The State of Video Game Financing in 2025

[Music] welcome to the novic gaming podcast where it is our mission to explore the business and future of video games we bring together the industry's brightest Builders investors and thinkers to keep a pulse on current events dissect emerging Trends and games share Lessons Learned and have a great time this podcast is also part of novic growing ecosystem which ranges from free and premium research to Consulting and AD advisory services for more information visit [Music] www.nic.edu from AWS Partners to help game developers build run and grow their games these Solutions simplify how you

use AWS making it easier to select the right tools for your desired use case this reduces the time and investment required for game developers to adopt the cloud leaving more time to innovate and Achieve faster time to Value AWS brings over 15 years of experience supporting transformation for game developers including Riot games scopely second dinner Behavior interactive and Nintendo with hundreds of millions playing games build built on AWS for games thousands of AWS partners and teams of AWS Solutions architects around the world your game is in good hands within the AWS Community for more information visit aws.amazon.com gamch or simply check out the link in the show notes now let's jump into the episode what's up everyone and welcome to the Nova gaming podcast I'm your host Alex and this is the interview and insight segment

it is 2025 and since we're all following games we know a lot of the business might be in for a tough year distribution is harder than ever with an oversaturation of content across multiple platforms hardly any new games have stuck around and hung in the top 10 although Marvel Rivals is certainly one to watch so far and many Fortune 500 gaming conglomerates or even large private gaming companies like Riot and epic took the downscaling momentum of the games industry and use this as rationale for continued layoffs and the right sizing of their businesses there was an estimated around 20 Studio closures in 2024 and although there has never been a better time to be a player and a gamer for the industry it's been challenging and this is not only on the studio side but also on the investment side um to recap and Shout out um two of my favorite gaming investment reports convoys and invest game are restate some facts about q4's 2024 investing landscape as we head into 2025 so the first is that deal volume is down at 83 down 25% quot over quarter from a

year-over-year perspective this is a 14% drop from 2023 into 2024 there's a drop in graduation rates to the series a only 11 and a half% of startups that raised a seed round raised a series a within two years this is compared to approximately a 20 to 30% series a attach rate at the macro startup level so not just games um there's lots of funding going into gaming companies crosshatched with an AI proposition um and several buyers have been taken out of play either because they went private got swallowed up by someone else or their consolidation play just isn't panning out um yes we're looking at embracer um and Beyond this there's a general sentiment and honestly dubiousness to games of VC the general party line is games VCS are retreating from gaming content shifting to infrastructure much to lamentation of game Studio Founders and so to discuss this challenging predicament and to engage in a discussion about the state of games financing and games m&a and distribution I'm joined and honored to welcome Spike Lai uh partner at hero Capital uh Spike prior to Hero has

background at trle entertainment which I believe got bought by ESL and then got bought by MTG and then might have been divested all over again but I could be wrong but hero capital is a venture fund that invests in games metaverse Tech Esports and digital Fitness and is currently deploying fund two which we'll talk a little bit about later today so welcome to the Pod Spike thank you very much for having me Alex I appreciate there's a lot to to talk about there from from that opening and I'm really glad that you've opened the Pod with some of those quite somber stats yeah yeah yeah and I'm excited to talk about it too I think it'll be interesting to see you know how hero and how you are thinking about it um and so I gave you a little bit of background there but I would love for you to tell the audience a little bit more about yourself and also could you tell us why you joined hero Capital yeah that's great uh yeah very happy to um so I'm one of the partners at hero um I started out in games actually in games publishing uh for Warner um and I I got

to work on some really cool stuff there like Mortal Kombat X Batman Arkham Knight you got some trophies and some signed comics and things in the background from from working there and that was sort of How I Learned the industry um I then went to ESL um which actually got bought by Savvy for for for 1.4 billion a couple years ago um I I I I helped sort of in the midstage of esl's Journey um running few territories and um continuing that kind of publisher Focus um managing the relationships with game Publishers and um I was very very lucky that um six years ago now which feels like a lifetime C in Livingston was setting up hero capital and asked me if I'd come on board and join and and help shape and build a vure capital fund uh something I had never done before or um probably should have ever been allowed to to do but uh here I am

[Laughter] excellent okay um and yeah I think I would love to talk a little bit more more about hero sounds like you had this background in games and you basically went on this new adventure to to you know work in games VC um and before we kind of get into like some of the heavy the somber stuff that we were talking about in my intro um I just want to learn a little bit more about you know you and your observations while you've been at hero capital and about hero in general so maybe we'll start with hero um I am understanding that you're deploying fund to which is a $340 million fund um I would love to learn a little bit about the the funds Focus um and you know how much of it has been deployed and what that Evolution has looked like for the firm over the past couple of years yeah very happy to um so we're Venture Capital Fund in games obviously uh we have do a little bit of digital Sports and um some other stuff as well but a lot of it is games and you know we are operators so

um we you know the three founding Partners seran Livingston Luke Alvarez and Cherry Freeman have all built and exited businesses themselves so you know when you ask about our focus and our approach it's a little bit of we like to think that we understand a little bit of what the founders going through and it's quite a lonely journey and it's a difficult Journey um and so you know we we approach it more as business partners than we do pure financing tools or or or financial analysts they got some great analysts on the team um we are deploying fund to at the moment actually you know we're thematic fund so while we probably set out to do seed in series a we see ourselves going a little bit earlier in some respects where we want to get you know where there's really talented Founders and we want to help them accelerate or shape their business but also we've gone a little bit later as well and done a few series B Investments

a bigger check so um we like to think that we we know enough about games to kind of be a thematic fund um and also you know you you alluded to earlier there's this great Universe around games as well right games is a lot of the time the pointy end of the spear for some really great technology or some really creative ideas or intellectual property and you know you see that with the boom of Nvidia right in in the world today right started off computer Graphics is now leading the charge on artificial intelligence and that really Smart Computing so um we really think of games as the singularity of great technology great intellectual property and actually to be really honest Alex that's a really fun place to be actually and to be able to help Propel those Founders yeah I mean I definitely don't dis I've always

