Digital Capital: Mind on the Money
The Swiss finance firm that hopes to hook up developers and investors for maximum returns
Swiss finance firm Digital Capital emerged earlier this year, co-founded by Todd Tribell and Stew Kosoy. While Tribell has no previous experience in the games business, Kosoy has plenty, most recently working at ISM where he handled the Digital Illusions deal with EA for Battlefield 1942 (which eventually lead to EA's acquisition of DICE). Previously he has worked for MGM Interactive, GT Interactive and Sega America.
While there are multiple new and emerging channels for developers to get access to funding, Digital Capital's model is clear - if it likes your project it's looking to fund it to completion, from concept to the final product. It may be somewhat secretive about the amount of funding it has, but it has already invested on one business, bank-rolling Powerhead Games' Jason Schrieber and his new digital outfit based in Ireland.
Here, in an exclusive interview with GamesIndustry International, Kosoy and Tribell discuss how the business operates, what it's looking for from iOS to PC projects, how it differs from other VC companies and what exactly developers can expect from a partnership.
Q: The way I understand it is Digital Capital represents a group of people with money to invest in video games, but can you break it down a little more for us?
Todd Tribell: We have access to a number of very high wealth individuals and it's our sort of starter base, if you will. The way the process works is they don't know anything about this business, this is not what they do, and even some things that get pitched to them they're not interest because it's so far from what they know. You know, one guy likes Barbie, another guy likes GI Joe, and they're not willing to cross-pollinate. So cars or golf, bowling, whatever it is that people like, we just tend to go to this group of people and say "you like his and she likes that." We try to tailor it as much as possible. I know Stew loves tanks, so if I had something for tanks I'd call up Stew and say "Stew, I've got something you might find interesting." And of course we do a whole lot of preparation for them on the financial side, on the monetisation side, and so forth and so on, so it involves a good amount of research.
Stew Kosoy: Basically we are more than investors and we're more than matchmakers. We take 25 years plus years of triple-A experience, find partners who have the ability to deliver and partners that we feel are valid, put together a plan that covers the cost of development, the cost of marketing, the cost of support, run numbers, see if it's viable. If it's viable we either have our own money or we have access to money and we put together a partnership where we all participate. The development creative people, us, and the investor.
We're very reticent to get involved with any inventory situation, it's really digital distribution. We don't need bricks and mortar, it's very heavy and it costs
Q: So what attracts your investors to the games business? What do they see that they want to invest in?
Todd Tribell: I think for each individual it's a different attraction. Our model allows us to bring people into the business with the security, as he said, that we're actively involved, we're active participants in what we do, of having someone they respect or trust look into managing that investment.So it gives them an opportunity, just an opportunity, to do better than the banks are giving. The banks are giving in Switzerland one per cent today, so...
Stew Kosoy: We're offering considerably better returns.
Q: What kind of return are you trying to give? Is there a minimum amount?
Todd Tribell: There's not a number. When we look at product we're trying to find things that are unique in play mechanics, unique in not just doing the same game over and over and over again. Something that has an opportunity in our experts' opinions that has a real shot at being something massively different than what's appeared before.
So in looking at that we're reducing the gene pool, I guess if you will, by trying to choose just the very top level, in our opinion. It's only a question of opinion really.
Stew Kosoy: I think in answer directly to your question we put together a budget for development, marketing, support, depending on the project's specifics. We do projections - I smile because I'm very pessimistic when I look at projections, I usually go 'that's going to do this', and then I cut it in half and then I cut it down by a third - and then we do the numbers. If it makes money then what we offer that's unique is we offer first money back to the investor, their initial investment plus a certain degree of that percentage, and then everybody gets a share.
So before when you were a developer you would have to give up the IP and then you can earn back at 15 or 20 per cent and then you get a pittance. Whereas now the investor is made whole and then the money is shared equally on the percentage basis of the joint venture. Which for the development partner is 50 per cent.
Q: So how do you judge the products that you think are worth the money and the investment? Or is it just down to your experience?
Stew Kosoy: I could give you a long story about that but basically yes. I've been doing this 25-30 years, I did Doom 2, I did Quake, I signed the original Unreal, I sold Battlefield to EA, Abe's Odyssey, Duke Nukem, I did a lot of games. I can tell you a bunch that didn't make it...
The hardcore gamer now is the niche market
Q: Tell me a few that didn't, just to give it balance.
Stew Kosoy: Did you ever hear of Toxic Crusader? It was a Sega Genesis game, and it was bad. It underperformed. Actually, I learned a really strong lesson. I was a producer at Sega and I had a lot of loyalty to my developer, and we had a meeting, and everybody, the room was full of management and marketing, they all wanted to kill the project. And at the time it was like $50,000 left and I'm like "well we could finish this project and make our money back" and I passionately argued my position and won.
And I was wrong, because there's an opportunity cost. You have to believe that every project you're doing is going to be that hit, because you're taking up a slice. You're taking up cost and opportunity so we're not only looking for games that I like to play, a long time ago I learned that's not the key. But if you look close and look around you'll see some games that have a spark, that makes you feel... I don't know. The best way I can describe it is remember when SSX first came out? You picked up the controller, and in two seconds, you're doing all this? You pick it up, two minutes, it's going to be a hit. It gets you, you feel it, there's a mechanic, it's just absorbing, as opposed to "oh yeah another one of those."
