TWIG Episode #174 Daddy's BACK!

[Music] welcome welcome welcome everybody to this week in games episode 100. daddy's back eric cress is back full force uh eric crest we've missed you and the whole audience has missed you how are you doing i am i'm doing okay it was good to take a week off but uh you guys just let ethan slide last week dude i was like i was annoyed listening to it i just i i did it just because i knew you're gonna be at home angry so i mean we'll get to it in a bit but i i i have to speak up for the audience when i say it's gotta keep its mouth shut i do have to say i do have to say ethan has an audience because i was connected uh by a certain public company ceo over

the weekend uh wanting to come to a podcast i was like yeah sure i can host who's like not you bro ethan i was like all right no way i'm making a introduction so i'm sorry so so he has an audience it's insane actually the articles that we're going to cover today is we're going to talk about nfd games sales hit 5.1 billion in 2021 so um interesting article on winter beat we're going to talk about fifa ultimate team cards aren't gambling dutch court says and perhaps we're going to talk about why cpms increase following app tracking transparency so into the personal updates the most interesting stuff eric press what is going on in your personal life yes i'm sure everyone's just waiting baited breath for me to tell me about update of my son but we went to this big tournament and they

got beat the first [ __ ] game out of the gate um it was really disappointing because we were like second seed but we played this really good team that beat us but to show like how close the teams were we actually beat the team that won the whole championship in the normal see normal of play so um they're really really good teams really fun um i was also reading there's i'm just going to go through a myriad of updates i i think that's all the personal stuff that anyone wants to handle at this point but uh first of all the finalists were announced for the pocketgamer awards uh it was basically a who's who of advertisers for pocket gamer clearly right so zynga was a big winner with uh best advertising in ua and best publishers ua really really they're getting a best reward for you hey i i don't know about that right um and then the best challenger for the our our friend nebo is going to have some words with you dude he's been there to make a difference yet

he hasn't been there that long anyway all right for like two years nah has it been that it's been a year dude it's like a year and a half okay best challenger in the app store is amazon excuse me i i don't even understand why they're even in the discussion sam samsung galaxy i think i've seen some advertising on pocket gamer for a few of those right i don't even know why this category exists frankly because alternatives the app stores seem relatively irrelevant but maybe i don't know uh game of the year award of course farm build three is up there right at the top and why not didn't really do much hitman sniper stranger things puzzle tales really you know like and then pub g new date which is probably the worst right because that was like the biggest disaster of 2021 right and then or 2022 and that's like that's like up there for an award for best game of the year absolute train wreck like it's gonna do it is going to do 40

million it was supposed to do a billion okay just it's just to put it in perspective so you know i i think pocket gamers objectivity around these awards is always suspect um we should we should do our own like we should do on our own so best attribution platform appslier hands down uh best uh best partner for for game companies google um best mediation platform iron source easy yeah alternative payment best xola not even a competition jesus it's just ridiculous uh all right the next thing um activision announces warzone for mobile why i thought this was common knowledge at this point but there was all these press releases about this game existence um it's being run by digital legends and i think you know the warning sign here is with pub g new state is like creating new games in the same [ __ ] genre with the same ip is freaking risky at best right not to

mention going after [ __ ] 10 cent dude i don't they're ruthless dude why would you do that right so i think it's just it's hard to bring audiences from one experience to another and then couple that with going against tencent doesn't even make sense right um and and so we'll see you know i'm hoping for the best that you know that they could pull this thing out but it's good i think it's gonna be a real challenge uh to get any scale in this game um let's see what else oh we have a new cryptozar someone's mentioned this in the uh in the slack channel uh play tikka is hiring this guy dr jacob mendel fact that he's a doctor he's not impressive on it's on surface anyway um to basically expand platika's reach in three in web 3.0 and game five right now this guy actually is almost a true crypto czar dude the guy's been doing uh blockchain as well as cyber security for the last 20 years right he's not

clearly not a game designer by any stretch but he probably understands this definitely has a better background than uh the former cryptos are um but i think this is kind of just indicating you know clearly playtique is in a really tough spot right like uh you know they need to make some investments and find growth areas elsewhere to kind of bolster the story because i think social casino is going to continue to struggle but this guy seems to be the right type of background to like make go of it so let's see what he does so we'll i think we're going to stop tracking the former crypto czar now we're going to trap this guy this guy's the one to watch to see what he pulls out and does um finally we're going to i think mishka is going to cover a little bit of this there's these funds that are being raised during the heyday of of investment in gaming uh after this big huge correction of all things that are frothy as [ __ ] like roblox and cap loving iron source