said games is a great intersection of art business and Tech um and so I think that the the proposition of where that is and where you guys are sitting in your and your um thematic fund is is very interesting and we'll actually talk a little bit about um how the Thematic funds or the specialist funds for games are working out um later in the conversation today but um just to get the facts I guess 101 um you know it sounds like you had three General Partners who founded the fund uh how big is the firm today like in terms of account um oh great question I think there's nine of us although I think we get someone would challenge me but I think there's nine full-time um and we have some really good Specialists So within the full-time deal team uh there's just nine of us um but where we need to we pull we they really excellent Talent so on the blockchain side of things which I know a lot of funds have been thinking through and we've certainly been thinking through quite carefully over the last couple years John Jordan for example is an advisor into the business he founded blockchain

gamer um founded co-founded Pocket Gamer before that so try to pull in expertise where we we don't need full-time sort of um expertise but in general we're a small team of nine people awesome okay so you got your team of nine you're deploying your second fund um and you've been at hero now for about five years um and before I move on to the state of games financing uh I want to kind of ask you maybe like a a metaphysical question um which has been you know what do you think has been a critical shift in the industry or at hero over the past five years you know something you joined hero in 2019 what was something that you felt was unequivocally true in 2019 that has generally been disproven over the past five years if anything yeah well I I think first of all the first caveat there is I feel I'm still learning my craft I feel six years into a fund cycle um is not a full fund cycle C and I

think until you've lived and breathed a full fund cycle um you don't really know very much yet or you're still learning your craft and you know this goes back to you know four or five years ago in the heady Golden Days of venture capital for games uh it was PVP it was a PVP sport right because um you com there was so much supply of capital there was so many funds who wanted to you know all writing giving out term sheets and there were so many found that were were coming up to meet that Supply MH um you were competing with three or four funds in every deal so the chat the the challenge was could you get into a deal could you lead it and that had some pretty NE that had some negative effects right because it pulled up the valuations it it reduces it reduced the structure it there was less due diligent and you know a lot of the if you think you know a lot of those big names of people and funds

the people and the funds that were doing those deals not all of them have are still have stuck around right to see the outcome of that and that's all well and good getting into deals giving term sheets giving cash that's just one quarter of what you've got to do you've then got to help those companies right you got to you got to sit on the board you got to be the business partner youve got to be the sparring partner you got to help you've got to challenge them and help them and that means being quite candid with people and it means having a dialogue with someone that transcends just we're best mates we go out for drinks we gave you some money that's it it's you know you go have some tough difficult commercial conversations with people and that's a skill set of its own too then you've got to then you got to exit the business then you got to sell the business right you got to exit the business you got to help that founder realize the opportunity and again in a world where embracer is buying a lot and

they're giving money to their Acquisitions to go and buy more stuff you again you're in this kind of it's not it doesn't look too hard right looks quite easy it's actually very hard uh and then and then you've got to return the capital to your investors you've got to actually give them cash right the fun stuff of telling them what great deals you're in how exciting the progress is going like that that not too hard right but when you got to turn up and say oh actually this is how much cash you're going to get and it's not the reality which you know because I think a lot of funds were doing these these quite big deals at quite big valuations that and businesses that aren't around today um only when you've gone through that whole cycle I think do you have the the proper perspective on the craft of venture capital and I think that you know we're still it's young

industry because of that yeah well I really like how you laid that out and I think that that's definitely true and there are all of these stages and so I guess there's a humbleness to admitting like I haven't done my full 10-year fund cycle um and so actually I think this brings us to the topic of games financing um and we'll talk about games financing and also the state of gaming VC specifically um and you kind of alluded to some of these these topics here but I know that you gave a talk at dice Europe on games financing you know what happened and what happens next um you know in a few short bullets kind of like what were the key takeaways from that talk for you yeah I mean a few short bullets there was too much money that was being invested in games and the reason for that was interest rates were very low people were looking for returns games had just come off a huge covid height and um it looked like a really good place to be um and so you had had all this money coming

into um the sector you had and around that you know we talked about the the high valuations for example being PVP sport at the time you know the sort of deal making that was happening was there's this dance that that investors do with Founders and the dance goes like this the founder wants to give away 20% of his business and that's the implied wisdom of venture capital right and I don't think that's right I think that percent of the business you give away could be more right or less and it depends depends on how much money they want but but they but the first part is the amount of um dilution they they want take or they think they should take the second part part of the dance is the amount of money they need to make the game games are becoming more expensive to make and um the asks from Founders were were quite High 5 million 10 million 20 million not unheard of and so you have

an implied valuation there based on the founder wants 10 million he's going to give away 20% of the business because that's implied wasn't the valuation 50 million there's your there's your triangle right there and as a venture capitalist you need to return um a um multiple of the invested Capital to your investors and they're expecting a 5x return that 38% irr that's the kind of the gold standard that's what you want to return and so that a and also sorry I know these aren't bullet points hope this is right Alex but also the um I'm just sort of mapping this out in my brain in real time also the um um you know that some businesses are going to fail so you're not looking for a 5x return you're looking for a 10x return because some will fail and therefore you can give 5x to investors they're happy everybody makes profit you raise it on the fund the problem is that business that you you valued at 50 million couple of guys with a PowerPoint with an idea to make a game raising 10 million that has to be worth 500 million half a billion dollars

