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Livingstone: "We write people off too early in this industry"

Wed 25 May 2011 10:59am GMT / 6:59am EDT / 3:59am PDT
PoliticsPeople

Eidos president urges investors to "make an effort", as Culture Minister insists Government is "cheerleader for creative industries"

"How are we going to build the Zyngas in the UK?" That was the question Ian Livingstone addressed this morning, as he called on investors and innovators to better understand each other and seize the opportunities of a "second golden age of games".

Speaking at an event in London, hosted by NESTA, Livingstone said it was vital for the UK to "grab the opportunity" to create and retain IP - turning the present system, where "all the bottom line ends up going into foreign hands", on its head.

He argued that the problem lay both with investors, who "have not made an effort to understand what we do as an industry", and "innovators - who don't understand how to access finance". As a result, he said, "We write people off to early in this industry."

Meanwhile, Culture Minister Ed Vaizey insisted that, "the Government is trying to be the cheerleader for creative industries" in the UK, and cited the example of 'Tech City' in Shoreditch, London. He said that its success had got "Britain noticed again" amongst investors.

On the perennial issue of tax incentives for the industry, Vaizey reiterated Chancellor George Osborne's line that the Government would, "focus on incentives and support that can help a whole range of industries in that area. We're looking at the tax system to see where we can help."

Sharing his experiences as both fundraiser and investor, Livingstone criticised venture capitalists for being, "largely ignorant about the games sector. He added: "They move so slowly it's ridiculous. It takes six months to get an answer let alone money."

Ben Holmes, a VC from Index Ventures, said: "We're not looking for reasons to turn down investments, we're looking for reasons to do investments. The best indicator [when considering making an investment] is what a team has achieved without money".

To general agreement amongst the panel, he added: "Games really are now services businesses. Free-to-play is the best business model currently in the games sector".

However, TeePee Games CEO Tony Pearce warned developers to "do your homework" in choosing an investor. "It's your idea; you are the customer here. Interview the VC as you would an employee".

"I back people," said Livingstone, pointing to the case of Angry Birds, which was, famously, developer Rovio's 52nd title.

"A lot of creative people can't run a bath let alone a business," he concluded.

19 Comments

The VC guy sounds pretty much like every VC I've spoken to. Buzzword-focused, wants to know what you've achieved "without money" (which is to say, on your own dime) and then swoop in to reap the benefits. In short, a glorified loan shark.

I would love, just once, to meet a VC who actually sounds like they give a crap about games.

Edited 1 times. Last edit by William Robinson on 25th May 2011 1:13pm

Posted:3 years ago

#1
William, VCs care about getting a return on their investment. Why should they "give a crap about games"?

Posted:3 years ago

#2
As much as I hate to say it, I agree with Geir. VCs look to make a profit which, to be fair, any business does - including games studios.

I suspect the reason they like to see progress before they've come in is because it shows dedication and capability. Everyone likes something for nothing, but I doubt that's their reason.

Posted:3 years ago

#3
I completely agree that profit the solitary driving force behind VCs. That, to me, is the problem with them.

If you're going to invest in something, wouldn't it be nice if you actually had some degree of interest in it beyond pound signs? For my part, I wouldn't be happy to give up a significant portion of control to a body or person that doesn't have any interest in what we actually do. I would say the same thing about any creative industry.

Besides anything else, if they had any genuine interest in the industry they might be able to more easily avoid being taken in by whatever the buzzword-fad of the day is. As a whole lot of VCs invested in social and mobile gaming's "next big things" will no doubt discover over the next year.

Edited 1 times. Last edit by William Robinson on 25th May 2011 4:17pm

Posted:3 years ago

#4
Unfortunately, when the next social/casual tech bubble bursts, VC will be burnt and it will be a overall nasty day for the gaming industry

Posted:3 years ago

#5

Darren Adams
Managing Director

231 413 1.8


But I do agree that many VC's don't really understand what the industry is about and generally don't like to take risks on something that cannot exert control over. That's just the way the cookie crumbles I am afraid.

Edited 2 times. Last edit by Darren Adams on 25th May 2011 4:54pm

Posted:3 years ago

#6

Adrian Nantchev
Animator - General 3D

8 0 0.0
I met him!