platika to the lesser degree um and i'm missing one oh unity oh my god these things are just getting annihilated right but anyway these funds are being raised i think you know you know during the fervor and and insane valuations um from last year but we're seeing makers in griffin run a 500 million dollar fund and a 750 million dollar fund and in reason supposedly is another 600 million dollar fund in i wanted to talk about this i have some thoughts on this are we are we coming go ahead wait hold on i'm doing self promotion here finally i i i'm trying to wish this lead but i am actually gonna look for more opportunities to do more consulting around vc side because something i haven't really done as much in and i'm interested in knowing either advising uh gain companies that are in the fund or advising looking at investments but um

but uh give everyone a pragmatic view on what the opportunities are right uh both you know across crypto free to play and and consoles so if there's any uh any any need there you know just let me know um are you pitching right now what are you doing i am pitching are you selling or asking it's like i already i already said that i was gonna do it all right that's fine all right what do you want to consult then what do you want to consult in like what's the uh what what what do what's the angle what's the studios yeah like what what are these studios asking press from i mean i think basically market fit opportunities product you know what the consumer wants what where the target markets are where the right genres the type of games that they should be making and what features that should be in the games that are competitive like kind of like more tactical stuff like that as opposed to this broad swath of like you know here's

this big market and there's that big market here's the you know that too though maybe but but more product related stuff market related stuff perfect soof what do you have on on the on the vc funds i just think it's amazing right i i did a twitter thread about this um the other day because andreessen's hasn't been announced yet it's just they they surfaced it through the sec filing right but let's let's assume it's 600 million right like that's the that's the number that's floating around so you've got makers announced 500 million so griffin announced 750 right two weeks ago or whatever when did we talk about it chris was it two weeks ago last week i think last week we talked about it i think anyway griff griffin 750 makers and these funds have been in place for a long time right but they all announced because you know you can't let griffin if you've got a fund that you just raised you can't let griffin announce and then not announce it right so they all kind of announced it back to back um but see griffin announced 750 makers then the next week announced 500 and then andreessen 600 if that's the if that's the number right that's almost two billion dollars

that's dedicated to gaming that's amazing that that means that right now this moment in time is the best the best moment that's ever existed to make video games i mean that's what that means right there's never been this amount of money available to to game developers to to build video games um and i think it's just it's worth just recognizing this this very special moment in time and i mean you look at all those funds then you've got play in the uh play ventures um you know and and it's as well that stands out at the top tier and and galaxy interactive i mean you've just got so much capital available from just really smart savvy people um it's just an amazing time to be in video games and i think you know the only issue is like you know we talked about this i think last week it's like well there's this there's that much money chasing deals that's just going to bid up the price right i mean it's going to bid up the valuations but is that a bad thing i mean these companies are probably worth you know if you're going to be if you're if you stand to become a successful

company you're worth a lot right out of the gate like just with the team right i mean if you if you've got the talent to build a successful game then that's worth a lot it's not worth you know five million dollars you know pre-money valuation it's worth 20. because you know you can build something that could become this this massive property right and like my thing and and what i always hammer on you know when i when i do games investing is is you know that like the the the concept yeah i want to i want to have a sense of what that is right i want to know what what's being made but the most important thing i look for is like does this team deeply understand monetization especially on mobile because that's the core skill set and like one thing that i you know it's it's kind of funny because ua teams get a lot of credit for the success of a game but really if you've got a game that monetizes well ua is a joke right it's just creative it's a creative process right like the media buying is easy it's straightforward and a lot of it can be automated but the the difficult thing to get right and and the sort of vector of success is just can this team make a game that monetizes

users right and and whether that's at like a kind of uh core level of ar ppu or that's a casual level of ar ppu and the in the dau levels uh you know vary across whatever that is like but can you get that right and can you make workable unit economics and if you can ua is just plug and play it's like yeah it's set and forget it right it's not hard i mean there's management stuff and it's it's it's an effort but that's not the hard part of scaling a game the hard part of scaling the game is building human economics that scale and so that's what you look for that's what you look for in investing in these companies do they have someone on the team uh preferably that's done it before right with a big successful game and they owned that but can they build a monetization can they build a game economy right and then that's the issue with crypto too because what you have to do then is you have to layer on this whole other dimension of an economy and get that right as well because you've got the in-game economy and you've got the secondary economy with the crypto assets like that's the difficult bit right but like with a straight like a straightforward like kind of you know boring old mobile game can you build a game economy that scales and supports you know ua skill if you can then that's

