Venture capital fund OMERS Ventures was started last year with $200 million and a mandate to invest in technology, media, and telecommunications. The fund's portfolio now includes investments in HootSuite, BuildDirect, Wattpad, and more, but nothing in the gaming industry. That's likely to change soon, as OMERS is actively looking for gaming upstarts to invest in.
OMERS Ventures associate Bram Sugarman spoke at the Montreal International Game Summit to describe the sort of partner the company is looking for. He said OMERS wants to put its money behind disruptive industry dynamics, massive market opportunities, and people who are the best at what they do. While the talk itself was targeted for an audience with an intermediate understanding of the field, Sugarman sat down with GamesIndustry International afterward to discuss frequently misunderstood fundamentals, from the role OMERS sees itself playing in the industry ecosystem to the biggest mistakes people make when approaching the firm for funding.
Q:Suppose someone has a game company they want to get off the ground. What's the first step?
Bram Sugarman: The first step is really building product. These days with the lowered barriers to entry, you're talking about people with talent who have the capabilities to build something with the hardware they've got. If you're talking Apple App Store, it's a $100 developer license. If you want to do Android, it's free. It doesn't take much. People is kind of the biggest cost, and maybe the opportunity cost of [not having another] employer, making sure you're focused on it full time.
Square one is building a product and understanding what it means to go to market. It's important for companies getting off the ground to understand that full end-to-end chain, really understanding not only what it's like to build a product from a coding perspective but also how to go to market with it, what it means to launch in the App Store, what their processes are, and even having a keen eye toward what it means to utilize different distribution channels and user acquisition channels
"Venture capital is all about building companies. Building really large-scale companies is what we're looking to invest in."
Q:So once they've got some of that down, how do they choose whether to look for venture capital, go with Kickstarter, indie incubators… It seems like there are a lot more options out there than ever before.
Bram Sugarman:Yeah, and that's exciting. Kickstarter's a really exciting one and that will help a lot of great games get built. But venture capital is all about building companies. Building really large-scale companies is what we're looking to invest in. So Kickstarter's a great option if it's, "we're looking to build a great game and see what happens there." There are also partnerships. What's exciting for me is that we've seen really rapidly the move toward a couple publishers looking to launch as go-to-market partners for some great studios. There's a company out of Toronto called Massive Damage that just decided to partner with ngmoco. You're seeing Zynga emerge on the publisher side of things.
Q:Do you find yourself having to compete against angel investors or indie incubators?
Bram Sugarman:No. One of our founding principles is to be a great partner for the ecosystem. Partnering is a big part of our strategy, working with incubators or angel investors. When we come in on our first investments, we do these investments that are about $500,000 and are sometimes seed investments. We hope to be involved with angel investors in a lot of those deals. We think it shows a lot of great partners can be around the table. Those people are great parts of the ecosystem and it's not a winner-takes-all kind of thing.
Q:What are the things you most want to see in a prospective company seeking funding?
Bram Sugarman:For us, we look at the companies that people can build. We're looking for those really big $1 billion companies, lots of heads, lots of people being hired, lots of big company ambitions. It's really about understanding that end-to-end funnel about how you go to market from a user acquisition perspective, how you understand game mechanics and design from a user retention perspective, and how you actually generate revenue from a user monetization perspective. A really deep understanding of those three categories is specifically what we look for.
Q:So you really want those parts of the puzzle solved before they get to you?
Bram Sugarman:At least be thinking critically about those parts of the puzzle. There are a lot of great businesses to be built around understanding one or two subsets of those categories. But at least show critical thinking around those. To me what's exciting about a lot of the opportunities today is that a lot of these things haven't been figured out. There's no playbook out there. There's no go-to strategy for a lot of this, so critical thinking on what the possibilities are gets exciting.
Q:What are the biggest mistakes you see people make when they're looking for venture capital funding?
Bram Sugarman: Not understanding what it fully means to go to market. People saying, "I've got this great idea for a game. I'm highly creative, highly talented, and haven't built anything yet. Here's my idea; I'd love to raise a whole bunch of money." That's the biggest mistake, not really understanding what those steps are along the way. And those could include in-house expertise or partnering with people.
"I think you'd be hard-pressed to find many funds looking at console gaming as an investment opportunity, similarly with some of the portables and similarly, but definitely not to the same degree, on Facebook."
Q:Have issues like the slump in packaged game sales, the decline of dedicated portables, or the slump in social games impacted venture capital interests in the game industry?
Bram Sugarman:For sure. I think you'd be hard-pressed to find many funds looking at console gaming as an investment opportunity, similarly with some of the portables and similarly, but definitely not to the same degree, on Facebook. I think maybe opportunities have changed on a platform like Facebook, but I think what you'll probably see over the next two to three years in terms of venture investments will probably be focused on mobile.
Q:So smartphones and free-to-play are the huge areas of opportunity. That seems like the conventional stance on where the opportunity lies. Is that not an issue when you're trying to find the next disruptive breakout success and you're chasing something everyone's chasing right now?
Bram Sugarman:Yeah, and I think that speaks to fully being a critical thinker around the repercussions of that. In a broad sense, it's what everybody's chasing, absolutely. But I really think there's a massive opportunity out there. I don't think we've reached full penetration from a mobile perspective or a free-to-play perspective. There's a lot of room to grow, and there will be a lot of great companies built. There will be stiff competition, so we really talk about those critical thinkers and the ability to be better than everyone else in the marketplace at those key characteristics. It's that type of thinking that will build the greatest companies.
Q:During your MIGS talk, you said venture capital isn't for everyone, that you have to want somebody to take a substantial portion of the company and at some point tell you what to do…
Bram Sugarman:[Laughs] There's a lot of sarcasm in that statement. It's not really a large portion of the company, ranging from 5 percent to 25 or 30 percent, depending on the company. And there are a huge amount of factors that go into that. And the "tell you what to do part" isn't really telling you what to do. It's really a partnership, and having voices around the table is the situation you want to be attuned to when you're raising capital. We can get in tons of arguments and tons of agreements, but at the end of the day, we know we're always working toward the same goal.
"Raising external capital, especially from venture funds, is about building your idea from being something today to something 10, 20, 30, 50-fold of what you're building tomorrow."
The idea of venture capital isn't for everybody. It's really about scalability. If your goal is to build a great business for yourself, there are lots of opportunities out there. Raising external capital, especially from venture funds, is about building your idea from being something today to something 10,20, 30, 50-fold of what you're building tomorrow.
Q:Is there one key piece of advice you'd give to anyone considering this?
Bram Sugarman:Don't be afraid to test things. One thing we're seeing is that rapid iteration cycles and the relatively low cost of development has enabled people to just get out there and try things. The older mentality is that we have to perfect everything before it goes out to market. But if you have an idea, just go out there and test it. The market will tell you whether it's a product they want or possibly not. But the faster you can do things, the better off you'll be.
Q:Thanks for your time.