in8 years because a fund cycle is eight years and so when you're making those bets that's a very unrealistic expectation and the best example of this and I'm sorry um to name names I I will name names um is it was 1047 games right who were making split gate big you can go and Google it now big splashy press release light speed invests 100 million into 1047 games with a $1.5 billion valuation and under the time you're looking at you go am I an idiot why can I not I can't see how this matter works if you're investing a business at 1.5 billion valuation today that business has to be worth seven and a half billion let's give the the best case to your 5x return well scopely didn't even sell for 7 and a half billion I think it was 5 billion off the top of my head 5.9 or something like that right the odds are very very long that you're going to be successful for

also a first time founder first time game person running a game Studio how how how does that how does that math work say a branting we've got off we've got I can't even remember the question but that was what it that last four years that that's what it felt like right that's some of the symptoms of all this stuff that we're talking about and and why the drop now feels so severe we've come when you come from the top and you have all interest rates came up everything comes down and I feel I feel really passionate about it but I also feel angry about it because the people that are suffering the people that are losing their jobs and in the mass layoffs that are happening in the games industry and really struggling at the moment are the are UI designers and the graphic designer and the coders and the programmers who have mortgages to pay rents to pay and they have no job security and and and they're losing their jobs because of it and and it it it it's really it's you know it's

good that this macroeconomic cycle is playing out this this this this this is playing out because it was unsustainable but when you look at it and real people real jobs real people's families it's um it's it's hard to watch really sorry well no no no I mean you're not wrong about that I think like you know you started straying into the territory of you know specifically the state of games VC and the challenge of the predicaments of the funs structures and you know some of those auto corrections that we've spoken about um but B out the name of the can you bleep out the name of the fun listok um no they're very very good friends of the Pod uh so I don't know if they're sponsoring this episode I don't think so looking at the Slate I think you're AWS this this but sponsored by light speed um but um you know I think that you know you pointed out two things interest rat you know perhaps a little bit of overseal

and perhaps maybe a little bit of an unrealistic perspective you know of actual game development cycles and how long it takes to build a scopely size Activision Blizzard size business in games which is not you know four or five years um and so uh but I guess the question is that you know and this is more going to the state of games financing versus games VC but you know I did a talk at UCLA and our topic was financing Alternatives in today's gaming Market we sort of laid out the options for those wanting to build a games content business and honestly the options are very sparse um until gaming VC um it was basically mostly limited to Capital and project financing versus Equity deals um and you know you can't go get a bank loan for games like you usually don't take on debt to to do games maybe like if you wanted to open a laundr mat business you could do that um and so I'm just curious you know given that you know you have this perspective on games VC right um and there's obviously like also a pullback in Publisher Finance saying you know what do you think is the founders best option

right now for if they wanted to raise money in games in 2025 yeah look I think I think VC is still a great option I think it's a great option I like it for the investor because theoretically you have a few shots on goal the studio doesn't need to have a hit on the game that you're financing it could be a few games down the line and that typically is the case cuz it's a hit driven industry it's a creative industry you can't guarantee a success I think out the the benefit is you know it's it's it's not as good time to be a founder of a game as it was four years ago it's still not bad right because you know who the investors are you can have a pretty good conversation with them and actually one of the benefits of all this is there are less Founders asking for money so while the amount of um funds that you know that are sitting on their hands now has gone up the amount of Founders that are trying to set up Studios has also come down so there's there's a bit of a

balance there right you've got better quality on both sides I think so that's the first thing I'd say is don't don't discount VC you know go and go and get it but maybe temper your ask a little bit more the the second point is there are games financers who are being more creative now with funding methods who are exploring things like project financing or debt or um um other more creative methods to get Capital to the founders now what that means is the founder needs to be more Scrappy and needs to do more with less and that means grants it means you know we have a great thing called BG in the UK which is tax relief which you can get back and you can get factoring um in you know um on that so you get it in advance and there you can be really Scrappy and really good um but I agree with you it's not the you

know kaleidoscopic Orab borus of funding that there was a couple of years ago yeah and I think um it's interesting because I think and you know calling back to that discussion I think we actually you made a comment about this um and when we spoke a couple weeks ago but you know about how Capital financing was quote better for games there was more checks and balances and more control um and to some extent I think I disagreed with you and so I would love to kind of rehash that conversation on air because might be interesting to our audience but um you know when we think about Innovation and who's going to fund it in games right there's a retraction on the publisher side to basically invest in anything in in a new IP right it's basically too much risk for them to basically make something new you know you're going to make Call of Duty 600 um you're going to make FIFA you know eight rather than invest in a brand new organic IP and that's not always true but on balance right like that's the way the industry is Shifting it's the same Trend that happened with Hollywood and SQL squel itis right um and so on the

Venture Capital side you know you basically were able to fund new gaming Studios who have an eye for Innovation for new Mechanics for something that they want to do that's disruptive and and new and so I think you know and there's been this idea that there's something you know VC backing Studios doesn't make any sense because of the fund structures and the returns which we'll talk about a little bit later but um you know my I guess my perspective is that VC is a great method of financing because it actually enables innovation in the scene to thrive and grow um whereas Capital financing is a bit more restrictive given that you are building towards contractual commitments and deadlines Etc um so I guess like what's your kind of reaction to to that argument yeah I I I think that's I think it's really hard because the games industry is a hit driven industry and I think if if you're if you're a VCH

