Session: From Spawn to Scale – Navigating Funding Rounds In The Gaming Industry - Rick Verma.

[Music] This is really fascinating in uh introduction from it's called from spawn to scale and we're talking about navigating the funding rounds in the gaming industry. So for any developer at any stage of funding the business, it's a it's a must-see presentation. So we

have Rick Verma and Samantha Reen from Tali. So please give them a welcome. All right. Hello everyone. Um thank you for the intro Jackie. Uh so my name is Rick. I am one of the leaders at Tapulti in uh Amir. Uh I run a digital economies business which is divided into three different economies. The creator economy, the adtech economy and the internet economy. Uh the focus of this presentation very specifically is around uh navigating different funding rounds. What the expectations are from uh different investors whether that be private equity, venture capital or uh institutional uh and what you as founders and CEOs should be expecting at each stage uh of uh those growth as well. Thanks. And uh I'm Sam. I'm part of the new business team over at Topi. Uh so every day I get to speak to companies like yourselves and really to help navigate how you're going to make those

payouts to everybody globally. Um so I'll be co-presenting and going through some of the customer stories that we have as well. Cool. So the agenda is a little bit about topy just so you know what the context is, who we are. uh then we'll get into a few market trends that we're seeing. Uh then we'll uh get into what to expect at each funding round and then we'll get into sharing some of those uh case studies. So a little bit about us. Thank you. So a bit about Tali really what we do is support a lot of companies similar to yourselves. So that might be Crazy Games, Roblox, EA, My Games, and really to help support the payments function, whether that's ensuring that your developers are being paid in countries that you're struggling to make payments to, if that might be automating your invoices and just being that infrastructure to make sure that you're able to scale and grow without focusing on the kind of boring admin stuff and you want to focus on the fun gaming stuff. If you think about the

concept of Salesforce for example and what they did for sales processes um with broad tech stack that's pretty much where topi sits. So if it's procurement AP payments expenses cards that entire uh ecosystem around the payables process uh that's that that's where we sit. So let's look at look I I don't want to do doom and gloom because I was I've seen this before but look the overall decline uh in funding in the industry is pretty evident right. So if you look at the stats around here uh in 2022 the gaming sector in esports received uh nearly 11 billion in funding uh that turned to uh just under three billion in 2023. Uh the good news is if you're early stage uh there's a bit of resiliency uh in the market. So despite that overall decline uh we are seeing uh more funding in those early stage C companies which is very very good news. Um, and there's also been a shift in investment uh focus as well. So, it's

not based um so much uh around content. It's now more uh the broader platform play uh within the gaming industry as well and different technologies that feed into it. So, what should you expect at seed? The average uh range is from 1 million to 5.5 uh million. Uh Pixon is a good example of this. Uh raising 5 million 5.5 in uh uh 2023. A 10 million uh to 45 million. Uh this is all USD by the way. Uh K secured 45 in 2024. Uh series B 25 million to 100 million uh US. Uh second inner studios raised 100 million 24. Uh series C 50 million to 100 million. Uh and we saw uh volume obtained 55 million in July 24. uh and series D where it gets really really big and the expectation starts to really really get uh high in terms of what expected build a rocket boy raised 110 million uh in Jan 204 the really big round like the

major major E- round the last one we saw was 2020 and that was $340 million US with scope so what's the expectation when you start going through those different funding rounds from those seed stages all the way to the later stages well the first expectation is as you get those investment you need start moving fast, right? Uh you need to be able to navigate that growth and you need to build an infrastructure that lasts through not just this round but further rounds as well. So you've got to move fast without breaking the operational capacity of your business, your teams, your people. You've got to be able to um understand what's coming next. So if you're at A, you should be getting infrastructure wise and growth wise you should be getting ready for uh B and so on and so forth. Uh so scaling whilst uh being operationally uh efficient is uh pretty key to uh investor confidence overall into in your businesses. All right, bit more deep divy now. So stay with me. Um it's not crazy uh deep

but it'll give you a feel of what to expect uh at these stages. So at seed founding teams everything right? the investors are investing in you uh the people at that point for the most part because you're still trying to figure out what the product market fit is uh for your for your product for your game. Um at this point you're looking at getting your first uh uh uh customers and monetization. Um there's some worry around making payroll often. I was at a dinner last night where this was being discussed quite widely. Um controlling spend's a big thing because again very bootstrapped uh scenarios usually. um and your fundraising. So moving from that seed to a stage um you've got a bit of money behind you now, right? So you're starting to see that you that 10 to 45 million um around coming in. Uh investor reporting becomes important at this stage, right? So somebody's giving you money, you've got to be able to figure out how to uh

