Where's the Smart Money Going? (And how to get it!) Investment Trends Update, Chris James

I'm not going to give we've got another panel coming up about early stage Investments after this but between the two I'm going to segue in a data uh sandwich I'm gonna ping some data about what's been going on in the investment world and offer some of my my own analysis I guess um I've got to start with a uh disclaimer as I always like to do if this is working is this working it's not working there we go where do I need to point it okay well I'll start with this game I hopefully I'll come up in a minute oh there we go there's my disclaimer um I'm not a professional investor um I do I've been in the games for a long time I do know a lot of investors I know a lot of games industry professionals are being a journalist a media owner event owner for 25 years I do also do some small scale investing

I've got investments in 10 10 companies a very low level mainly in the game Space but I'm not professional I don't look at multi-million billion deals for for a day job um um but I do speak to a lot of experts and the data I've pulled together is from other people who are experts so it's not just me making it up so let's let's as always it's always good to start where we are and where we've been come from so this is one if you saw my Trends talk earlier you've seen this graph before but I don't apologize for saying it again because I think it should be the most motivational thing for you if you're in the games industry that is where we started that is where we are now up the top there we have grown for 25 years not only have we grown for 25 years we have evolved through all these different Technologies we talked about VR but Holodeck we talk about AI you can see historically how we've gone from the arcades through consoles and PC and how that's evolved handheld consoles mobile obviously the big change um we've grown for 25 years last year as

I said yesterday and has been pretty sad elsewhere we had our first slight down year um I'll talk a little bit in a minute but but overall we're down four percent you're only the first time in 25 years but overall I Trend if you look outside the covid uh years where there's a massive leap up the trend is still upwards and we are still we are still going very well this is another graphical show which just again shows the different Technologies and and it shows also why people invest and what why you should get excited if you look at you know if you're in if you were look at how kind of arcade sort of disappeared now various waves can't solve come if you look at the PC growth handheld's come and gone but if you imagine you were there those early days of mobile look at the look at that incredible growth you could have been part of now what's going to be the next one of those I don't know you've got it you've got to got to put investment to do that but it does it does illustrate why so much money wants to get into the games industry right um so there we go that's what I said that's the games market now where 184 billion dollar market um

that's fine oh okay slightly graphical thing there but never mind the the thing to be aware of is is where we are now uh is in slight Market turbulence uh we had we had obviously uh the covid period and then the coming out of covid periods we've had the the war there are results in inflation A lot's been going on the last year um it's led to every part of the economy uh being in sort of turbulence and games industry is not uh immune from that the the games Market say was down the last few quarters last year you can see Smith hibbles here and some segments are still suffering now um basically also what happened is money has has become a bit tight as we heard about in the last uh in the last panel we heard that Investments uh investment money is kind of tightened up a little bit so combining that with slightly less Revenue tied to Investments game studios are taking less risk they're de-risking they're doing less projects and they're laying people off and that creates this kind of vicious circle everybody panics

a little bit but that's turbulence but don't panic the the general feeling is amongst most analysts is that normal service will be resumed that this is there's going to be a bumpy period we're still going to have plenty of bumps in the road but most analysts are predicting growth this year certainly growth next so we are everyone's really thinking that knows what they're talking about much more than me that we're back on kind of up and upward uh track it might be slightly different that what makes the money might change slightly there might be some variations on that but mobile is the thing I've known most about the app installs were up again uh in q1 the revenues are starting to go up that's the wrong pitch from data higher but they're the the later version of that shows that the revenues of the spends have gone up again and if you look forward people are even more bullish like you know analysts should obviously bullish right but but you know there are predictions from new zealth to 20 23 billion by 2024 who is it that predicts three uh Mordor

predicted 307 billion by 2027 and global data have us all the way up to 400 billion dollar Industries um yesterday I think we had a panel where people were estimating that we could be worth 800 billion in 10 years and Paul obviously was just on the power before and if you saw him he's he's talking about a trillion or a multi-trillion dollar market the opportunity is vast we will grow and a particular and talking of General growth again I need to always reiterate this isn't just a global thing this isn't things going on America or China whether this is happening right here you are in the fastest growing region in the games Market as live last year this is not my me saying this this is the official Market data from Yuzu it grew when everybody else was wobbling a little bit Mina's grown it's grown six percent uh 6.6 up and it's grown in terms of its player base as well up eight percent so let's look at some investment history here this is a uh this is this is the a couple of charts of the Investments uh Market I've taken this from a company called DDM who accredited just for me which is why I haven't got the latest