I looked at a first-person shooter the other day. Not that there's not enough first person shooters out there. Within five minutes I'm screaming and they had to take the controller away from me because I didn't want to let my team mates down, playing against the developer dev team. It's like "they got something there." It's visceral. It's hard to describe but when you see it you know.
Q: Is there a distinctive type of product you're looking for? You mentioned first-person shooters... Is it across the board? Whether it's a browser, MMO or...
Stew Kosoy: Yes. We're not looking for platform agnostic, we're very reticent, very reticent to get involved with any inventory situation, it's really digital distribution. We don't need bricks and mortar, it's very heavy and it costs.
Q: So you wouldn't advise any of your investors to go that way?
Stew Kosoy: I won't say I wouldn't advise it, because obviously the exceptions come up and we're considering it, but the genre doesn't really matter, there's a whole lot of people out there. Back in my Sega days we used to do dungeon crawl, and we'd sell 300,000 and we knew we that was the market. And we called it a niche market. Well a hardcore gamer now is the niche market. How many hundred million of these are there? [Holds up smartphone] They're all clamouring for apps, entertainment. It doesn't have to be aimed at me if it's something that I believe will reach the target market, has an effective monetisation plan...
Todd Tribell: That's key. He always says, this is show business. If there's no business there's no show. And I mean the monetisation really is the key, not just does it look good and feel good, it's like Apple. They found a way to help people love what they make. People put emotions into this and I think it's exactly the same in what we're looking for. We're looking for games where people put themselves into that. And if you can do that and monetise it that's the ticket.
Stew Kosoy: Does it have to be original IP? I doesn't have to be but it's very unlikely. Our business model is structured around creating original IP.
Q: What do you want from the developer side of it? What are you looking from there apart from the original IP?
Todd Tribell: Quite frankly I think when we started this business we saw the way the market was going. And Stew and I were talking and I said "hang on a minute, look what's going on in the world. Look at these, look at the iPad, look at what's happening, the whole market is changing." We are a product of that change. This is a new era. I mean if you look at Tim Schafer and what he's done, the money he's raised [through Kickstarter], the attention that's coming to things in this business are changing. My viewpoint on this is we want developers to do what they do. Our job is to support them, to lift them up, to hold them high for everybody to see and to praise so they can do what they do best. And we pick up the pieces where they don't have the skills. Where they don't have the business management, they don't have the marketing skills; they don't have the publishing skills. And rather than penalising them for not having it we fill in the gap to lift them up and support them to give them those skills in addition to being real genuine partners in the business, rather than just getting a royalty.
Q: Do you need to see demos and prototypes from people?
Todd Tribell: We really prefer to start even earlier than that at the stage of just ideas.
Stew Kosoy: Often it's not a requirement that they have to have success with an end product already. I mean, no one's got a lack of creativity. However, because we're looking to partner with somebody and we're looking for that partner to be able to carry their end of the deal it helps to have...
Todd Tribell: Experience?
Stew Kosoy: Yeah, it helps to have proven the ability to deliver something. So when someone comes to us I say, typically, "if you were going to pitch a publisher you'd have a game pitch, and you also need to have a business plan. Because when you went to a publisher you were doing the game pitch and that publisher was doing the business plan. You didn't know it, but they were doing the assessment of whether they could make money out of it. You have to show us that you understand that, and how you perceive that to work." And then if I think or we think that's viable then we'll rework those presentations until we feel it makes sense.
Todd Tribell: And we do go deep when it gets to financials and the monetisation. We do go deep. That's our job, that's what we're here to do. We start with what they bring and then we massage it.
We pick up the pieces where developers don't have the skills. And rather than penalising them for not having it we fill in the gap to lift them up and support them
Q: Is there an optimal amount or a set number of products that you want to be managing at any time?
Todd Tribell: Early on we need to be careful where we already have a handful of products, we've only announced one of them thus far but we do have a handful of things in the works. We don't want to take away from the focus that the developers need. And it's a careful balance, I think we'll continue to watch things, Stew has the experience, and he has the background in this business. Our company is growing very quickly and so it's just a question of keeping our eye on the ball, making sure we don't get overextended. Because what we don't want to do, it's not a question of the finance or anything like this, we don't want to over extend our human relations, because that's so critical to what we do.
Q: Is there a certain amount you're looking to invest?
Todd Tribell: Financially? That depends on how good the idea is.
Stew Kosoy: There's no 'this much' or 'that much.' What's the project, what's the business model, what's your expected footprint? Does the footprint support not only development? Because we don't want to just fund development, you might as well burn your money. So we have to have marketing, we have to have support, if it's a browser based game it's got to be live for a while. We've been doing this for a long time. We want to take titles, support them and be successful with them. When we present a budget it's not only the product development budget, it's the whole budget. So it's what's appropriate for the title. $300,000 for an iOS title, $20 million major projects. The actual financial amount is not really the limiting factor.
Todd Tribell: I'll put this in a real simple perspective. If I come to you, and not knowing anything about your background in finance, but if I say "look, you put a million in, and I can get you fifty out," you're going to take that to heart and take some consideration. If I tell you you're going to put a million in and a million and one out, that's a different story. So if it's a million or ten million or a hundred million, it's not really relevant if the numbers make sense in proportion to the amount that's invested and how long it's tied up. Fortunately we do have, as I mentioned earlier, access to the people who do have large sums of money and we have people who have limits on what they can do. We don't want to blow one door by opening it at the wrong time.