report on how that's being deployed. Uh at this point you're also starting to hire beyond that core team, your founding team. Uh so customers are also expecting revenue and financial operations to be scaled. Uh and you're proving your product market fit at this stage typically. Uh and this is also where we see go to market engines being built. Um and guess what? You're fundraising. It's not going to stop. Um moving to series B, this is where we see more private equity and bankers coming in. uh investor expectations are starting to really uh pile on at this stage. Top line growth uh starts to matter. There's a little bit of a pivot in the industry where bottom line and path to profitability is obviously in the last couple years becoming more important. Uh but topline growth is sort of the key here. Uh at this point you want to be able to deploy scalable go to market engine. So how do you really scale the product out, games out? Um uh and you also start seeing global footprint, different offices being opened up. uh and this this is usually where we see more new senior hires coming in. So

you'll start uh getting finance directors, HR directors and so on and so forth uh coming into play. And guess what? You're fundraising for the next stage. All right, now we're getting heated. All right, series C. This is usually where institutional inspec uh uh investors are are quite widely involved. The expectations are massive uh at this point. Um global expansion is uh non-negotiable pretty much. Uh teams uh tend to scale under pressure at this point. Um so it has to move uh faster uh than it has historically uh pretty much based on the uh uh uh the the uh the amount you've raised in uh uh the series C being quite significant. Uh it's common for new sea level editions to come in at this point. So because of these funds um based on the investors and the expectations and if the investors also have other similar companies in their portfolio, you will often see a push to either add uh new C

uh execs to your uh uh leadership uh team uh from their own set of companies or uh encourage you to hire more. Um we also start seeing exit conversations uh becoming quite frequent at this stage for the investors and founders. Moving on to series D, this is where you usually see more acquisitions, not just organic growth. There's a bit of uh diversification uh in terms of where the company needs to go, new things being added on beyond uh beyond your core offering. You're typically starting to see bookings revenue here hit around that $25 million mark. Um and it's officially into hyperrowth mode. Uh so you started to really really really really really grow back office operational stuff like topology like what we do at this it has to be stable like it really really does uh because in series Z is astronomical uh expectations particularly private equity is involved um exit prepar exit preparations are

happening uh every metric so cost of customer acquisition your net dollar retention uh your uh annual um uh AI your um recurring revenue all of that starts to matters because institutions are looking at it more and more and more because it's probably a very short way to being publicly listed uh and reporting on that on a quarterly basis and path to profitability yeah I mean in this market is pretty much uh pretty much a mess uh if you've gone through this journey before and you've exited hopefully you'll recognize uh some of these pieces if you haven't hopefully it's been helpful to understand what uh what at a high model uh uh can happen. We're around so you can come ask more about it. Uh and I'll be happy to chat through it later as well. Um I'm going to hand over to Sam now and we're going to talk through a few case studies of companies that our business the policy has helped take through that journey. Perfect. Thanks Rick. So one of two companies that I wanted to talk through

the first one is Legends of Learning. So they are a learning company that's all about making learning fun. It's all about trying to make it accessible and effective. Um, they've got over 2,000 games and 500 plus game studios. So, you can imagine that they had a lot of admin in the back end and they really needed something to help them scale as they were continuing to grow. So, the reason why we chose this one is because last year they raised $8 million. Um, and so the expectations were growing and they were really struggling with making those payments and they were doing those quarterly. So the way that they were doing them at the time it was using Google Sheets. This might be a very familiar process to some of you, copying and pasting, going into lots of different banks. Uh, and you can imagine that payments were being failed. They were having to spend a lot of time making all of those payments. sometimes a full day, sometimes more than that. Uh, and

receiving a lot of emails and communications from people like their developers that were not getting paid on time. And obviously, everybody gets a bit touchy about getting paid and they want to be paid on time. So really, the team needed something in the background to automate the process without having to continue to add headcount to their finance team. So I kind of walked through the challenge already. Um but the key issues were the inefficiency and the errorprone process. So what they needed was a solution to come in and automate the payments process, give their payes an onboarding area which was secure, it was compliance friendly, uh, and we could also automate the full payment workflow as well and reduce the time that was being spent on all of the manual work integrating with their accounting system as well. So they decided to go with us with Tupalti. And so from using a system like