one so only goes up to key three but it gives you the indication you can see as was discussed in the previous panel this is the m a this is the big Acquisitions on the left here you can see that there's been generally this has been an unprecedented time you can see blips in 2006 and 2008 with some pretty big deals there historically you can sort of map those on things like King being bought or supercell being bought or something like that but these last two years have been kind of crazy and also this is the investment stuff this is where people put money into companies that's been crazy as well um and that this these figures don't actually include the Activision deal which some of the others do so as we were saying about M A 2021 that that market kind of exploded the previous year been 33 billion silly 2021 it's 20 it's 85 billion worth of uh of M A activity and then 2022 just got even crazier in queue on alone albeit that's included the Microsoft deal which still hasn't been done yet but in terms of the

announced deals or the plan deals the market went absolutely crazy it already beat this was they thought this was going to be the kind of high water mark got beaten within a quarter fair enough it slowed down the rest of the year but still 50 of growth and as you can see obviously most of the money is going into these huge M A deals as the panel just said probably slightly too much but most of the the volume of deals is I think it's really important here there was more deals in the year it wasn't just more money spent there was more deals there's 1320 deals um the gray stuff is basically Investments so investments into new startup companies Investments are growing companies it has been slowing down across the year you can there's a couple of days here you can see on the far left you can see that the the kind of uh the value of those mnas dropped down and the private placement was a little bit lower this year as well and and also it's it's really important to note when you look at the big numbers that this is impacted by some absolute Mega deals we had we had almost 90 billion dollars worth

of deals in the last year with Xbox buying Activision take two by and Zinga iron Source uh kind of an Unity merging and Playstation buying bungee and there'd be many more the billion dollar Acquisitions the ad space mopub was acquired about loving Esports uh acquired by uh ESL run acquired by uh Savvy Embrace has been and still in front of inquiring stuff for fun and and here you can see here are those deals this is this all estate has come from report from Drake star Partners if you're fascinated by the market and the trends uh you can go to Drake star Partners you can download it yourself we've got me they do come to speak a lot of our events they couldn't make this one but they allowed me to use the data so this is quite interesting you can kind of see where the money was spent this is in 2022 so it's past performance is not a guarantee of the future right but you can see what's been there and you can see where it's been kind of spent and the different areas it's been spent in and you can also it's 324 M A deals you can see the valuations the kind of variables the the multiples of ebitda basically the profit or or Revenue uh

numbers there um and the variance it's quite it's useful if you're thinking again as we heard earlier these terms are going to be getting tighter now but it just gives you an indication there's a private placements basically means Investments uh so there's just these are this is money going into companies now obviously because this big numbers 2 billion down 75 million these aren't startup Investments uh typically but but you can see where the money's gone and who's invested that's this was last year and you can also see where it's going as you'd expect most money most deals are early stage deals that's seed money that's maybe series a or some pre-seed the 752 the deals there's 138 investments in made in the game Space last year 752 are early stage and then you get less and less as you get further along you know as the companies need more money and the Thrive but obviously what then happens is the most money goes into those companies so later deals are bigger hardly surprising but again it's quite interesting day you can see where where

the money's being invested as well and it is interesting that mobile is not typically You know despite mobile being half the industry it's not the space where a lot of the money's going um web three we're in Dubai web free is very big here web free is a big Trend generally this is this is a a map of Investments uh in last year John Jordan uh in his talk he's got another he's got his own version of this which is very good as always check out that but you can see here where the big Investments would be made and as you can see that that had a boom in in 21 22 and has then kind of softened quite a lot as well from there I'm so broken that and this is really uh this is where I've broken my Graphics but I'm sorry this is really interesting um data if you are raising money you're trying to sell something these are the the VCS that are investing money um so these are these are the people that have invested cash and you've got the early to late those are the bigger deals obviously and then on this side if you're looking for startup Capital these are the the kind of VC companies the small companies companies are putting in

money uh into companies the people you want to talk to this is how many deals they've done you've got Shima capital and play Ventures companies you probably already know um it's just great you know if you're looking to raise money it's good to know who you might raise it from and these uh you can see where they've spent before it doesn't guarantee they're going to spend more money but it's a good indicator uh and then this is the same kind of version from the nft um uh side from the top investors Anna mocha Brands huge uh unicorn in the space this is where they've uh they've obviously the biggest the money has but it's Anderson Horowitz who've spent the most money FTX obviously did spend a lot of money they're not going to be appearing in that chart next year um uh sadly but uh my policies to anybody that had uh investments from them or in them um and again here's here's also from strategic buyers if unless you've got a big company this model isn't that interesting to you but it is just useful to see who's spending money and where this is the the big spends in 2022 and this these are the companies that