He was at my college doing a speech there back on the 18th May at Birmingham.

Got his signature.

Posted:3 years ago

#7

Andrew Clayton
QA Weapons Tester

150 7 0.0
Eh, I'm gonna side with William on this one. It doesn't make a whole lot of sense to me that dedicated gaming professionals should do all the real work while VCs come in and reap the rewards. I understand the desire to reduce risk, but it doesn't take any effort to sit on your butt and give someone else money to do something. The least VCs could do would be to understand games, but most of them wouldn't know the difference between a joystick and a keyboard, let alone understand the complexities of the gaming industry

Posted:3 years ago

#8

Curt Sampson
Sofware Developer

596 360 0.6
VCs are pretty awful, generally. There are two important points to remember when working with them:

1. They want to get in as cheap as possible. That means, among other things, waiting until you are as desperate as possible for funding before they strike a deal. They will attempt to string you along with promises while you burn cash in order to bring you to this point.

2.They are concerned only with extracting from you a multiple of their investment; anything else is considered a failure. That means if there's a route that has a 90% chance of success to make a moderate amount of money and build a good company that will last for the long term, and a route that has a 10% chance of success to make a huge amount of money but which will destroy the firm if it fails, they will do all they can to make you take the latter course. After all, they've got a dozen other companies in their portfolio for that fund, most of which they expect to fail. But they need at least one huge success to make the fund work; a lot of small successes won't do it.

In A Unified Theory of VC Suckage Paul Graham has some ideas about why VCs are the way they are. If he's right, the VC issues are structural, and are unlikely to be different for any VC no matter how nice a guy he is personally.

All that said, VCs can be great for studios developing capital-intensive games such as AAA titles, especially using someone else's IP. You take $20M plus, use it to develop a game that really does cost that kind of money to develop, and either have amazing success or go bust. In the latter case, just disband the studio and start again.

Edited 1 times. Last edit by Curt Sampson on 26th May 2011 12:31am

Posted:3 years ago

#9
The whole point of yesterday's event was to marry up investors with game developers. It's so sad to see the knee-jerk response that investors are evil because they deal with money. We need their money. Cash is the oxygen of any business. Ben Holmes helped Mind Candy become successful with his investment. As a business owner, I invest my time and my cash in making games. All the staff at Relentless spend their valuable time making games (a fun and creative pursuit) but they still expect a salary at the end of the month. Why wouldn't they? So it's ridiculous to ask an investor not to expect something back. Yes, it is easy for money men to exploit creative people who just want to make games/music/films. Ask George Michael what he thinks about his first contract with his record label. But the answer is not to throw insults at them but to understand and play their game with them.

Posted:3 years ago

#10
@ Andrew - and, again, GI.biz needs a "like" button here.

Well said.

Posted:3 years ago

#11

Nicholas Lovell
Founder

185 170 0.9
As Andrew says, this is so depressing. Ben is great. Committed, loves entrepreneurial investors, invested in Playfish, MindCandy, Grey Area, Stardoll.

You show a total misunderstand of what a VC does. He invests in business, not products. He backs a company, not an intellectual property. He helps grow, not initiate.

Probably fewer than 5% of startups of suitable for VC. For everyone else, just accept that you and VCs are not a good match. See [link url=http://www.theequitykicker.com/2010/11/18/is-venture-capital-right-for-your-company/
]http://www.theequitykicker.com/2010/11/1...[/link]

More importantly, if you want someone to fund your game development, go and find a publisher. That's what they do. VCs just don't do this. Ever.

Posted:3 years ago

#12

Nicholas Lovell
Founder

185 170 0.9
And @Curt, I don't think I have met a VC in the past three years who wants to invest in AAA games. That is so totally opposed to how the business model of venture capital and private equity works, it's surprising that you think anyone would want to invest on those terms.

Posted:3 years ago

#13

Paul Heydon
Managing Director

5 0 0.0
Im investing in games companies with the team at London Venture Partners. We are looking to invest in great teams with big ambitions in the online, social, mobile or technology/services sectors. Not console or pc. There is no lack of interest by VC's to invest in European games companies but the reality is many UK games companies are still stuck in console or pc which is not interesting.