Capital investor and you're investing Capital into a student it's using all its capital to try and launch a new IP the risk is very very high the reward is is great but the risk is very very high but then we get back into that thing we talked about earlier about the amount of money it costs the amount the amount of money and time it takes and costs to launch a uip versus the implied valuation versus the return potential right you get stuck in that mental Jiu-Jitsu um I think some funds and Founders are working with Publishers a little bit earlier to try and offset that risk together but you know if it's all right with you I might use an example of one of our investments um which was Keen games um uh who have had you know huge success last year with him shrouded in in Early Access that was a team that had been making games for 20 years together they had made ports for the Nintendo DS

they had made you know this is real you know in the weeds team they worked with a games publisher um to launch portal kns and portal Knights had over three and a half million downloads now the terms that they had agreed with that publisher because of where they were as a stew at the time were heavily skewed in the Publisher's favor and they didn't managed to break out from that and so when we looked at that investment you know the execution was drisk because this is a team that has shipped games before has shipped a successful game before they had a bold idea that built upon the voxal based technology that they launched for portal Knights and so they had a really good building system in that and they could demonstrate that but they wanted to make something that was more mature bigger and in the open world survival genre which was doing really well so that was a uip and that was that is a great example of how I think Venture can support um a studio to go on and be really

really successful but that isn't I think how most people think of venture capital I think most people think of it as a new team or a super team of people coming from you know who breaking out who've got a new idea who want to launch something new and make it happen and and that's the sexy stuff that's the kind of like you know this is the this is the cool stuff this is a you whatever whereas like looking at teams that are tried and testers have been going for 20 years and haven't quite had a hit that I think a lot of people have overlooked in the past when you think of venture capital and and that I think is a really good application of venture capital H okay yeah even in even in that you know as they were getting ready to self-publish and launch there were a lot of discussions between the founders and hero and you other investors of should you self-publish or should you work with a publisher and thinking about the the the the cut of upside versus downside versus risk versus all that sort of stuff yeah yeah yeah absolutely Ely and I think like I think you're calling out

a really interesting thing is there's kind of like two different strategies here I think um there's definitely been you know some sort of I guess attitude voices in The Ether about you know having VC's backed a lot of EX big AAA Studio Founders um with you know who had who had fantastic pedigrees but may not be well equipped to start a new business from scratch um and here you're talking about a group of guys from enshrouded that had proven traction to be able to build something had launched multiple games together over the past two decades um and I think that these are kind of like you know two opposite sides of the coin you know thinking about you know what zingo was with you know being Mark Pinkus being like a firsttime gaming founder right and building one of the biggest gaming businesses you know are objectively that actually could be considered a venture-backed hit um and then you have all the way on the right you know a bunch of people that have worked in games their whole lives and know how to execute and know how to build great products um and so and we talked a about a little bit about this you know a couple weeks ago but um uh a

couple years ago I heard adem yaho who's the founder of base 10 Ventures talk about um his three exits prior to becoming venture capitalist for those don't that don't know um admi is a three-time latam entrepreneur um ended up starting a venture capital firm after being a successful entrepreneur um he ended up selling one of his businesses identified to work day and there's like an interesting story about how he pivoted this from consumer Enterprise um and I think that really demonstrates this of founder flexibility to find product Market fit and so I think um you know how do you Gro at least at hero the needed necessity of knowing that the crew of people that you're backing um Can execute the gaming Craft um but also acknowledging that they might be so hypers specialized that they might not be able to Pivot to another sector um and so tldr their unique ability to deliver against the craft of game making might also inhibit their ability to Pivot in a very classic Silicon Valley VC way um what's your reaction to that totally

right and you know one of my biggest learnings about Venture is that ultimately it's a people business that you are investing in people you are a business partner to these Founders to these people to these to these game makers and I totally agree with you that being great at making a video game does not make you a great founder business leader startup founder right and but there is a crossover there's a Sim crossover now the problem is it's very hard to find out whether someone how they react under pressure or when things aren't in their favor what they do do they melt do they you know do they rally everyone behind them do they

go you know double down and make something happen do they grind through and actually goes back to that point of the CRA you know learning the craft over the last six years for me is interacting with all sorts of different people and having those and and figuring that out and the go and you're totally right the golden sort of the perfect founder in games is someone that can do both who can you know have the the foresight the wisdom the grit the determination the I cannot fail mentality and is excellent at their craft and those people it takes a bit of time to figure out who they are once you work with them it is it is absolutely a pleasure MH yeah and I think like I think that's the the the question there is that you know I think there um it does it is a people business right and

it is hard to understand you know what a team is going to be like and as that team evolves over time how they're going to react to certain circumstances um but I think that's right and I thought that was kind of an interesting more like academic way to look at the gaming VC landscape um as it's quite different from I think a lot of um some of the other traditional SAS VC and it's probably more to something like biotech um you know long R&D Cycles long time for return and basically like hit on lawn or you know this drug doesn't work it's not FDA approved you know it's just you know Sunset and close the business um 100% And you brought up earlier about the you know the fact that um the rates of uh game studios that are then you know the funding from C to series a etc with the traditional business there are good there's Revenue there's metrics there's a product there's stuff you can see before you go to C to A to B to C whatever and I think one of the biggest faults of of the bench Capital industry over the last couple of years was the

part funding of game studios of we're going to get you to Vertical slice we're then going to get you another 12 months of development then you know you need another six million you need another 10 million you need 20 the idea that there's always going to be you know it's like a game of musical chairs I don't know if you have that in America but we have a game of musical chairs but you know you're hoping that the When the Music Stops there's going to be a chair for you to sit on if you're you know and that goes back to that point about the you the industry today versus versus um four years ago and we're still see I think we're still seeing unfortunately for the studios and the founders and those those people we're still seeing another six months I think of Studios that were partf funded out now looking for funding they will not find that funded and and a lot of them are having to go to Early Access without the proper marketing budget without the proper development tool the products not ready because the music stopped unfortunately yeah yeah and okay actually that brings us to kind of our

next topic which is the state of you know gaming VCS um and I think uh you know before we're gonna we were GNA we're going to walk through one of your Investments um at at hero but before we kind of do that you know because you mentioned this topic of musical chairs I'll kind of jump forward and go to another question which is you know a big challenge for games VC's um right now is kind of the downstream funding problem where you know many folks sit at the preed few sit at the a corporate VCS and some bigger generalists but but essentially like every Studio like you were saying faces that existential crisis of Downstream funding risk um you know where they might be coming back for the series b or the series C you know after vertical slice to get to marketing to get to Early Access Etc um who in your mind um ideally would fill that Gap right it's something that's currently like not necessarily being completely satiated but um paint your ideal picture who who completes those rounds for game studios or should they just not exist at all I think I think the I think the angel round is a really good that is a