the Anderson Horace that Drake star partners are projecting will spend money in the year ahead so it's very similar not identical it's a very similar company but you can see these are the guys who they're expecting to spend money Embrace that is probably going to be spending slightly less than when this was kind of forecast again they've had a bit of a wobble as well but you know lastly those are the the boys that they expect to invest um public markets now it's always interesting to monitor this it's important um you know we can't there's limit you can do to control it but obviously when companies valuations get squeezed in the public markets that means they've got less appetite and less money to invest elsewhere and everybody gets a bit panicky about the space it was a bad year for games and a lot of tech last year you can see that only goes down to September I didn't put the update graphic in it didn't get better after September it was a bad it was a bad year overall for for most games companies um but this is the first course of this year and you can see on the public market perspective things have turned around quite nicely that

their overall index of all these companies is up 12 some have massively outperformed like the app loving and play Tikka and Sega but generally in the first quarter this year the games industry um uh shares have done quite well as a lot of the tech companies but games have bounced back well and that's important because that leads uh these investors to go right okay it leads them to have more money to spend and it leads investors to be more bullish about the space and they were pretty bullish as investors so even though q1 started out relatively slowly this is the key the data from q1 of 2023 in terms of the volume of deals and you can see there wasn't you can see again it was very similar kind of overall valuation to to Q4 there wasn't as much going on it has been picking up speed uh We've obviously had the the uh The Savvy games required scopely we've got the Sega and Rovio big deal going through generally there's a feeling there's more investment activity happening um obviously as I said at the start prepare for turbulence fasten those seat belts there will be bumps in the road

Embrace a you know had a very nasty bump in the last few weeks you know that they there's a deal that fell through their Q4 wasn't as what they wanted and suddenly they've had to sort of rethink things a little bit but that's you know that's going to happen that's what happens when there's a bit of a ShakeOut uh keep calm don't panic whether investing or being invested in and this is the prediction again based on those based on that the the the the the growth and generally also what we've heard here the the uh the better valuations or the the what people see as investors would see obviously they wouldn't pay less as fairer kind of valuations that actually that they Drake star are projecting renewed appetite into m a uh activity so we'll see a lot more activity of Investments uh and again this is the same version of those tables before for people have been investing right now so there's the VCS on the left uh big craft and how it's play Ventures Griffin gaming Ventures Convoy makers fund et cetera etc those the guys that have been

doing the big deals and these are the guys that are doing the smaller deals like the Makai big brain Holdings uh one-up Partners see Macau these are the guys if you're looking to raise big money or smaller money these are the guys you need to have on your Rolodex you need to be chase him um and again those are the kind of announced uh announced deals kind of so far uh in the first quarter um again just reiterating was said before this isn't a global thing that's happening elsewhere in the world this is the thing that's happening here and I think will continue to happen here in accelerating pace we're not only people in this room that have seen those figures saying mean as the fastest growing we aren't any people seeing Savvy games uh having 38 billion dollars spent everyone in the world is watching this uh I actually run an interesting anecdote here I did a um we ran an event in read last for um a Leadership Summit in we have 120 uh CEOs uh last year in in uh end of November and uh it was like new things we're trying to convince people to come and what was interesting and we had a good take it but not incredible then

there was the drop of the we've got 38 billion dollars to spend next day we had quite a lot of tickets sold it is it people are watching this space um they will be coming here um and they are coming into this show so so um I want to also kind of sum up and conclude with a um a little bit of white hair like so I'm not an investor but these are things I'm hearing these are things that were said before but just to kind of cap up like dilfo is still happening um some of the big deals as we said before started earlier those deals typically take six months to a year to go so seeing these big numbers there's an always indication of the market now but you know it all helps Capital flows definitely haven't stopped people are Keen to invest things have slowed a little bit um mobile has has definitely a clamp Town mobile Investments due to the idfa and uncertainty but again as we saw here on the panel if you weren't here before the panel was still relatively bullish on mobile they were more selective but they they mobile

money the most money in the market is still being made in Mobile I don't expect to change anytime soon um um web 3 is having a tougher time these are actually quotes or statements by the people tractions becoming more important of course that the idea you can just have put web 3 on a deck and raise like 10 million dollars is is no longer here you might be able to put AI on a deck and raise 10 million dollars but I suspect that will be hard as well um you know it is a buyer's market um and and that they're saying that for startups they want to see traction and they also want to they want to see that there's a real planets this is less about a deck these days it's all pretty sensible stuff it's how investment should be really but it hasn't been how investment has necessarily been the last two years hence maybe those big numbers and this is something somebody said to me yesterday actually but I went okay who was but yeah basically there's a there's a thing that actually there's still a lot of hunger for startup investment maybe second stage Thursday's investment people can be much more tight on the terms or much less willing to make a further bet of the fundamentals

