Panel: Pitch Perfect: How to Raise Funding from Investors

[Music] all right good morning everyone I hope you're having a good second day we're gonna talk today about how to raise money everybody here the front brought their checkbooks so please be sure to come say hi to everyone afterwards guys let's just start with a quick intro who you are what you do and which side are you on the investment right now awesome hey Michael Chang I'm a partner I make this fund we're a global fund we do his seed Series A Series B 200 million dollars and we bested about 47 companies so far ever around Europe North America Asia if they roll here ours from Henning

from Helsinki Finland in the fun part of play ventures we are an early-stage global gaming fun we mainly invest three seed and see we have a 40 million dollar fund and we've done 16 investments around the world hi my name is dr. Berg el I've been in the game industry about 25 years the first half of which was as a producer the second half of which has been in corporate development most recently I focus on investments I'm an angel investor on any number of game companies I'm also a corporate venture investor on behalf of fun Plus which is a large normal gaming so we invest primarily in Sivan syriza hi I'm Michael Chang I work could be called NCsoft it's a large public korean game company we have about a billion dollars or so that we do investments acquisitions third-party publishing investments in funds like the panel before us we're 10 we were 10% of London Venture Partners last fun and were slightly less today as those funds grow in size hi I'm

Michael Metzker I'm a partner Drake star partners it's a global investment bank with about a hundred professionals across the US Europe and Asia and we partner with companies and mergers and acquisitions and in the growth stage financing well you are five guys three Michaels let's not answer all one after each other so if you have something to add whatever you need what are your thoughts on the current market right the evolution of investment changes like ten seven years ago everybody was talking mobile then VR became the new flavor of the year where do you see the market being right now shanté started please absolutely so for me I'm very excited to be an investor in today's climate because I think this is one of the most exciting times and games to be a founder so the availability of capital has never been better and there's a reason for that and that reason is is that the opportunities have grown to a point where you know like even like traditional venture investors are paying

attention face you see the unlike a lot of other media businesses the layers of our business stack on one another so like old platforms don't go away they actually stick around so there is a PC business there is a console business there's a mobile business there's a climbing cloud business there is a nascent VR business and so you like the ability to drive content plays through that ecosystem is unprecedented so there is now an ecosystem that supports multi platform IP development in a way that we've never seen before at scales that we've never seen before and from an interesting perspective on all of this is that the technology is commoditized to a point where it's mass-market that's never really been true in our history I think when I started in games on the 3do you know like we had to worry a lot about each successive technology wave and we had a very limited addressable market and so now you know the addressable market is literally everyone

I mean almost every human on the planet of age has a cell phone in their pocket that's capable of playing games and then there are other platforms that truly enthusiastic people can choose to be part of whatever fandom that might represent and there is a spectating market in the form of eSports so all of this kind of or kind of an unprecedented market for you know digital entertainment overall but gaming specifically which drives a lot of the ancillary bits of that entertainment market for me can I jump in for a minute ten years ago I had the chance to work with Shanthi first time ever in games a TA my first meeting was with a small finished game company they made a game about birds and pigs how much do you think it cost him to make that game ten years ago today any guesses how many millions of dollars not even okay we've got Paul here who worked at dots they had the do dots game well how much should it take you to make that game yeah I don't see a title today

and the mobile side that doesn't have a 10 to 15 million dollar budget for developments 23 million marketing how many you guys play roblox today any of you you your kids last around they raise 150 million dollars I haven't heard anything about fund Racing's from them in about a year and year half I think we can easily predict that they're gonna raise something soon all the companies that have raised money to look quiet they've come back requiring larger and larger amounts of dollars the markets have never been larger for us we enjoy the the benefit of more sizable markets but the ability to win is also becoming very expensive so yeah so a lot of early future that spoons in any sports side and a lot of really late stage invest with us Michael just mentioned specifically about a lot six months but for any of you who are looking for money it's also worth considering so some other options there's a lot of new platforms and distribution platforms out

there and some of them you know for smaller studios might make sense to work with them like whether it's an apple arcade it's been pretty generous stati are getting getting in there as well as getting publishing on Epic versus team in significant payments so that's one option to consider and another option I think is pretty interesting is on the blockchain side companies that develop something adjacent to their current games and there's significant investment from different blockchain funds like 40 and others which you know not with a lot of effort can produce a good amount of a good amount of cash and funding other initiatives I think from an investment climate standpoint piggybacking on what shop he said of about a Golden Age of gaming I think from a talent standpoint there's been so many people now who've been working on free-to-play games at the very highest level for almost a decade and now it's cyclical in a way where a lot of these