very healthy ecosystem I think that works really well you know we we're fortunate that a lot of people in the games industry have made good money um in the UK especially um but um I think all over the world there's good benefits tax benefits to being an early angel investor in businesses and therefore I think to get the first couple hundred thousand into a business um it's not super easy but it's relatively easy and I think that works really well especially in the UK I think um that seed stage I think you know that bet that you're giving Studio enough money to get to Vertical slice so it can get a publishing deal or or or or or do that I think I think that's still a bonafied and good way to look at it but I think the risk is much higher now than it was before not the risk is actually the saying that that the product ships and um is is successful uh it's just more

risky now that the studio won't get a series a or series B from an nettis or a 10cent or a strategic or whatever right because those strategics were were plugging that Gap right and if and if you look at those strategics in particular um and this is obviously just scarless gossip and um uh I don't know anything about the inner workings of those companies but um they are both quite um publicly pulling back from from the scatter gun strategic approach that they were take and they were funding a lot of those game studios at the series a point so that that's dried up you talked about the Publishers drying up as well you know less of them a lot of Publishers I know as well are saying well you know we're maybe we're not funding development anymore but we're going to do um marketing support and things like that that they're trying to be more creative to make their you know Cash go further um so so goes back so so what I think so so all this is playing out so what does it mean I think it means

that Founders now are try are having to and I think that's a good thing do more with less be more creative about game modes be more creative about how they make games and we haven't used the AI buzzword yet but everybody can ticket on the old Bingo carts now but um the uh using artificial intelligence using um more kind of structure on how you build stuff um and and getting to getting out earlier to getting Community feedback earlier building your disc all that sort of stuff is now becoming really important and that I think is really healthy for the games industry okay so your answer is basically like there is no one who's gonna plug your series b or your series C you have to do more with less um and so I guess uh this also leads to another perspective about um and I would love your thoughts on this and then we'll jump back to talking through you know the the portfolio company for hero as our example here but um again want to get

your perspective on a framing like this and this is I think emblematic of how some Founders feel some Founders who are raising today feel there are impossible goalposts and gates to funding that have been impractical for the product that they are building um as someone who's raised a series a with my own team and been out there boots on the ground I can admit that um the bar like you said is now extremely high you know it's for small team and low financing um and so founders they have to have proven so much before they arrive at a VC and there's kind of a frustration that there's all this Capital that's been raised in The Ether for games but it's not being given to those that are making the actual content that's the lifeblood of the gaming industry what's your reaction to that founder perspective that I think is very much kind of also floating in The Ether um on those seeking funding I think first of all the provocative answer is I think there's a sense of entitlement among Founders based on the last couple of years you know oh

it's not fair that studio raised 20 million right and didn't even you know nobody didn't a due diligence on them and why can't I raise 20 million right I think it's a bit of that and that that's the Investor's fault as well for doing we've talked about that but I think there's a bit of that and I think however and I think there's also a bit of there are investors in the market today that do not have Capital to deploy and are therefore Tire kicking they're therefore instead of saying no I'm sorry we're not going to do this investment they are saying oh come back to us when you've got some more metrics come back to us when you've shown a bit more this because it's if you think about it it's not in the vent the investors or the Publishers best interest to say no because if they say no they lose that opportunity forever and if for whatever reason opportunity X comes back and says oh guess what overnight ninja streamed us and we've got 6 billion wish lists then the investor can say oh ah yeah we're GNA do that deal now right so I think a lot of it is poor discipline of

the investors to just not say no I'm sorry it's not for us um but but I also think the bar has G got higher and unfortunately um for Founders uh the you the expectation from the investors is that they do jump through all these Hoots and um is that a good thing probably but do I agree that one or two lightning and a jar opportunities will sitp through the net that way yes probably H okay do that helpes that answer your question or not it answers the question for sure um I I don't know how many Founders would be happy happy about it or I'm sorry Founders I'm very sorry but um it's it's an interesting perspective and again like let's we're gonna bring this back to you know because you guys are sitting on the side of the VC right and you pointed out all of these challenges to to games funding um and I think I kind of want to walk through a hero investment that I think might be a good way to Anchor this about like okay so you said all these things

you're an investor like what are you going to do now in 2025 um and so one of your um I think sorry sorry I guess what you guys would claim is one of your most successful exits so far has been snow print um MTG acquired a 70% stake for 1.x multiple on 2023 revenues um the remaining stake I think is supposed to be acquired over the course of 2025 and 2026 based on future valuations and performance etc etc um approximately to 35 million in USD uh for revenues in the full year of 2023 um and so 1.x multiple on that is around like a 60 million cash consideration I believe that the formal price was like something like 65th 650 million s which is like 60 million USD right um feels a bit I think that's quite right it's a bit low okay I'll double it was quite complicated it was quite complicated structure okay well I just multip so that's how for the audience that's how I arrived that math 1.x multiple on