it that could be a you know that's a billion dollar company or like a 500 million dollar company or whatever it is but like that's what you have to look for but and so it's like well okay if that's the calculus you've got all this money chasing these deals they're going to get bit up but i don't think it's a bad thing and the other thing i'm seeing now is that there is no sort of like center of gravity in san francisco it's worldwide and people can stay wherever they are and make a successful mobile game they need the experience they need to have built that experience somewhere else but they go home you go home and you make it you want to make a hit mobile game in slovenia you can do it you want to make it in slovakia you can do it you want to make in taiwan you can do it anywhere that you feel comfortable living you can make a hit mobile game from there and that's like a really powerful thing like that's not true of every single category of consumer tech right but it is for mobile games and so that's that's what's so nice about this moment in time you've got like kind of post-covered realization that like we don't need to be in san francisco we don't need to be in london we don't need to be in berlin helsing we can be wherever we want uh if we've got the team in place this could be a hit game and the valuations are probably more normal or like more realistic than what they were before when they were underpriced right it's just an awesome

moment to be in games cress is looking at me skeptically when stocks are down like 70 you know like from these artificial highs and these valuations were all set at the really high levels during the previous two years of investment um it sounds like a sub bubble within the uh market bubble right like so it's it's there's sorry i'm not going to articulate this well but like the fact is that private companies are not their valuations are not never checked the way public trade companies are and so we're just sitting here at really high valuations that we've seen for the last two years and with this kind of money chasing it it's going to just get worse right and are any of these companies ever going to realize the expectations that were set over the last two years like every single company that was like absolutely nutty trading for the last two years i have suddenly realized

you're talking about a decimation of value still front is down 70 percent um applovin is down 70 um skills is basically gone to zero right i mean that's good that's you know yeah i mean dude you had arc investments in spending insane amounts of money buying the stupid [ __ ] stock for for years right and well that's that's that's kathy wood man these vc's that's what i'm talking about she's an example of the exuberance of this nonsense right like and ultimately fundamentals matter right and so if these companies cannot realize like rec room and like um these type of companies that are not generating a lot of money or or cash flow right if they can't recogni if they can't get to these levels of profitability and and prove out their their the thesis around what they're doing then it's going to be a challenge for everybody 100 there's going to there's going to be a reckoning in these these growth the stock or these these growth uh stage

like crypto based companies that raise that like insane valuation there's going to be a total reckoning there but but that's not i don't i don't even put to me records on a gaming company right right correct room was like a crypto bet like that that's and that was just uh i don't know it it's right that's not it's right is records on a gaming is that a gaming company that's not they're not making them no it's not it's like a second life type of thing that was sorry not crypto that was a metaverse that's right that was a metaverse right not crypto but but yeah that hype stuff yeah put that aside right i mean but the thing is like the public stocks are downstream from the early stage stuff right yeah the pub there's but there's a public stock across there's a uh compression evaluations in in public stocks across the board not just with gaming right yeah the gaming stocks but so is consumer no you're not missing what i'm saying you're missing what i'm saying actually the traditional game companies had a shitty year last year this year they're actually holding up because they actually have real businesses the ones that are getting punished the most are the ones that are more speculative

assets like roadblocks i'll just use that as an example right yeah there's a lot of them like a lot of those sas and software as a service type companies are just just gotten crushed but roblox which the anticipation was it was going to go 30 a year for perpetuity right because it's [ __ ] you know the best thing but that's complete [ __ ] i've been saying that all year last year that like they can't grow geo or demo and that's their challenge and that's exactly what happened and so what i'm saying is the expectation of something like rec room is the same thing but they're held in a private setting so that there's there's no drawdown of value the way you do on the public markets right um now i'm not saying that roblox is doomed by any stretch i'm just saying that their valuation is coming back to real life and what and expectations are getting reset so when you have two billion dollars chasing these type of opportunities that creates even more potential for you know raising the valuations of things that the value was never going to be realized

so so that's easier so at the end of the day and i hate to be the old man in the room but fundamentals matter so going back like i just want to say three things about uh about vcs and uh and this so for those who are raising i think it's really important to to think about three things number one is understand what the investors are buying and having a story that supports that so naturally everybody is investing in the metaverse and crypto and so forth so that's the story you have to be selling or something else but you have to you have to understand what they're buying number two when you're raising please remember that it's a two-way street when you're working with an investor it's a business partner so you have to not only think about what you're bringing to the table but also understand what the investors bring into a table and for that sake when you see these funds raising you know more funds like like 750 500 and becoming these billion dollar funds they have more resources to help you so it's actually also a positive thing

