Superstar Session: Ready to Scale? What to Focus on Before Pushing the Button

[Music] cool thanks very much for the flee intro I was giving a little quick background to submit us and what we do and really the whole idea of putting us together was this is this presentation so concatenate into something we get asked a lot so we figured it would be useful to come out with something that was sort of some practical actionable insights so a little bit about company what we do we provide credit lines to to gang developers to help them scale so the you have money there's trapped up in either ad networks or or the the app stores and

we effectively can lend money against that uses a security to help reinvest quicker into ry+ user acquisition so the key things we're trying to get across in terms of mission is there are different forms of financing available to game developers in terms of scaling it's kind of frustrating seeing people just go back and and needlessly diluting themselves with Acree when there are different different options so the key themes around capital efficiency use equity capital to build our risk projects and and and you know build teams and IP and then use different forms of financing we're available in in terms of putting into these our acquisition particularly so really and then again this is this is a like a very simple approach here what we're trying to do is basically ask ourselves three questions so first of all in terms of examining the UA metrics first of all do I have a machine do I have a money printing machine I can put

capital into and I can get more capital at the other end in a reasonably repeatable way and then secondly once you've established if you've got the metrics indicate you can put money into ROI positive user acquisition and figure out how you're gonna fund it and that again should be a reasonably dispassionate pretty formulate thing and then thirdly is like nothing lasts forever you're not gonna be able to scale in you know indefinitely so how to figure out you know what to look for in terms of your machine when it's running out this idea what we think of as full capacity so it comes down to obviously and this is this is pretty basic stuff in the way but you know your acquisition cost and then your lifetime value so acquisition cost is very easy to calculate it's what you're gonna pay Facebook or Google to acquire a user the game and then your lifetime value although to be honest there are so many different ingredients into LCB new things are constantly changing around where do you think of it as more of a kind of North Star metric because you're changing all these that you changing so

many things underneath it the whole time it's very hard to sort of to plan if you were trying to keep it a constant so the it's very useful to know where you think you're going to get to and over what period of time but actually underlying it is is facing days to break-even how quickly you're gonna break even on your ad spend so in terms of terms of LTV calculations we again from working with you know hundred plus developers we figured out there was a lot of there was a lot of uncertainty in terms of how to calculate it so we put some tools up they've been used for more than ten thousand times over the last couple of years as a way of indicating basically you put in retention metrics you put an opt out a couple of the high level metrics and it will come up with some estimates basically of boy LTV looks like and then if you've got and this is really the nub of it if you've got ry+ user acquisition then it will show you

the the impact of a model of cash flows for you so a model app basically if you wait to get paid out by the ad networks in the app stores or if you recycle quickly so it's just a free online resource as you're in the middle of kind of re re retooling it but hopefully hopefully useful some of you guys so basically the the recipe the core of it is basically like how much in and how much out over what period of time so this is really nothing more than an any other investment equation so if we go half a mile that way we sit in a fund managers office all they're gonna want to know is basically the ingredients of the investment equation the risks associated with it so let's say we put a dollar into into you a and you're gonna get a dollar 89 back of P&L after say 90 days pretty good metrics to achieve by the way so the one thing that we're really really focused on is basically how long does it take to break heat and how long before you get your dollar back and

you're gonna want to track that journey really really closely every pretty much every day so you know looking at when do you get to 50% of your Rs 75 what does that journey look like now from then anything else is kind of gravy but you want to know where it ends up because that's gonna set the set the gradient for your room for your overall kind of LTV calculations so you want to you want to cut it off at some point that's sensible that doesn't you know you're not projecting into less you're in social because you know it's like a two-year LTV you've got to think of it in shorter time frames because the again the longer you project out the more risk you have not be able to deliver it so once you've figured out you've actually got a formula and equation that is investable you figure out how you're gonna fund this machine and again this is not an emotional decision this is just a really dispassionate way where you start off with your cheaper source of capital and then you work through different options available until you get to either your most expensive source of capital or what's more likely to happen is the user acquisition trade will just go away it

will evaporate so we're gonna start off if Facebook or Google is gonna give you oranjee then any of the others going to give you credit lines for user acquisition you're gonna use that first that's effectively free money they're going to give you 30 45 day credit terms where you can spend on them and then you don't have to have any any recovery in that period of time now you need to be very careful you don't mismatch you if you get $100,000 credit line if you're going to spend 100,000 bucks you're gonna need to have money in the bank by the time to pay the bill in the middle of next month so you need to you know it's a it's a very very useful part of it but it's not it doesn't solve the problem so then you look at the next one down so if you have let's say another game in your portfolio that's throwing off the load of free cash then you're going to have that cash sitting in Silicon Valley Bank of 1% or whatever interest per annum you should you should use that first don't confuse it with a big round of venture capital you've just raised because that's that has a lot of dilution associated with it and that's you know there are better

