to get off of a felony count and you hired a lawyer named michael chang um and michael got you off then you'd post about that and i'm telling you this was an incredible viral way to build exactly what jason just talked about is that game community without paying for it without hiring a bunch of liveops ua marketing specialists the game went to number one download on both apple and and android without any it was all organic without any paid ua and of course once they added paid ua on top of that they really enhanced their their revenue and ebitda but um that's an example of what jason exactly just alluded to in terms of

really thinking about how can i build a community and they did it cleverly and on a in a way that didn't even cost anything um and so that was an example of you know a lightning in the bottle app i guess or gain project but that kind of innovation really paid off for them you know that game is not two years old and they just sold that company for 190 million dollars so there's an example you know obviously not everybody would expect that kind of um result and outcome and execution was um uh done by a very small independent studio there wasn't five people in that company when we met them and they still don't have more than 12 people in the company virtually scattered and some of them are part-time so that's a that's a famous you know if they can do it you can do it kind of story but nonetheless it's it should be somewhat inspiring tying to david and ella i want to be mindful of time here since i know we don't have much of it i had a career in venture

capital prior to community games one of the things that we're always looking for and i focus on is for this audience a compelling vision for an area that'll be interesting three to five years from now not today and here's the greatest challenge that i think we all face we all have run across heads of studios who are 30s 40s 50s they've worked their way up to become the heads of their studios and they're making games they're making games potentially for 20 somethings when they were 20 something not actual 20-somethings and so i would encourage our audience to keep that in mind as they are working on hopefully something very valuable for the long term my my original test used to be i'd meet someone physically and say hey connect with me on twitch amazing the number of people who couldn't do that then instagram then discord today my test is tick tock can you connect with me on pixar it's amazing how many can't so i'd encourage and you know for better or worse you're the heads of your studios your your masters your own destiny you have to stay fresh with what is current today um otherwise

frankly we can't back so just on that the um i think the question originally was about um like what are investors looking for um and you're like a lot of this is basically a way of saying scale i mean like investors are interested in big exits and that you know implies scale um and so like as michael said the keys to scale today are different than they were in the past you know if i was applying the playbook that i learned when i was coming up in the games business to today's industry i fall flat on my face for good reason because the the nature of scale has changed completely i mean what used to be a hit you know like back when i think a lot of us first came into the games business has been you know kind of you know exceeded multiple times over um and so you know the nature of what it means to build a compelling piece of entertainment and then find that um entertainment audience and scale that up to a level that's interesting to an m a buyer um that is the the opportunity that is the challenge but it's also

unprecedentedly large um and so like to think about you know kind of making a game just for your yourself and your friends and your family um i think that's a an entirely noble goal and everyone who wants to do that should do that but if you approach an investor the investor is looking for that scale story um and so you know like i've worked at indie studios and like we were dedicated to quality of product and you know like we made games for a very small audience and we were okay with that but the minute you talk to an investor they're gonna want to know how you're gonna you know you're gonna hit that billion dollar exit so unfortunately when you come talk to a vc like me like those are going to be the first couple questions out of my mouth it's not necessarily prescriptive however so like as many kind of um of these type of situations as you might watch and hear like oh you know like ar is dead vr is dead you instant games are dead whatever you're like that is the received wisdom right now and it may actually be true um but it's your opportunity and job to figure out like what is a unique and compelling path through all of this to scale

um and so like whether you choose to kind of follow the obvious stuff it's like oh well what's big right now like match three and kind of strategy games like that seems to be a big thing okay but you're going to be competing against a lot of big companies with a lot of sophistication and it's a red ocean if you know that terminology and so like what is your play that allows you to get to that scale in your unique way like the bitlife kind of example you know like this is a very small team with a very kind of big idea executed well in a very short period of time you know like that opportunity you know like is i would say right now you know happening again and again in different kind of subcategories it isn't easy um and that's what makes all of our jobs and lives i think interesting um but the minute you talk to an investor i would say know who they are know what makes them tick try to craft a story that at least addresses the scale question or else it's very hard to even get off to the second conversation [Music]

and i think one quick thing i'll add you know similar to building out the business and building out the community which these guys have been ripping on you know it's equally as important i think for some of the earlier folks here is you know build that community of investors and folks in the industry that you're talking to right even if you're not quite in the market to raise a lot of it is established in the relationships and i think that's what to some degree uh is missing with with uh with the going away or some of these physical conferences where it's just opportunistically running into someone and then starting to build that relationship so that when something like a cobit hits or when you're actively looking to raise you already have some people to go to as that first step i think i can make warm intros to you um so for folks that are earlier on you know definitely i think these types of events are great but uh you know right now everyone is stuck at home and flipping around what shanti said just as it's an equal playing field for the folks that aren't you know competing with some of the bigger vcs i think for a lot of the earlier companies it's an it's a it's a level playing field in

terms of being able to reach out to folks and get some early feedback um yeah ultimately guys this has been absolutely amazing and i want to let all of the viewers know that even though our panel is out of time you can certainly catch up with them on discord on our discord channel please continue to stay online and we'll be able to get you in touch with these fantastic panelists i know i've used up an entire sticky notepad