people are now leaving to serve the incumbents and setting up you know new companies of their own maybe they stay in a corner of the market which is underserved maybe they found a new new way to sort of tackle the same audience and I think first somebody like us who invested in the very early stage basically just purely on themes this is a very interesting opportunity to see all this bounty of talent and I think that it's it's cyclical that we're seeing more and more of great great operators stretching out building their first companies yeah thank you guys talking about early stage or first time raising money I think my opinion is that the first time you raise money is the most difficult time because you've never done it before it's like getting your first publishing deal what do you see the common mistakes of people coming to pitch you for the first time or they've never raised money and they're like hey Michael I want you to invest in my company here's my pitch what's the common mistakes I feel like a few things a lot of people can get a lot from just

talking I think with their friends and kind of fellow colleagues in industry just to learn what are the basic three things that they want to know so I've met a lot of people who for example would have benefited a lot from understanding the difference between the structure of a publishing deal and the structure of an equity investment deal right in that publishing obviously focuses more on revenue share and equity investors care more about the long term growth of your company and what your ambitious missions after the company and where you want to be and five to 10 years right I think that is actually for a lot of developers a key one and then secondly I think it's also really important to understand kind of how much money do you need what you need it for and be very clear to yourself kind of is this enough money to get me where I need to be in the future because don't just think about what you need today what you need an 18 months time there 24 months time and beyond there because you'll be at the same discussion in a year and a half from now or a year

asking for the same thing but more money hopefully right and then the very last thing which has been alluded to by those few people on the panel here today which is what are you doing and in a very succinct way why is it different why is it interesting right because I feel like we're in this point time of the market where you know by virtue of self selection everyone here is bullish about the gaming wind market and then spent interactive entertainment market I think that is not an issue but what is an issue is now I think in 2021 right there's going to be so much content in the market now there's gonna be so many games and it's great yeah we've never been a better time with industry but that also means that maybe that very unique PvE / PvP game maybe like motor inspired that you thought is really unique it's one of 10 you just haven't seen you know and that's the kind of thing I think people should really kind of either by speaking with those industry speaking with other kind of

earlier investors just try to seek to understand that and therefore refactor dooms of what your differentiator is right like how are you different what is your different kind of go to market which difference in content and how are you really going to kind of change the game anybody have something to add so I hold the record for the most number of venture capital firms in the least number of years it's a dubious record but it worked for me every firm trained me actually in the same Trinity of things look for management market and at the time was called technology now it's differentiation management no company no no startup who starts what they're doing ends up doing the exact same thing they planned that day one so management teams who can adjust and change to the changing market environment and dynamics and face all the issues that they face that's very important to us you've heard this from the last panel talent management talent market a leader in a small but rapidly growing market so that

when the market becomes discovered by larger players like ourselves and we try and move in you can keep us out think about the supersoul back in the day we're in a small but rapidly growing market of free-to-play games and they're the they're the juggernaut today that can't be beat and then technology or differentiation compare barriers to entry what is it that lets you stand apart from everyone else have unfair competitive advantage can be talent it can be distribution it can be any other things but we're looking for those those key aspects that Holy Trinity so to speak to back you if if you can find those things and take money from us yeah thank you I think one of the biggest questions when you're trying to raise money especially initial Fonz's how much money do I ask for some people will tell you just ask for the maximum amount you can and I take it from there what are your thoughts on is especially hard could you do early investments what are your thoughts on how much did I ask for well you need to raise for like

Michael said for what you need advice and also look at a longer-term perspective that are very sort of what we do right now and also think of how you structure your Padres going forward but I would say like in general over capitalizing too early raising too much too early for these two great results I mean you know usually documents are great for pressure and so when you have a sense of urgency around the early phase that you need to make quick decisions if you're over capitalized so earlier if you don't feel that you know you don't have done making quick decisions you're too much in a comfort zone that can be about two so I would say you know raised for what you need but don't charter and also about your societal try to optimize by attrition too early because thank you if you do don't perform in a way which allows you to - or it makes it hard for you to raise ball or they not going to be difficult if you're personally responsible

yeah just a nuance that I think I think that's right so raise for what you need is is kind of directionally correct and you should do that but be realistic about what you actually need so I mean it's the games business and so there's a lot of things that don't work out and so if you basically create a plan that has you raising on a very strict set of circumstances where everything has to go correctly then you may find yourself kind of behind the 8-ball comes to kind of figuring your way out of that hole if your first kind of effort doesn't work out so I mean there's I think a little bit of an art to determining you know what that needs that really is so I think there are a lot of you know famous stories about how many trials were necessary to get to the one that worked and so you know like there's a bit of a balance to strike in terms of determining that you know that initial capital number and to be honest some of it as a function of who your team members are so if you have you know