ways to deploy that capital but if you have just literally a cash cow that's throwing off cash you're going to use that first you may want to get into the credit card game if you can if you can track it so that you can so you're not actually paying interest and the credit cards if you if you were able to be agile a lot to juggle it then you know you should probably do it because one thing that's one thing people are addicted to is airmiles as well so we've seen people that will probably never pay for another flight in the next ten years as a result so I mean huge amount of money on on Facebook acquisition the next bit of it is the I guess the the bed that we do which is which is credit lines so this is this is the line of credit that's secured against these receivables that you can see and you can verify but you can't touch and we serve the business a few years ago has developers with this problem who couldn't find anyone the traditional kind of financial services world that really understood it and then right at the bottom you've got venture venture gaps of funding so and again if like

we're not you know all we're trying to encourage people to think of is about how to be capital efficient so if you've exhausted all these other source of capital and the dilution is worth it because you can just reinvest and get a huge return from doing that then sure go raise venture capital to to to put it to user acquisition so that's really what though what the spectrum looks like and again to figure out whether whether it's something is worth doing or not again just break it down just factoring the cost of financing so what you need to do is to break things down to two as simple generally we recommend it on a monthly basis so if you're going to make a comparison you get everything down to the same common denominator so you figure out what my dollar is worth after a month so in this case let's say I'm making a 20% row s every month so in dolan turns into a dollar 25 a month whatever it is but just on that sort of one month period break it down now let's say let's say you've got this formula you can put a dollar in and get a dollar 20 out but

you don't have any capital so you need to go borrow the money to put into this equation knowing that you're going to turn a dollar into a dollar 20 so let's say it costs you 2% over an equivalent period of time you're gonna pay - to borrow the money which you're going to put into the investment equation to make 20 so net result you're going to make an 18% profit that so it should be and generally most of the people we work with this the financing cost is a rounding error in terms of the in terms of the equation and to be honest if it was if you were going to put in 2% to make 3% we'd probably say don't do it because it's too close to call in the numbers but if you're and the rule is basically the quicker the raw ass recovery the you know the more the more effective it can be so if you were you know you've seen hyper casual companies with incredible rates of of growth simply because they're turning everything super quickly

so if you were to think about a journey obviously this isn't linear it doesn't last forever so let's say you start off with a 20% return and as you start to scale up that return is going to go down over time so let's say you 5x or 10x to spend and you're you're or maybe 2x to spend and you're your ROI on that monthly basis is going to decrease from 20 to 15 is it still worth doing we look at the cost of the financing so let's say your starting point was the 2% and actually as you start so let's say your favor so then your margin should be focused on is gonna go from 18 to 13 and a half still worth doing yeah absolutely so the the key thing to do is to focus

on the profitability of what you're doing and not get too hung up on the on the headline headline rates in return this this is some you can and it depends very much on the genre we'll look at some of the curves and so on but basically some things like you should not assume that these things are linear and they're just gonna be able to scale to the moon because certain things happen and what would what concerned about is trying to find the optimal point when this machine if we have the machine is actually running at full capacity a few different factors here that goes back to just very very simple demands economics so number one again slightly counter intuitively maybe but acquisition costs are gonna rise over time so you're in an auction system and you're looking for an ever-decreasing pool of people that means you're gonna have to pay ever-increasing amounts of time of cash to to acquire them number

two LTVs are gonna fall this new scale so if you have something that super niche you go for your high paying users because they are you know obsessing about the intellectual property you've created or whatever it's a number one thing you're gonna go to those guys first they're going to spend the most money what will happen is they'll go out and concentric circles from there so people's propensity to spend will pay off as you go for an ever diluted audience [Music] genre your your game completely sort of unique everyone so that if you're in a genre like hyper casual for example you might have a 20 cent bids and if you increase that to 21 or 22 cents then you're addressable market is gonna go up by millions of people if you've got something that's like super niche then and that's gonna be a that's gonna be

