The Golden Rules for games developers looking to raise funding from institutional investors

[Music] so you guys have probably hopefully seen me speak last year because I definitely recognize a bunch of faces here so I'm gonna try to make this presentation and I've actually added a bunch of slides in the end a little bit more relevant to the current market dynamics that we're all experiencing right now so just a little bit about acne she oh we were founded in 2003 we are a fully authorized regulated licensed investment bank in London Gaming focused and and you might ask yourself well what does that mean so that means we are authorized to actually advise studios owner entrepreneurs in raising specifically series a investment and when I say series a investment I'm talking two three four five million euros

really from large VCS or institutional some of the largest publishers worldwide through then to exiting your studio so if you're fortunate enough to take your studio to profitability take it to a level that you feel actually you're generating a significant amount of cash flow and have the interest to sell it well then that's exactly what we do so the most recent deal we obviously advised Nicholas there congratulations on tickets on their sale to Ana mocha which was announced in July so a great validation for Finland Somaly earlier mentioned about some of the success stories so that's a success story anytime you can exit your studio any time you can get paid for exiting your studio in a very profitable and and and and future or and have future earnings potential of that deal I think is is a success story we also before that completed a series a investment for social spiel which is a

Vienna based mobile gaming free-to-play studio next on was the series a investor in that transaction and then prior to that we we sold future games of London you guys are probably more familiar with their titled Hungry Shark evolution and hungry shark world which at one stage got to a top 40 grossing overall worldwide not only in the US but in a variety of different Western countries we also on occasion syndicate out angel angel rounds so we've done that with social spiel we've done that with hutch games which is a leading london-based mobile free-to-play Studios they do a number of racing games as well as Gunjan games I'm not gonna waste too much time with this we all know how massive the industry is this is specifically just the mobile piece of you know the sort of ninety billion dollar market that people talk about so

it's growing it's going to continue to grow but it's largely dominated by a ever shrinking number of larger players so so I think family alluded that alluded to that previously but if you look at this list and what's interesting is is in the yellow highlighted row that's the only paid paid for app in that list everything else is free to play and and why did I select that top 100 grossing list from the US well it's the biggest market in the West it's something that we're all familiar with I think it's I think I'm selecting a Japanese top 100 isn't probably going to be that relevant since a lot of us don't really understand a lot of those mechanics or what make those games really interesting however we can definitely learn from those so the rationale behind

it is is us the nice thing is it's just really the diverse mix of cultures diverse mix of influences not only from the east but from the west so it's a nice kind of microcosm of what could potentially succeed for Western developer and some and what's interesting also is you have some European company European countries sorry that out of that top 100 lists have performed quite well so nine titles out of that top 100 were developed in Sweden seven from Finland and and then obviously you see some of the Asian players Japan and then obviously Israel as well and that I mentioned also what is interesting in that top 100 list is you have a number of those larger players who continue to dominate so King has eight titles in that top 100 list EA has seven Zynga has five and then supercell and plate to go have four each so that trend is is not going to stop

that trend will only continue more and more of these larger players will continue to ascribe and dominate and gain more market share then another major trend that I think we all know about CPI costs continue to go up driven largely by some of the larger players especially like machines own King and and other players and different verticals so again everybody knows what's happening you know there's there's there's the industry as a whole and absolute revenue is growing which is which is exciting and interesting but at the same time floor and floor you and fewer dominant players are again you know really grabbing more and more market share and then again couple that with CPI costs continuing to increase and then you have consolidation so now you even have what's really interesting and this year particular which is a record year for M&A is you're seeing more traditional console players buying some of the biggest mobile gaming

players or indeed some of the biggest Asian players buying some of the biggest mobile gaming players so you obviously had Activision which traditionally has has been pretty much noticeably absent from mobile acquiring King which which completed in April and then you've had $0.10 behind supercell so not only are you seeing traditional console buying some of the biggest players in mobile but now Asian players buying into some of the largest Western mobile players so that consolidation of this super large mega deals I think we'll continue but but the but the issue is it's not that many players left to consolidate so what does that really mean that means that a lot of these larger players are going to because of scarcity start looking downstream so that means they're going to be going and talking to mid sized players that they can consolidate and grab more market share so that's why all of this is is really prompting more and more consolidation the other factors that you have also in

play is global stock market indices if you look at them most are still trading at all-time highs so as long as you have very healthy public market appetite for buying into publicly traded companies including gaming companies and those share prices stay high that appetite for buying smaller players will just continue and again these are all really signs that our industry right now is is not this you know sort of grassroots but it's actually become very very mature and so how does this really impact smaller emerging studios ability to raise financing from VCS or institutional investors so again I caveat that I'm not this presentation is geared specifically towards those larger rounds right so I'm not talking about angels I'm not talking about crowdfunding I'm not talking about Kickstarter I'm talking specifically because this is our core focus right is really advising on those larger rounds so VCS and some of the largest