and number three which is really important that is getting a reference on the investor so um you know everybody knows that investors will be doing due diligence on you they will be asking reference about you but you should be also asking uh reference on the investor and taking back to the original story of maker's fund raising 500 million if you happen to be in a position where you have a term sheet from maker's fund i think you'll love the process of asking for references because you'll be hearing only praises from around the world i think it's a fantastic fund and just big kudos for me i wanted to bring in one news that is uh just since ethan is not here i can i can cover nft and uh you know full calmness so there was a week off let's take a week off dude let's take a week off no nfts no three really i found this is a clean this was uh this was interesting so uh there was an article on on venturebeat uh that said nfd game sales hit 5.1

5.2 billion in 2021. so nfts are digital blockchain linked assets that unlike cryptocurrencies are completely unique and not interchangeable with any other asset examples range from program programmable programmable art to ownership records to physical assets and plots to virtual land in metaverse-like platforms now the large nft sales for all markets hit 17.6 billion dollars in 2021 up to 200 times from 82 million in 2020. now there's of course no indication how big is the share of money laundering of the total sales and you're asking like how do you launder money in in nfts it's pretty simple transactions are recorded and on on a public ledgers but the purchases can remain anonymous so that's a huge boon for anyone looking to discreetly wash assets anyways there are more than 2.5 million digital wallets holding on or trading nfts up from just 89 000 wallets the

year before so of course based on all these numbers there are more people engaging that's definitely a fact um and if every of one of those wallets would have participated in the nft purchase last year that would have meant that average purchase of nfts during the 2021 would have been over seven thousand dollars now are people engaging because they believe in the transparency and security of digital ledger of blockchain to authenticate unique digital items or are people simply being lured in by get rich quick scams pump and dumb schemes probably both so in regards of the trends the report said that during 2021 nft projects evolved from simple tradable collectible into more sophisticated virtual assets targeted towards the metaverse dan kelly who's the ceo of nonfungible.com which originated this report was asked about the shady nature of the nft sales and what he said in his statement was that on the contrary we believe that today every community that was created in 2021 every community has a digital

identity it is essential that there are strong values carried by strong communities as we start to build a whole new web 3 industry now in 2022 the report talks about i know i don't know i know it just in 2022 the report this was probably interview at south by southwest in 2022 the report expects the nft market to continue to be volatile it states that there are real need and an opportunity to build infrastructure and utility services for this emerging market and asset class such as financial and risk management products and concludes that the nft market has barely pushed the boundaries of its underlying technology overall i think sadly this is again one of those puff pieces that venturebeat is is um is doing quite uh often these days uh personally i see the current iteration of blockchain gaming going mostly to zero in the next year of two uh assuming

the current trend of macroeconomics with you know the war the looming energy and food crisis the massive slowdown of the chinese economy um and kind of like nonsensical nature of most of these products i think it's just around the corner um now you know why has metaverse blockchain nfts web 3 why have they been so hot you know in in the rise of 21 uh the the cause is directly because of the overheating of the market during the same time the price of rare wines collectible cards rolex watches and really anything unique has skyrocketed and nfts are sold at as unique assets and thus they would have the same characteristics and as as these physical rare assets in terms of value creation so all the money was flooding towards those now why did the funding explode for blockchain gaming companies well one is the the rise of cryptocurrency valuations due to again overheating of the market uh these companies also started investing these companies who have blockchain like solana or the trading ftx all them started to

investing into blockchains um with excess funds and quite honestly limited understanding of games business of course they're leveling up there now vcs also raised crypto funds as the market overheated and there was a tremendous demand for this and of course these it makes sense for a vc to raise a fund and the bigger the fund the better because they get a carry from from the funds that they raise now the vcs started competing with these new crypto funds to get the deals done for blockchain gaming companies and that essentially skyrocketed the valuation because he had to move extremely fast because getting money for any kind of a blockchain project at least a while back was extremely simple and it's still not that difficult now personally just personally i don't really like the current iteration of blockchain gaming because the focus is purely on easy money and quick wins nearly every you know play to earn i've seen is a pretty much a ponzi scheme and while the

notion of earning money while playing a game is in theory a good idea the reality seems to be far from it because once you add earning to anything like sports people start cheating they cheat to win and i think axi infinity everybody knows that game and that is a kind of like the saddest example it's a it's a game that nobody plays for fun it's a game where wealthy westerners rent their nfts for the poorest people in the world to grind more wealth for them and just to be clear i'm a capitalist like like everybody who listens to this but this is like like a digital colonialism that is that is happening so um anyways to conclude i don't see that this uh this uh web 3 at the moment is the sort of a free-to-play early days which is something that literally every every person has to say in all the interviews when they get funded or they're raising a fund for crypto it's like oh we're in early days of free to play i see this as the early days of com like a dot-com bubble where 99 of the