35 million revenu 63 million cash consideration whichever it is it's somewhere in the ballpark of let's call it sub 100 maybe right yeah that's right all right sounds good um this was done out of fund one which I believe is around 130 million for you guys and the predicament here is that this is actually a huge success case for you but this doesn't return your fund um at all right um and so how are you guys thinking about that right I think um and a question I guess that has been come up for a lot of games VC's fund is that the funds themselves are too big so let's just say you had that that that let's just call it 60 million if you had raised a $40 million fund and you'd made that bet and you had the same obviously equity percentage that would be a huge success um and so yeah we I'll play out the logic um and so I guess the question is you know for hero um you know using this example as an anchor point you have had a successful exit that's fantastic um but what do you do to you know fix get get get fund one to actually like return cash back to your LPS because

even though you've had the successful exit it's not enough to bridge the gap yeah that's right and I think I think a few things first of all in that time period um and part of the decision you make as as an investor is about timing LPS were delighted to have cash back right so that's one of the considerations um and a lot of them were like you know we invested six or seven funds we haven't seen a single penny in years it's great to have some cash back thank you very much the second point to make is um it's about in price and that's really important and and and and that deal was you know so first of all Alex Patrick uh John will hel that team at snow were an excellent team they had spun out of um uh king um their first game as a soul guard they they had been invested in by King and this is a really great point

because they were struggling to raise money and know one of the reasons they were struggling struggling two the two reasons they were struggling to raise money at the time was firstly um King had invested at a high valuation and and and that sort of that a lot of people were just taking it oh it'll be a flat rank or you know and it was a very it was a big valuation and most people were just like couldn't do the mental to figure out to negotiate that and we did negotiate that and so to your point in price versus out price actually was very nice the second point is um the studio had not been successful with Legends of Soul God it had made lots of million dollars um it but um it wasn't a super hit and I think a lot of investors were like this team can't do

it that was a failure this is a distressed asset this isn't kind of a team this isn't the the exciting sexy bit where you're dreaming about how many billions of dollars you're going to you're going to make um but what we saw um was that this was a team that had now shipped a game together as a team had had built a techstack had delivered a game had run the live operations and had an idea now two other games um and so it it it was a Down Round um on on what they had done but what they had done before and that was difficult for the founders to get to get around in that period and I'm sure Alex won't mind me saying that you know him and I quite contentious some of those conversations but we I'd like to hope that we're very good friends now um so we gave him money the next game Renard um was really interesting it created a new gameplay mode so it was hex-based tactical gameplay with the um

character uh leveling up collector uh piece in the side um and what what the game was showing when they launched it was the audience is engaged but the CPI is too high we cannot buy an audience at the right price and they were very thoughtful and they said we think the reason for this is we have made a new IP called Renard we've had to make a barbarian a WI bch or Wizard and we've had to give create all these characters so when we create when we put out marketing materials people like okay it's a witch it's a wizard it's a goblin whatever cool um they then licensed they then did a licensing deal Games Workshop for Warhammer 40K and they used the same game engine the same mechanics and they put the Warhammer characters in it and now your user acquisition car cost comes right down because you know those characters you're invested you're playing Chief librarian tarious you're playing an orc Soldier and so that that

was when the engine got working really was successful and hence the exit to MTG okay yeah I mean it sounds this is again like from the gaming from the game Studio side a huge you know a path of success and yes I remember actually like uh because I used to be at Activision and on the king side you know i' roll up King in the on the p&l and soul guard was in there and you know arguably compared to Candy Crush got Legend of Soul guard not the same performance um so I I you know I remember but it's obviously like a great story of resilience and pivoting and you know getting IP to to bring down um you know cost costs for installs and UA costs and things like that um but I think still the question is is that um given that this was like you know an exit for you guys um and I guess this is a little bit of an existential question for games VC but like you know for many of the games VCS that rais large funds that might be in the tune of you know your second fund is around 340 million or something like that um there are ones that are even

bigger than that um and you know what if your fund is basically like too big like can you rescale it um do you return the money to LPS um I guess that's kind of a question is that if you can't have Returns on a fund that's that big how do you how would you re architect it is that even something that you would consider yeah I think um firstly our fun is a little bit smaller than that although not not by huge orders of in magnitude um you rais a really good point do I think investors would ever return Capital to LPS I I think they'd have to be very courageous to do that because yeah you won't get your management fee you're not going to get your management fee right and when you're on fund five or fund six and your funds you know three4 of a billion dollars I reckon that probably feels pretty good and you know the the other thing is nobody marks your homework in

venture capital for 10 years so right you think about the funds we've got some funds now that are on fund five or fund six who have not you know got to the end of the F fund cycle for fund one right and so you're playing on this momentum um so I you know I think good investors will be prudent about the way they deploy Capital how they deploy it a lot of funds you hero especially you know we hold back 50% of the fund for follow on investment um and that is about riding your winners really and giving them more Capital to be more successful um but I totally take your point um that uh if funds come return what do they do and

you know I S you know some really good um data that I saw was that fund vintages early 2009 sort of vintage funds four years in they had returned the fund so four years into a 2007 2012 vintage something around that you can correct me later um by four years in they had returned the fund and everything else on top was gravy over the next couple years 20 sort of 18 to 2022 four years in you're at 10% of the fund has been returned that's a really Stark difference right between how successful VC was then and now and in games I think a bit of that is you need a macro Tailwind you need a big macro tailwind and so if you had a venture capital fund and they were very very rare 10 years ago in games there are very few people doing it and and I really admire those people that were right they regard with people like that um you were riding the macro Tailwind of

mobile and so when you invested in supercell super early the B yes supercell did very very well but it couldn't have been that big without the iPhone and without games on on mobile right and the question the challenge to investors today is where are those macro Tailwinds and where you know how how where is that unfair advantage that you're getting um based otherwise you're just betting on great businesses doing super well in a mature environment right right and actually I think that is another question is that for you know like you said very rare to have someone been doing gaming Investments back in you know 2012 2013 um but a lot of those that were still doing it were at large generalist funds A Benchmark besser um client of Perkins Etc um and so then there's the question of like before games VCS VC so specialized you know thesis the Thematic funds like you had spoken to I guess I would call them