Posted:3 years ago

#14

Kam Star
Managing Director

7 0 0.0
I can only comment from the POV of a grafting digital entrepreneur - I've never asked to borrow money nor asked to be funded. For me if it's not commercially viable from the start then its not a real business - but that all changes when you're trying to do something much bigger. And I think the AAA title game is a perfect example.

Is it right to ask for a 20 time return on your investment - well if you're investing in 20 companies with a 5% chance of success - the ofcourse its fair.

And I do think that both developers and VCs take a lot of risk creating new thing where we all know how likely it is that it won't just work - the folks that never take the risk are the lawyers and accountants. The necessary, but utterly safe jobs in the whole system.

Right now I'm looking for VC's and tech-savvy investors to help me build a brand new platform that will utterly transform the way we look and play with information. So Paul, feel free to drop me a line if you like at kam@playgen dot com






Posted:3 years ago

#15
I'll start by clarifying one important thing, because some people are making it sound as if I'm making specific personal comments about Ben Holmes. I don't know Mr Holmes, other than by the words quoted here and via his portfolio, which suggests to me once again an investor chasing the buck by buying into the current fads within the industry. I may be entirely wrong, he could be a passionate afficionado of games with a history going back all the way to the Atari 2600, or even just an investor with a love of creative pursuits. But based on the words quoted in the article, he sounds like every other VC I've encountered - a shark looking for easy money. That is what I said right at the beginning of the article. I would dearly love to discover that I'm barking up the wrong tree and would be abundantly willing to apologise if so.

So far not a single thng I've heard on this thread has divested me of my standing opinion that VCs are far more interested in buzzwords and bubbles than in actual game development. Statements such as Paul Heydon's demonstrate the heart of the problem - "the reality is many UK games companies are still stuck in console or pc which is not interesting." - and yet relentlessly profitable, if correctly managed. You'd think the likes of Minecraft and similar independent megasuccesses would have demonstrated this, but it seemingly remains the case that investment finance has little idea of how the industry actually works beyond what they're being told by consultants with vested interests.

Nicholas - Not all developers want to hand their IP and entire business model to a publisher. That developers are effectively forced to do so even in an age where the traditional logistical barriers to self-publishing have virtually dissolved demonstrates the heart of the problem: it's incredibly difficult to get investment unless you've bought into a bubble or your business model fundamentally revolves around making money from others' work. The remaining barriers, namely PR, customer relations and development lead time funding, could all be resolved through equity investment, if VCs were willing; but they aren't.

There is a potential business model in which VC could work. Spin-up investment pushes an initial big original IP into the public eye, game gets released and either succeeds or doesn't, if it does the VC cashes out, if it doesn't the investment (and the company) crashes. It's no different from other sectors. The process carries with it a defined predicted return and a defined exit strategy for the investor, and yet it doesn't get touched. This kind of spin-up investment exists in virtually every other technology sector, yet not in games. Why is that?

Posted:3 years ago

#16

Nicholas Lovell
Founder

185 170 0.9
@William
I'm not sure we'll ever find common ground. You want someone to invest in projects. That's not what venture capitalists do. They invest in companies.

If you want to someone to invest in a project, look for a publisher (with all of the downsides you mention). There is no VC in the world who would want to do the model you describe (it's not what the asset class of venture capital is for).

If that's what you want from a VC, no wonder you don't like them: no VC will ever invest on those terms.

Have a look at http://www.theequitykicker.com/2010/11/1... (and the rest of the 50 questions posts at http://www.gamesbrief.com/2010/12/the-50...

Posted:3 years ago

#17
@Nicholas

Agreed that we're unlikely to see eye-to-eye on this. On the other hand I wouldn't mind further discussion about it, as I think your linked article actually supports my case somewhat. However at this point we'd be endlessly bumping a week-old comment thread. Would you be up for moving this to private correspondence, or shall we just agree to disagree?

Posted:3 years ago

#18

Nicholas Lovell
Founder

185 170 0.9
Drop me an email (nicholas@gamesbrief.com)

But I think we'll disagree. My articles tell you what investors want. Your comment says what you would like investors to be. They are not what you want, so I fear you are doomed to endless disappointment (unless you get very lucky, which might happen, I suppose)

Posted:3 years ago

#19

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