aren't right uh here's some of the key trends I'm just wrapping up 2022 massive growth 23 more cautious in a buyer's market but it's still happening there will be more Mega deals um there's going to be some big deals happening this year um watch out for them some we won't even thought of yet uh the the the consolidation phase is no by no means over um yeah it's definitely slowed down but there's no stop to the investment cycle there's plenty more there uh mobile may be a bit more cautious but again as we've heard from a lot of people people are still investing and yeah the web free is selling have a tough time and again these are the the league tables of people that spent uh spent money last year so is it still a good time to invest or raise well it seems like it's a good time for investors it's a there's a lot of hunger there people were identifying that this is a great time uh for for investors because the the terms you know a little bit more realistic um so I think yes um the the games industry prospects I mean that beat is almost doing it down I think the games industry the games industry if you take

a three or five year or ten year uh kind of time frame which is what you have to when you're building a company it's going to be incredible the upside there'll be a whole new things we haven't even thought of that are gonna drive Revenue but games is only going upwards I did a Trends uh presentation yesterday that talked about the engagement now but also engagement the Next Generation I love games my son loves is more engaged in games than I am like and it's only going more that way but they spend he spends all his time with his friends via FIFA or Minecraft or something like a fortnight or whatever um there's a lot of money out there if you're trying to raise money there's a lot of cash down the sidelines These funds have raised money as Paul explained before they have to spend it within a time frame so there is money out there waiting there's there's a lot of Angel money out there waiting I'm in a couple of Angel groups and there's still hunger there's still a lot of looking at decks there's still a lot of deals being done I think the seed level I don't even know the seed levels change that much to be honest despite what's going on in the market from what I've seen in the game so if you're raising startup Capital you know you

might have to accept slightly different terms but there's definitely money for that um there will be more scrutiny on fundamentals on the business case and your team and your vision later races will be much harder later raises the thing that's gonna be much harder now they're really going to want to know that you've got traction along your game plan if you haven't you're gonna have to rethink you might have to take it down round you might just have to sort of like you know stay hold it out for another sort of six months or so and the process will definitely be slower that's definitely true so here's some advice for what it's worth from a from an occasional angel I I think it's really important um to ask before you go into fundraising if you really need and you really want to raise money it's not easy it's a journey it's not like oh I go to the bank I've got to loan I'm off uh even that's quite hard these days but like it's you're committing to a job almost it's a full-time it's a full-time gig for someone for a while to get that money you've got a lot of work ahead of you is your project investment worthy that sounds pretty stupid but actually are

you really sure that what you're pushing out there to the world makes sense someone else feels like something that can return their money we heard from from the game game fund that there when they look at Deals they want to think this perspective a potential that that every single deal could potentially return their entire fund let's say they make like 20 deals from a fund so you know they want a 10 to 20x that's what VCS typically want investors want to return so they want to know where it's going to come from how much do you need now in the future it's a common mistake that's made investment and I've done it as well I mean I've never raised that much money to pass but is is budgeting in in a way that's you know tight budgeting and not really thinking about things that could go wrong games uh projects are always late they always take long human they're always more expensive there's always things uh bumps in the road so you need to have a realistic Runway you need to have enough money for staff not just subsistence levels that's not you need to really think how much you need you might not

get all that but you need to be realistic and a bit conservative to start with um get as much for your help as you can I I don't know enough yet about all the government support here I know there's all sorts of different initiatives and different saps and within the free zones and whatever but in in the UK and the US and Canada and all over the world there's usually some local support for startups of one kind or another um Pitch deck is your absolute it's your front page of your newspaper it's it's it's you know it's it's you you've got that pitch deck has got to be succinct and it's going to be amazing and you've got to the only way you're gonna do that is to show people it doesn't have to be investors can be your friends could be other other companies you trust keep showing people take feedback edit repeat and keep doing it network network network the fact you're here if you're trying to raise money is brilliant you've got to be out there you can't expect people to come to you and you can never have too many friends uh if you're raising money or generally I think and but do understand like I said at the start this is a job it's a job in itself you're asking people to commit money to

you the people that you you know will want to ask a lot of questions you can have to see a lot of people you're going to get a lot of noise I'll send a minute and and even after you've got the you know the money they're you're gonna have to manage those investors you're gonna have to report back to them and tell them how it's going not every day but they're going to want to know what's happening and you will get a lot of no um be prepared that the majority of people you're trying to raise money from will say no or not even come back to you but you just need to be resilient not give up so I know that's useful but that's that's my uh thing I I think the most useful you could do if you're interested in in the economics and the um market trends generally is to download this uh go straight Star download this there's loads of other great sources well and you do some great analytics DDM do some great stuff um I I kind of I've trust those guys there's a few that emerge Above the Rest you get kind of uh a lot of reports or we'll say the industry were 10 trillion dollars but and they and you find that half of their other reports are about ironing or you know shopping or something and it's like well you don't

really know the industry do you so but these are guys from the industry they know the industry so yes check that so I think that's me and I think I've heard this overrun Dave