specialist fees crop up for games in about 2018 2019 Etc um lots of people are quote investing in supercell because they think it can just be a good business right at the generalist VC level and so there's been many arguments basically very much recently that games shouldn't be housed in game specific funds and they should fold in with other sector diversification across consumer other Tech financial Serv Services Etc and basically do it at the generalist level um what's your perspective on that argument I'm not sure I agree with that and I think there's two reasons one I think is access I think the the best deals in games are the ones where you have access before anybody else does when you know the founders when you know how talented somebody is and you you help them shape the the business ask and what they're doing and if you're a generous you don't know the games industry you don't have that Network or those

connections you you you just add of luck I think MH um I think that's the first thing and I think the second thing which is kind of related is like especially over the last couple of years and you know we haven't mentioned the crypto Boom for games blockchain games it would like there was a lot of snake oil being sold it was very hard to separate what was true in what was good versus what was just a really shiny PowerPoint presentation right and I think I think I'd like to think that um you know people who really know games can can can can sort that much quicker than somebody who's just really talented with Microsoft Exel yeah yeah um and I actually think like I'm conflicted on this one at at from the personal level as well because I think that the the counterargument here is that especially as the individual investor one of the things you're looking at when you're joining a fund is your basically is

going to be your your fund record right you will be judged off the performance of the first fund that you deploy and the deals that you lead um and potentially some perspective is that if you go to big generalist fund that doesn't know gaming or isn't close to it you also be won't be able to get too many deals across the line because there's just a lack of understanding of the space and so then if you can't lead the deal and there's never anybody behind you you know yeah you're leading gaming at XYZ consumer VC but you know you've done zero deals because nobody gets what it is um and nowbody be PR that's changing um but I thought that's an interesting perspective as well is that you're more likely to get a gaming deal across the line at a thematic fund because everybody is there like you said kind of knows the space and understands it I think that I think that's right I think your point earlier about the size of the fund versus the how long it takes to return the fund Etc is really valid as well because obviously generalist funds they're much bigger right and so in general so you need sort of that bet if you're only making one or two bets in games as part of a diversified strategy

those have got to be really G to hit yeah um okay so we're going to do one more question on games VC before we quickly jump to distribution because we're um obviously we've had such a like a robust and loquacious conversation but um we're we're pushing up on our time slot here but one of the big themes and we spoke about this earlier was you know people have noticed a retreat um of Gaming VC to infrastructure um in Q3 of 2024 platform and Tech investments in terms of dollar amount actually outpaced content about 500 million to platform and Tech and there was about 250 million into gaming content in Q3 of 2024 um and you had an interesting perspective on this um I'm wondering if you can share it again with uh with the audience I'm gonna try to remember what I said but I think I think it if you forget I'll remind you yeah yeah I think I think look there was a lot of a lot of invest into uh games infrastructure sort of

plays and I think a lot of them ended up being quite thin or quite focused pieces of tech in the stack um and some of them were doing pretty clever stuff right like um back end as a service and things like that there are some some great examples of that now whether or not they're brilliant ideas and I think there is something there to them for sure um they were relying they were event Capital funded and their business model was you know once you will work with game Studio once it launches the game we'll take a percentage of the revenue and um will do really well out of this now the problem is that all the studios that they were doing deals with were also Venture Capital backed game studios who were like oh yeah no that sounds great we need a back end let's do it we we'll sign the deal how much you taking yeah perfect uh let's go obviously that's I'm being a little bit um prous there but um

the problem is that those Studios now as we talked about aren't able to get their funding weren't able to self-publish weren't able to get a publisher didn't do super well and so all that potential Revenue that those infrastructure companies were banking on has fallen away um and they were very competitive when you venture backed you don't need to make commercial deals on day one because you're nicely funded and the money is going to come tomorrow so you know I think I think a lot of those businesses are struggling I think probably a lot of the value proposition was probably a little bit thinner than um was um the expectation was of of what it would fulfill and I think the business model is just hard you got to convince the game Studio to give you a percentage of their revenue um and actually I think when people think carefully about that um that I feel super happy to do that yeah and I think basically what you're calling out is

that um the pivot or the retreat to games infrastructure isn't actually fully wiping away the risk because the customers of the pick and shovels are still the games VC back Studios and so you still have that dependency risk although it sits slightly Downstream and perhaps there's a bit more advantage of you know the different the platform infrastructure business model versus being a completely hit space driven event with the the gaming IP and new new title you still have those dependencies um and I think that's actually interesting and so I guess um you know for hero uh what do you think you'll start looking for in 2025 if it's not necessarily only infrastructure and there's this challenge with games content yeah I think I think we're all we're always committed to games content I think you know seran Livingston has made a tremendous career not out of just in game studios but as an investor in games right and I and and I am a super

passionate gamer and I am very privileged to be able to work in the games industry and provide funding to people making content that's always going to be part of the puzzle I think you know in terms of infrastructure I think there are great opportunities there there are great businesses that are doing really good things and I'd like to think that we'll be participating and supporting those businesses um you know we've also had a lot of success in the sports technology um um sector we believe in the gamification of the human body the gamification of life um and um and sports and whether that's sort of carve which is sort of the gamification of ski um and you know instant on demand lessons and that state that data and statistics and leaderboards on in the real world like that sort of stuff's really cool and really exciting and I I think goes back to that original point I made about when we talk about games and you know games now touch so much of

everything but and being a thematic fund like we want to seek out just great cool stuff that people are building that can be very very valuable and any shape or form we're open to it all right nice okay and so now we're going to move to our um our last topic I think we're going to skip distribution just simply because we're running short on time here sorry I'm sorry I'm a bad guest I'm sorry it's all it's all good this has been fascinating um but I want to talk a little bit about maybe one question on m&a right and so my perspective is that and I guess maybe from from data and from the news Etc is that the buyer scene for games and that's one of the challenging the you you describe the four pieces of the journey you know like there's the getting the founder then there's the guiding them then there's the sale part um and then there's returning capital L piece but the sale part has been challenging for games because the buyer scene if anything has shrunk right it's the same big players it's Sony it's Microsoft Etc and actually many of the buyers have been taken out of play