publishers this is a list from 2015 so what's interesting is if you see here Finland this is when a lot of the studios that that you guys are very familiar with raised financing and if you look a lot of those are sort of in the range probably the average is around three four five million and then you have about four deals that are in excess of ten million dollars this is this year so definitely investment activities down so there's only been 11 deals through the end of August compared to 13 last year of course I haven't included critical force since that was only just announced today so actually 12 ish but having talked to a lot of players in Europe the second half doesn't really look that compelling there's definitely interest from a lot of publishers and a lot of VCS to continue to invest to

continue to look at interesting companies emerging companies in Europe but I think unless you have an amazing team unless you have a title and soft launch that is performing exceptionally well a lot of publishers and VCS are going to be hesitant in providing that two three four five million type round which is evidenced by a lot of the people out of the companies on this list so if you go across I mean literally from the top to bottom marmalade that was a follow on fundraising so that wasn't even their first fundraising this is a company that has been around for quite some time already raised money from VCS in the past the same is the same applies to next games Armada with family I mean he's been around and I was assembled a pretty world-class team flexion has been around for some years this was a follow on fundraising Starbreeze everybody knows big public company in Sweden so if I think about it the only true smaller players in here are probably dojo madness and Cody games snow print

was founded by one of the former heads of games at King which is why King invested 5.7 million into that studio since he brought over a core team of of senior King employees so so if you see where I'm going with this a lot of these companies have had that track record that team that that world-class ability to execute that that the investors are looking for [Applause] I think a lot of you guys you know I'm not I'm not telling you anything new a lot of these points remain true from last year Finland continues to remain a pretty attractive market from a investor perspective you guys have fantastic development here you have support from techies you're very transparent and honest and forthcoming with information that you share amongst yourselves which is fantastic which I can tell you in the UK in other countries is definitely not the case

the UK again has a lot of platform and and inherent technology expertise I think that a lot of a lot of services businesses in Germany also have have proven to be quite successful companies like add just in Berlin so a lot of a lot of company app lifts as well that that that have that analytics you a platform type of expertise that they can then provide on to Studios again I think I mentioned some of these points already one deal in the last 18 months in PC online gaming which shows there's there's really very little appetite in that specific sub sector of games and what is also interesting if you go back here to this slide you've only had one deal this year in Europe that had a ten million ten million dollars invested into it compared to four in 2015 so again I'm not trying to pay a negative or

pessimistic view what I am trying to suggest is that everybody's the Vint Wester is the at least the VCS and publishers are getting a lot more selective about what types of companies they want to invest into so who's investing a lot of you guys will know this companies VCS like initial and DN capital in the UK they continue to be quite active and invest and looking for sort of Series A investments across Europe most of the other European VCS will will kind of not really be gaming focused so they'll tend to really dip in and out and and if they manage to establish a very close relationship with a particular business and in the in the space then they'll maybe consider investing because they have belief or or real I guess interest that they forged with that particular company which which actually creates this

funding gap and that's why you're starting to see a lot of these Asian publishers companies like net E's csun's goalie Nexon game Vil continue to come here and do not only publishing deals but also now are increasingly going to be doing larger investment deals as well and you also have a few US investors up front and IDG that that have invested in companies like seriously so again I've said this many times it's it's nothing new what what are the golden rules for raising funding well again having that team in place is just absolutely crucial critical can't emphasize that enough nowadays it's it's not just that team that's important but also the track record how can they have demonstrated that they've executed before have they managed operated published done the UA for a top 100 grossing title or before has that core

team been intact that they managed to break out from a larger player and now set up their own studio do they maintain a commercial focus this is I think one point of the previous conversation people discussed India versus business and again I have my own separate views for that but I think if you're going to talk to an investor they're gonna be absolutely focused particularly in the challenging market dynamics we're faced with now that you're gonna have somebody in your found your senior management team that has a very specific focus on how you're going to monetize how you're gonna generate revenue so maybe it's not even a business guy it's your chief revenue officer or whatever you want to call that person but I think there really needs to be a lot of emphasis and focus on how you're going to deliver a return on the investment that that investor is going to make into your company given given the market dynamics right now and then of course making sure all your admin financially related documentation is is in place when you're negotiating

with with investors is is is is definitely paramount and ensuring that you maintain contact with them that that's when I'm referring to networking skills so yeah I mean again having having an experienced team a world-class team that has all those relevant functions within your organization at a world-class level that ideally have worked before is is crucial I highlight the read specifically because again a lot of gaming companies I've met whether it's Finland whether it's it's the UK whether it's France Spain a lot of them are 100% focused on the game but often lack that that business or commercial person on their senior management team again we already talked about track record the more you can you can provide evidence or credibility that or that you have credibility in managing a a high grossing game is going to be you know absolutely