somebody on the team who either has got an amazing hit in their past you're gonna have a lot easier time of raising more money and you have the luxurious kind of perspective of like dialing that in to your specifications whereas the reality for some people who are first-time founders and don't have that kind of track record is that you know you will basically be level set by the market but whatever it is you need to have a strong view of your own capital needs going into that equation so that you can kind of dial it in with what you hear back from the marketplace but if you kind of expect that everything's going to go right at every single milestone I think that's a dangerous place to be so like I live in San Francisco it's a very expensive place to build a game company I frequently have interactions with founders from Europe who raised completely differently than what we see in in my native market and I'm always super impressed by how far they can get on so little money but I'm worried greatly for their future in many cases because I see them bumping along with a couple of

kay and they have to last the rest of the year and that feels like a very dangerous place to be and so understand what your real capital needs are I think is very important I can a clue that race what you need but at the same time there's also correlation to the valuation and it's always good to keep in mind that investors are looking for like a series a I want to ship up twenty or thirty percent and and you know that valuation then reflects also the amount of capital based yeah thank you guys one of the thing that I realized when people raise money the first round second round whatever they always under evaluate the the pain of due diligence you know you're the creative you're a CEO good company and you're trying to keep your game going in production or you're even if it's your early phase of development and all of a sudden you have to turn around and say okay let's talk with bankers and investors what are your thoughts about due diligence process and

if somebody years and the getting ready to get into it what would you recommend to these guys we tend to invest so early that there's rarely a product even sometimes to maybe even end up in various you know stages of actually setting up the company lucky for us like a lot of due diligence is on the team's themselves and the founders and doing a lot of reference Jax's and luckily they don't quote me and my partner Hendrik having been in the industry for 21 years we tend to know a lot of people that the founders know - so we have a few children connections so for us it's a lot to do with sort of personal due diligence in poverty due diligence it's definitely different in the series a they just live in the great scene amazing stages it's more about ding ding ding - yeah yeah I'd say it's a continuum so like starting with kind of fairly light due diligence mostly around the team members that's been that's he didn't proceed all

the way up to you know what Michael will put you through an active process at the end of the cycle and an acquisition is the other end of it which is they need to see everything every contract you've ever signed like they want to have contracts on every piece of person in the company it's very very very kind of like a different level but it scales up every step in between ok as you go from seed to series data series be like that level of diligence is always going to ramp up and it's gonna be the most serious at the end I mean I actually compare budgets when I was doing the early stage investing I had to allocate 30 or 40 thousand dollars for legal fees to close the deal today on the larger deals where I'm looking at companies that are 200 million dollars up to a billion - so my last bid was 1.2 million for something I need to reserve three to four to five million dollars in legal and advisory fees right so that's a relative sense of the complexity of diligence as you go from early stage up at least from the advisor standpoint so

it's crazy these days how expensive it's getting in from a really late stage financing like 30 million plots is actually you know similar to an M&A process and it's really getting your financials in order having them reviewed maybe even audit it I think that's crucial it's gotta save you a lot of pain and time later on yeah so so Michael maybe I can ask you this one to get started so there's a lot of movement where people invest right so when when VR became very popular and a lot of money was being thrown in there you saw people move from mobile to VR because mobiles being so difficult and as you said Michael 1015 million dollar budgets to make a game all of a sudden you can't make Angry Birds for 300,000 Michael where do you see nobody has a crystal ball but what are you looking at what gets you excited right now in the gaming market would work where there's room for growth sure yeah so I think this is an

interesting question because we all ask ourselves this are very sick for 12 months and frankly speaking if you were to look at this panel last year and yet before the answers were kind of wildly fluctuate depending on the kind of the flavor of the day right but I think essentially what I'm more interested in is the fundamentals behind it so if we look at interestingly if we look at pgc London exactly the same event last year I would say there is probably about a hundred percent more Turkish companies here right and why is that right so it's because we've had some great successes in the market not just Turkey also places you know Israeli companies Ukrainian companies Polish companies and that for a reason right so these are places where they've essentially built very talented developer hubs and the communities who traditionally worked as outsourcing houses or what together with some of the bigger companies and now they're kind of in the place where they can take this experience and build on from it right

if you take it to a more method level it's also the fact of safety look at Israel why did player XY the platy kagura blow up out of nothing because they had this insane pressure to monetize really early on very aggressive and take essentially what is a very unique skill set at the market and holding it to a very fine skill where it's trying to now kind of pivot that into them learn more about gameplay about mid core beyond just social because you know so I'm really interested in these kind of themes of where a country or city can take its kind of spike or uniqueness and apply it to another industry right so I think this is a pretty unique point in the market to be to be doing some like that versus say another free-to-play game out of you know Helsinki which is great but I think sadistically be a lot harder so the competition is there anybody has something to add to this no all right that was like one shot answer it really doesn't rarely happen but it