because even bigger buyers have eaten the middle stage buyers um and so I guess my question to you is that who do you think will buy gaming businesses in the next five years um like as in 2025 who's like your ideal buyer um and how's that going to change over the next four years yeah I I so obviously the big lot lot of people who are very splashy have come out I am you know what has been really interesting in the last couple of weeks is four or five companies who I did not think of as serious buyers have been coming and saying we're in the market we're looking for this we're looking to buy Revenue we're looking to buy profit um which is really really um promising I don't think I can name names unfortunately I'd love to but um and these are kind of mid mid mid these are not the big guys these are kind of mid siiz companies so I think there's going to be gaming companies oh gaming companies gaming companies okay and I I think there's going to be some

aggregation and that actually it's common sense because in this type of Market when valuations come down businesses are struggling to to fund themselves like th you know that sort of aggregation is is a natural part of the cycle and so that is happening this year um and that's really promising and I think the second thing to think about is addition types of owners are coming online and that sort of like private equity for example is an examp is a good example of like a classic Financial instrument that over the last 10 years has been educated about games and now the people that were analysts are now uh you know now associ then Partners now in those private Equity Funds grew up with gaming they're in their kind of late 30s early 40s early 30s they're in that kind of AG group now and they're the they understand it in a way that I think the previous generation of financiers

probably didn't and so they're more they understand recurring Revenue that some games can bring RuneScape and jagex a brilliant example of the Prime Equity owned um business right and and the type of business that PE would acquire so I think that's another that's another sort of um owner that's coming online and I think that's a generational thing H okay interesting perspective and yeah I think ja X is definitely kind of like the flagship private Equity bu I mean they've been tossed around between like carile and a bunch of others a couple times so some crazy owners it's crazy that's some crazy owners unclear whether or not that riger Mor has been good for the product or not um but let it stand that private Equity is now you know basically a potential exit pathway for games um and so okay so I want to wrap up and move to our conclusion I've got a couple of like four like three or four rapid fire questions for you um um and so my first question is you know what is

uh what's one thing that you hope goes right for gaming in 2025 I would like to see the the craft of games development and making tighten up and become a re like really um uh really sharp the way that game games are made and the way that Founders are making games with their teams i' like that really like that sharpen because it will um attract it's it will really attract Capital back into the market okay got it um my next one is uh how confident are you in the gaming VC sorry how confident are you in gaming VC as an asset class for the future um you got to rate it between one to 10 one being like doesn't work 10 being like super easy head out of the park if you aren't in games VC you know you're you're just you're just losing money missing that opportunity of a lifetime uh eight out of 10 I

think right approach right partner can do super well all right um tangential to that um pick for me two winners on the VC side for 2025 um you cannot name hero um and why are their funds going to succeed yeah I really racked my brain about this one um just because I I'm actually not super of with like what all the other fans are doing um but um so if I'm if I might I might just choose one and that is that's makers um I I really rate Michael and um I think I think they're really smart and I think you know they just had in incredible success with um with dream as an example and that was something that I think I was a little bit blindsided by actually like that just that Mega success of like and you you think about like you you think about that as if someone came to you and said we're going to take on Candy Crush

you'd you'd be like okay good luck to you and and and now they're absolutely smashing them and I think um so I'm going to chease them because I think Michael's super smart and I really like what they're doing all right nice yeah um I think that also interesting because there's like you know I think one of the interesting things about games VC is that there are some different fun structures um and different like thesises and focuses on goo and Fun Size um but that's a that's a good one um and then uh similar to that but just for fun um what's your public stock pick for 2025 in gaming uh um I don't know I'm allowed to say public stocks and things but uh I would say um I'm GNA say Games Workshop okay and I think it's just become a footsy 100 company which is super exciting um I think the business is run really smartly I think

um the fan is really engaged over their lifetime and spends huge amounts of money I've probably spent thousands of pounds on that right as a game of myself um and I think they've got such a brilliant opportunity they've seen the Space Marine that it can now hit the like it can hit the mainstream it can hit and and and with Henry caval working with them on the films and the series and now more games coming out and they're tightening up their licensing um I think that's it's a it's a great stock to own um uh and I think it's a good one I mean I have a little bit to be honest but most of my public investment is given to Bill akman to Ping Square Holdings to look after for me because I think he's pretty smart guy yeah oh this is just a it's just for fun um in terms of basically kind of like of the companies that are not Venture back you know who you're excited about um but okay it's like this was such a pleasure um and I think you know today we talked about some pretty hard questions in the space and um you know it's definitely

challenging out there uh both on the studio side and the founders side and on the investor side um so thank you so much for coming on air and sharing your perspectives for m&a games financing financing in general um it's been it's been awesome Alex it's been a pleasure to be here and I really I know I sometimes I can come across as a little bit hard on the founders and the ecosystem all that sort of stuff but I I just you know it is such an incredible job that Founders do of building a company and building intellectual property and like the amount of entertainment and fun that our industry brings to people's lives like it it's just the most Sensational thing and I I really my hat goes off to anyone who can do that and run a business and and run a startup because it's just incredibly difficult yes uh it's certainly not for the for the Fain of heart and so again maybe we'll close it on that shout out to the founders that are still out up there um and kicking and uh you know good luck in 2025 um and so with that as always

friends if you have feedback or ideas um hit me up at Alexandra [Music] nvic.org a five-star review and if you want to reach out or provide feedback shoot us a note at podcast no . or find us on Twitter and Linkedin plus if you want to learn more about what navic has to offer make sure to check out our website www.nic.edu and advisory Services again that is www.nic.edu [Music]