Tapaltty, they could reduce the payment processing time uh from one day to 30 minutes. Then they could also decrease the payment failures uh and also reduce the need to hire more people within their team to actually carry out all of those processes too. Then the second company that we've chosen to talk through is Challenger Mode. You might be familiar with them. So they are a Swedish esports platform and they really host matchmaking. They started off with League of Legends uh and really having those challenges and tournaments and they needed a platform to be able to pay out to their competition winners. Last year they raised 2 million pounds in funding. Uh and again they needed that infrastructure because they were scaling and they were growing and they needed to be able to do more and more but with the same amount of team. So their business was their team was getting overwhelmed

and had a limited bandwidth to focus on the payment side of things. So where did they go? They decided to look for a solution that was able to automate that global payouts. you know, paying out to tournament winners all over the world. They didn't want to not be able to have someone playing the game, playing the competition and not being able to get paid, eliminating compliance headaches and also gaining greater visibility over their whole finance function so they can have that freedom to scale and also to innovate. And so really having that foundation of automation enabled them to then look forward how they're going to innovate. So this is where they've now brought out new features. They've looked at in-game cash payouts, creating a seamless ecosystem where their players can compete, engage, and be rewarded without having to leave the platform. And this is also going to help with their player

loyalty. um strengthening their partnerships with the developers that they're working with and just really pushing that innovation without being drowned out in admin and manual tasks. Cool. So, what's kind of the theme here? It's pretty much that you need to be able to build for growth in line with investor expectations before you're getting to that next round of funding. You want to try and stabilize the core operational processes uh at each round. Um you want to be able to um lay down different um tools, technology um to ensure that it's not just suitable for what you're doing today, but it's suitable for what you're going to do next and after that and after that and after that because by the time you're getting to that part, it will start to fall apart and it does start to fall apart and then it starts to inhibit growth and and um the expectations

aren't met from an investment uh perspective. controls and policies uh and of course uh the core team that seale senior leadership highs that I spoke about um that is um almost essential to be able to execute on your vision uh as founders. So that's what good scalable uh infrastructure looks like. Now we are here um just here behind this curtain. So if you want to talk to us about any of this in a bit more detail, we'd be happy to do it. Uh but yeah, thank you very much for your time and hope you find it useful. So um we've got a couple of minutes. Has anybody got any questions from the audience? I have a quick question. All right. So when I first met Tali, it was actually with challenger mode. Oh, really? And um and I always thought that was there for a bigger organization, but challenger

mode wasn't. this was an organization of five or six personnel. So yeah, um h how do you how did that sort of come about? So we it's a it's a misconception that technology and tools like ours tend to be for bigger organizations. Yes, we have EA, Roblox, virtual all the you know all the big uh players in the market. None of them. Well, some of them obviously required when they were larger, but we've been working with startups with a few headcount. Um, pretty much all of our um, yeah, all of our time as a business. I'll give you an example from 14 years ago. I won't mention it is a streaming customer. Um, they got acquired by a large business for a few billion dollars. Uh, recently when they started with us, it was an eightp person company. Um, so yeah, it's just a misconception. These the the barrier to entry for technology like this to allow for scalable operations is pretty low. And I've also seen people because we're from a technical and engineering um

background in the games industry. We always think let's just build it ourselves. You know, I've only got a few people to pay. I've only got a few things to do. Um, and then you start growing and everything else. Um what's your advice to people who are just saying okay I can do this myself for now um but where where would where would the the hiccups come potentially when you're growing? Well, in particularly in payments, if you think about the uh compliance and regulatory element of it all, um you can build a piece of technology, but because payments and finance is such a heavily regulated industry, uh hiccups tend to be around compliance and what your obligations are uh to move money around the world. Um and from a build perspective as well, that build versus buy conversation. Uh at topology, we have 300 engineers. We're we we're not going to go build a video game because it's not our it's not our area of expertise. you need that domain expertise um to be able to build something that's uh lasting for that

finance function. Fantastic. And obviously you're learning all the time from all the games companies you're working with anyway, so you know the requirements of a games a game company. So it makes sense. Okay. Anyway, any other questions? All right. Well, thank you Rig and Sam. Um please round of applause for our wonderful presenter. Thank you. Heat. Heat. [Music]