companies went to zero because you know they were kind of nonsensical uh and then later on we kind of laughed like how how was this valued so high i don't know pets.com and whatnot but in the long run to be clear i think blockchain technology will prevail and it's really not even about whether people will have the demand for blockchain games or blockchain technology i think the corporation just have such a strong will to make it happen that it will happen but overall on the long term very bullish on the short term you know not so bullish at all oh god i think the thing is like you can i mean you i don't know like if you go back to 99 right um you know people talk about pets.com well amazon was started in 99 right i mean like you know good companies can get started all right no sorry 94 right okay so but even earlier than that right so i mean

good companies can get started at any time in any sort of market condition i i think like there are i've been like really really careful about any sort of web 3 projects um you know i'm not one of these like ideological uh crypto skeptics right like i mean there's people like that that sound as ridiculous as the people that just go and cheerlead right like cryptos ponzi crypto scam like well that's not true broadly right i mean it can be in a lot of cases it is but it's not true broadly about the category right and that sounds as dumb as saying crypto is the future of finance crypto you know bitcoin's going to a million dollars a coin like that stuff is just idiotic and hollow um but like to me it's and i talked about it earlier in the in the podcast like i'm looking for teams that really understand that complexity of having essentially two economies right and like if you can navigate that and then build an actual fun experience where the crypto assets actually add value like then that's great maybe that'll become a massive you

know a a successful game and you don't and the good thing about crypto is you don't you have high rppu right incredibly high rpps so higher right and so maybe you can have a game like you saw i mean mobile strike had like a hundred thousand dau like at peak right but it i mean obviously that turned out to not be like a robust durable game that could be sustained for a long time but it made a lot of money um and i think with crypto you can even have a smaller base but higher arpu and make more money like you could have a successful crypto game that has 20 000 dau right i think that just makes on an absolute scale a lot of money so like i don't know i i just i i'm getting bored of all these like high-minded big concept pieces we get it we know what crypto is right show me a great game show me something that's fun to play that's not a that's not a uh but i i i think what you're describing is mutually exclusive right why but build a fun to play game for an audience that doesn't want to play a fun game

right they want to play games which they can make money yeah and so like you're basically you're that that's a rubik's cube that can't be solved right but it's irrelevant i i think it gives gameplay like a deeper appreciation of the gameplay but i think but i think here no no the example i always point to um you know because i advised the jagex deal right when they got acquired by carlisle and there was a guy on the deal team at carlisle who gave us this he like intro to um i'm blanking on the name of the game uh help me out uh their jagex game you know what i'm talking about um he gave us like an intro intro to runescape and this guy had been playing this game for 15 years right he was my age he'd been playing it since he was in college and and he just loved that game now imagine if you could actually own those assets right and keep them with you and then and then you know because jagex released like a new runescape it was like updated with modern graphics if you could port over all those items now there's nothing stopping you from doing that with just a normal game like you don't need to be on the blockchain but i think that adds

like another dimension of value and appreciation and sort of emotional investment that you actually own these assets that you've built and crafted in mind and whatever in the game over the course of years and years and years so i think there are specific types of games like that where you're so connected to the to the to the to the the the relationship that you built and the time that you've invested in unfortunately think about world of warcraft i mean you can imagine that right like i think there's an nft layer that you could present there that provides a lot of value to the gameplay experience right but then you you the the the pool of people that the tam is smaller because a you start with wallet holders right so that's already a very small number and then within that you've got to find the specific genres and the relevancies there but like i see that as being valuable like it for a game like that where you really invest time and you invest your emotional self like having the ability to really truly genuinely own that asset that feels like it adds something it's not just pay to earn platon yeah yeah and i agree like i just want to be clear like i understand on that notion i said 99 i was saying 98 but i talked to a a very

senior investor and and um he was actually saying 99 and then his company was also doing a blockchain so i was like all right let me let me bump it up by one percent so kind of everybody understands that but everybody actually uses who i discuss to use that analogy of amazon like they're still going to be that one that's going to prevail this uh this bloodbath that is going to come on that note thank you everybody for listening to to the uh the three dads and on to the next week and go and see eric kress and eric suffered in flesh bye bye everybody [Music]