critical in in the current market we talked about commercial focus again we talked about how do you identify and talk to investors well I think a crucial thing is attending conferences arranging meetings with them sending them frequent updates I mean if you've only met an investor for the first time it's going to be near impossible to actually get some sort of indication of interest and LOI or term sheet from them this is this is a dating game if you will so it's going to require a lot of time that you're gonna need to dedicate to the process getting to know them then getting to know you establishing trust ensuring that you can hit all your milestones and deliverables when you're developing a game so all of these things are absolutely crucial I think as you as you're into this fundraising process and again we mentioned financial competence I again I can't emphasize enough how you know it for a lot of you

if a lot of these things seem foreign seem seem like you're I'm talking Chinese then I think it's really important that you hire an advisor an authorized advisor somebody who understands a space who can really assist in helping you prepare all the relevant document document ation introduce you to the right people manage an entire process professionally I want to add a couple of slides and and and Frederick from tickets is gonna is gonna follow through with this but but I think it's probably interesting to talk about tick bits which which essentially a lot of people would probably classify as an indie developer and and and what I found really interesting is is is and again for a lot of the companies we've been talking about here and what I've heard actually talking to a lot of them is once they raise funding it you know they they get very excited which absolutely they should and they they have some great investors on board

but what I always say is that's that's the time when the real hard work begins so raising funding doesn't necessarily equate to success so a lot of unfortunately studios I've met that have raised funding you know they have a you have a finite amount of time and a limited amount of resource in order to achieve what you're going to set out to do when you've signed that initial documentation with your investor so your investor is going to at board meetings going to ensure that you're providing them with timely and frequent updates on how you're executing your plan so so if you're not going to do that when your funding ends your your your kind of in a you know pickle if you haven't delivered on that on those deliverables on those milestones that you signed up for so so again I think that I think that's really really important that you've you have that clear commercial focus and if you can achieve profitability I

mean the one thing that really impressed me with tick bits and I've known the guys for years was that they managed to do to deliver a growing profitable company not only in terms of revenue and profits over the years consistently without any VC funding and and they Sur and that's certainly a possibility as well so what I often tell some people is you know some particular companies that are looking to raise monies well if you can don't do it if you feel you can actually achieve getting to profitability by on your own without raising funding fantastic even better you have less issues to deal with less investors you're gonna have to not at some stage be forced into an exit because ultimately that's what the investors want they want a return on their investment that they've made into your company so I think that if you can achieve profitability then you have a Meyer it number of options available to you you can decide to just remain you know independent and just do what you do and continue to make money you could

decide to raise money from a much well from a position of strength since you have leverage that you're already profitable so you don't have to do any deal because you're already profitable because you have cash in the bank so you can say no you're not you're not at this you're not you're not kind of in this situation where you're forced to do something because you have to continue funding your company or you could in in the case of tick bits decide to sell and test the market so what I tell a lot of profitable companies at the moment that are emerging continuing to grow stable have titles out in the market that that are performing well is you have this record year for M&A right now it's it's unprecedented it's gonna break every record that that previous offer for quite some time so it would be an interesting time to test the market and as I mentioned earlier in the presentation you have this scarcity value now so a lot of the bigger and bigger players are getting bought but

actually nobody really talks about the vast majority of M&A deals which are larger companies buying smaller players the big companies are the ones that get all the news the press release the attention the exposure but actually most of the time you don't hear about big companies mind smaller players unless you know of those companies ourselves or they're your own company and again you know there's a variety of reasons why larger players would find smaller companies attractive [Applause] and again as I said smaller to mid mid midsize deals will continue to dominate the landscape certainly for the next 12 months in fact if you read most of the independent research out there most industry experts expect M&A to continue so as long as there's not a force majeure event or some crazy event that obviously we can't predict and as long as stock markets remain robust

which clearly they they seem to be then that M&A will you know continue for the foreseeable future I'm not going to touch upon this too much because then I'm going to steal all the Frederick's thunder but but I thought what was really particularly interesting for tick bits as a kind of small indie studio in Finland thinking about why they should sell well they were in this privileged position of not having to do anything as I mentioned so they they actually approached me and said hey you know what I think we're at a position now where we've achieved what we feel we can independently but now we're at this interesting inflection point in the evolution of our company where we think it might actually be worthwhile us talking to some larger players and becoming part of a larger player that can provide us with a lot more resource provide us with a lot a lot more cross platform capabilities as well as cross promotion capabilities to our existing games and and and actually was one of the

fastest transactions I've ever been involved in and and yeah I mean I think I think all parties were we're pretty satisfied with the result so again I think I'm I'm going to summarize very quickly in terms of fundraising flight to quality have to have world-class team successful titles and soft launch and indeed I continue and a lot of industry experts continue to see profitable mobile gaming Studios being acquired the next six to twelve months that's it [Applause] [Music]