very sort of flat curve if you've got something that's super than ish you're gonna find your your your acquisition costs are gonna spike really quickly because there's just not that many people in the world who are who are looking for this particular genre of game and then exactly the same and Ltd's they're gonna crest you don't know how quickly gonna crest so what we always encourage people to do is to try and model out you know what this actually looks like what their own curve is like and it's gonna be a unique fingerprint that's it and it's totally shifting sounds as well so you have absolutely no idea on any particular day there's seasonality there's you know if what your competitors are doing turns looking for these audiences so what we encourage you to do is to try and kind of model out basically try lots of experiments try and plot the different points and the curve and and see what that might actually do whether it's basically how quickly it starts to kind of go exponential and the cost just run away from you and really what you're trying to get to is a nice one what you're

trying to get to is again this this intersection so you're never going to want to go quite to quite to the wire in it because if you're free minn is just too close to call but what what the smartest guys do is to keep buying all the way up regards to the economics until they get to the point that they're reaching a minimum return so you you might have a five or ten or twenty percent margin so you decide what kind of works do your business and then figure out basically how you can fund this machine all the way through again demand economics monarch 101 you should continue until your marginal revenue equals your marginal cost so this is basically the UAE equivalent of that you want to get fairly close to the intersection of these curves now these curves are flying around all the time which is why you need to always stay on top of the stones off the numbers this is just an excuse to use the Apple pencil I just bought but the the the key thing here is basically this is not a set and forget type of trade you have to be on it every single day rhe monitoring

revaluing and then figure out where the opportunities are it's a kind of realistic take waste and this constantly monitor the the acquisition cost and and and be remodeling the lifetime value figure out trying to figure out the shape of the curves and what they look like over time what factors influence them and try to try to get ahead of it if you if you figured out that you have this machine and actually for you know for most people they don't have a machine the economics are under water every dollar investors gonna return eighty cents in lifetime value and sadly that that's not a great way to start spending money on you a but if it's the other way around then it's just a case of how much can you scale that where do you find capsules put into it and then very very closely stay on top of the economics and then you know as you scale lots of different things will happen so try and sort of quantify see what they see what the parameters are that change around

there to know when that's running at full capacity and don't be tempted be the you know the responsible gambler knows exactly when to stop if the economics are not there to support it stop doing it and you know monitor these things so you may want to dial it up super quickly you may want to you may want to take it back which is why the financing needs to be really flexible so we were a bunch of meetings yesterday one of the key themes and this is actually I ironically this is this is particularly true of larger companies so if you think about you know company with a 50 million run rate or even a publicly quoted company everyone has budgets to put into you a and that's generally how you know larger company budget cycles will work so you might have you know your third quarter budget may be 10 million dollars the user acquisition in our view that's totally the wrong way to look at it because you may have the opportunity to be you know spending constantly to spend 50 million bucks and you a or the UAM a trade trade not be there at all so this idea of like budgeting is it can be a little bit

dangerous and what we always kind of advocate for is basically the finance news our acquisition teams to be to be joined at the hip so basically if the opportunity is there do as much as you can so the trade goes away and if it's not there then pull it back and don't do it at all so very often you see sort of public companies sometimes they just stop all user acquisition because they've spent the budget and they just sit there for a quarter or two quarters whatever not spending because that money's that money's gone so the think of it as a as a way to sync up with your finance function regardless of the size size and if the well is open for drinking figure out how you're going to drink from it and we're going to find the caps let's put it into u8 that was all from you've got three minutes for any questions if anyone's got any thing sure okay thank you you talked about CPI and not ECPI not to consider the organic installs important in his calculation yeah so I just sort

of oversimplify I mean try to figure out all the facts as you can into it and basically just distill it down to lose you know economics to it so if you know for example you've got something that's that it's got great organic uplift absolutely probably priced it and if you can obviously this you know it can be hard to attribute around that and so on but if you're confident and you can you can repeat it you can model it absolutely should factor it will make us question decay factor which is impossible to define we've been struggling to understand this if you figure out that you know I'll leave the question somewhat thank you any more questions how long have how long have you seen these you know that the Train kind of lasts like typically within a range and also once it ends and you're at that crossing then what what do you do then at that point so so totally depends and we've worked with people sometimes over I sometimes over a couple of years we

had one that basically went from 100k month to 2.2 million a month in a fairly linear fashion or because it just taking money reinvesting now that company I'm fortunate for us got a quiet that's that's one way can stuff but that was a great story for everyone around the table right the founders were delighted they got fantastic additional dilution delighted because their IRS and they're returning you have to follow the money to get the same result and we were happy because we're financing ever larger amounts when it stops stop doing that go do something else I mean commended running at full capacity if you just took the cash extraction mechanic but you know that's when they kind of focus on other things to the side okay thanks that's unfortunately all the time we've got questions for but give a big round of applause to Martin please

[Applause] you [Music]