happens sometimes that a new studio and you grew that what they're pitching is so interesting that it turns around and all of a sudden everybody wants to invest in them and mobile you're seeing that a lot seeing it a lot in M&A because there's so many few Studios that make it that there's almost a lineup of all the usual sucks back trying to buy Studios at the door and knocking one after the other and you you I file on the way out you guys differentiate yourselves to be one of those investors and be picked as a partner when it's a very very hot new studio or product shanté maybe if you wanna start sure I think a lot of self-selecting in a way and that you know like different teams need different types of help and so like my background for example is half production half for development you know like the same investor sprinkled on top and I speak Japanese I have a long history in Asia so if that's a particular background and maps to you

know like your team then there's probably like a better fit more done natively than like if you have a direct duplicate of me and all of those buckets um so you're like what is a value-added investor was asked in the last panel and so like what is the the value that you need I guess is the difficulty question that I'm answering and so there's some of that some of it has to do with you know like the fundamentals of the actual deal so you're like how competitive is the term sheet these are all kind of like part of the picture but in terms of like what differentiates different investors I think it's a self-analysis from the team side about what they want from their investors and then looking at people and trying to understand like how they could actually fit in and so like there's a lot more interest in games these days from a lot more players so it's a longer process that's a it's a bigger conversation that it used to be when it was like like kind of five folks to talk to so I think that's good I think choice is good because as we all know there's more than one way to win in the games industry and so there's more

than one good fit like otherwise you would be fewer of us up here but that's my perspective anyway incident to piggyback on that a little bit um when we talk about but if you follow their due diligence we we definitely encourage all founders that you do get a chance on your investors to and all professional investors just to you know ask around if what the investor is doing is a good fit for what you're looking for just like you said so I think it has to be sort of a mutual mutual understanding mutual great fit I think when we look at great the teams we look for I think what they appreciate with a fund that's run by X gaming entrepreneurs is what Paul was saying in the left final is being 50 side so I just think that you having been on the other side of the table and having you know raised money and through those same conversations I think that's something that where we can a lot of you in terms of fun having that empathy

understanding having walked through the same path before and that's that's we feel that we can add value actually you're all in great positions of power at some level you're selling to us for cash daily and maybe we'll give you but frankly quite quite converse this case we're selling to you if we want to get into the best deals right for the best entrepreneurs for the best games we're having to find a way to go in when you may not eat us when I started off in early-stage venture capital companies were coming at us desperate for cash they were burning you know tens hundreds of thousands of dollars a month they needed the cash my first interview and a job in private equity where companies don't need your cash I failed the job I had someone throw me a pen said sell me this pen I said oh it's a beautiful pen it's blue it feels comfortable he said you failed immediately why you didn't ask questions you didn't listen you didn't learn you didn't understand what the other side wanted they don't need your money you've got to find your way to sell in and so I've never forgotten from that point in time that in one sense while people are coming to me I'm also always coming to you the

best companies don't need your cash one minute left Michael and I do these panels quite often together and I really like to put people on the spot towards the end and I like to talk about the deals that got away you know that one that got away that people didn't want and they feel really bad about not getting in at a certain level investment so guys if you are willing and able to share some of these stories maybe two or three of the guys could say something this is super thankful it's not from it's not play that respond that we're we're here in so I'll have more of these stories later from the fund but from an angel investment science I've done plenty major investments of high pass on huge games in 2013 I think we sourced up with my current partner and Rick he decided to invest as an angel I passed and I learned a lot from my reasonings

did not signal characteristics that I thought I've been where red flag but Indian didn't matter so I'll carry on to that for good cuz you're the one who has to go to panels now he doesn't I'll tell a funny one from EA so for three years I was the number two buyer companies for EA in 2010-2011 you guys remember a company called Riot Games and League of Legends so I was playing a lot of legal legends personally this is October it's a GDC Austin I get to meet Brandon back the CEO of Riot Games and I I come back home to EA headquarters I'm like we've got to meet these guys so I send this email to Jean Rotello who's now CEO of unity Frank Gibeau who's now the CEO Zynga a few other folks I have a quote I still have the email where basically no one wants to

leave the company because they think it's gonna be too expensive and it's a copy of a good mod is what the current law is this tape I still have the email with the current CEO Zynga says League of Legends is a copy of a good mod that's one that definitely got away all right well I'm gonna be one more somebody wants to jump in the pool no you don't want to okay and so if you want to hear their stories vitamin beer or a coffee and there's plenty more to tell thank you guys thanks a lot [Applause] you [Music]