Game Devs Suck at Pitching: Advice for Attracting Investment
Jason Della Rocca gives a beginner's guide to venture capital and offers tips on how to secure funding
Jason Della Rocca opened his talk at the Toronto chapter of the International Game Developers Association last night with his favorite piece of advice for independent developers thinking about how to get their new companies off the ground.
"The best time to take someone else's money is never," Della Rocca said. "If you can bootstrap, if you have your personal savings, if you don't absolutely have to take external funds, you're always better off."
But given that the room had been reserved for the next two hours, the former head of the IGDA and co-founder of Execution Labs offered some extra advice for those who aren't able to enjoy a perfectly ideal situation as they try to get their studios off the ground. Della Rocca was able to speak from experience on the subject, as he has been on both sides of the funder-fundee equation with Execution Labs. As an incubation program, the company supports small teams of developers and provides them a place to work and a modest salary to help get their projects off the ground. However, Execution Labs is also a venture capital-backed endeavor, so Della Rocca and the rest of the team had to get investors to give them money before they could turn around and give it to developers.
"It's a pain in the butt, but no one's going to give you $10 million if you say, 'Don't worry about it. I've got this five-year vision and it's going to be awesome.'"
Jason Della Rocca
The first thing developers need to consider when they're looking for money is whether they're looking to fund a project or a company, because they'll be dealing with different people depending on which they choose. For funding of a project, Della Rocca said the sources of money are things like day jobs, friends and family, crowdfunding, publishers, and government programs like the Canada Media Fund (CMF). It's possible to seek funding for both the company as well as an individual project, but Della Rocca warned that each investment carries its own set of obligations and they could easily come into conflict. While he surveyed the state of project funding, the focus of Della Rocca's talk was on funding new companies.
There are five stages to startup investment, with a different group of people giving money for each one. The amounts of money being raised increase and the risks for the investor decrease as the company goes along, so the ability to jump through these hoops and line up funding from new parties time and again is itself a sort of vetting process.
"You're generally taking the money from one stage to prove to the next stage of investment that you're investable," Della Rocca explained. "It's a pain in the butt, but no one's going to give you $10 million if you say, 'Don't worry about it. I've got this five-year vision and it's going to be awesome.'"
In the beginning, that group is what Della Rocca referred to as "the three Fs," or family, friends, and fools. At this stage, there's functionally nothing to invest in besides the people and the idea.
If a team can put together a strong prototype, they might be ready for the next tier, angel investors. As Della Rocca explained it, angel investors are often former entrepreneurs who hit it big, sold their businesses for a mint, and are taking their earnings and re-investing it in their field.
"If you just have your little dream project and you want to make your childhood poem game or something, nobody's going to give you money to do that. Just pay for that out of pocket..."
Jason Della Rocca
The final three stages of startup investment are different shades of venture capital, Della Rocca said. First, there's seed-stage VCs, which invest relatively small amounts in companies that have yet to turn a profit. Once a startup finds itself in the black, it might be able to attract the attention of normal VCs, perhaps to the tune of several million dollars. And if the company is already a proven success and needs money to expand the operations around the world, growth VCs may be willing to make some huge investments well north of $10 million.
"Generally speaking, all the stuff prior to revenue, you're selling the vision," Della Rocca said. "You're selling the promise of what you're going to deliver. Post-revenue, you're selling actual traction... When you go look at VCs or angel investors, they're looking for a team. They're looking for a company that has a vision, that will grow in value. If that's the case, you go knock on their door. If you just have your little dream project and you want to make your childhood poem game or something, nobody's going to give you money to do that. Just pay for that out of pocket or get CMF to think that it's innovative."
Unfortunately, this may not be the best time to go looking for money. For one thing, there aren't nearly as many angel investors in the game industry as there are in the more general tech industry. Della Rocca expects that to change in the future, but for now, it appears that the success stories the industry has produced aren't turning to investing in the same way as their peers in tech. Complicating matters is the less-than-bustling VC scene for gaming companies at the moment.
"It's quite dry, especially with Zynga screwing up," Della Rocca explained. "But Supercell just sold 51 percent for $1.5 billion. That's how you're going to get people excited again."
"How many of you have heard a VC or investor say games are hit-driven? That just means they don't understand the economics. They don't know how to parse the risks."
Jason Della Rocca
Della Rocca seemed a little frustrated with the situation, particularly because it may be based on a misconception most VCs hold about gaming.
"VCs tend to invest in areas they know best because they think they can understand the space," Della Rocca said. "How many of you have heard a VC or investor say games are hit-driven? That just means they don't understand the economics. They don't know how to parse the risks. Because it's like, f*** you, every business is a hit-driven business. Everything is hit-driven."
Because they don't understand games, VCs have been making few bets on them. They'll back one company, Della Rocca said, then wait to see how it pans out before investing in any other aspect of gaming. And if/when that single investment falls through, they tend to wash their hands of gaming as too "hit-driven" a business for their tastes.
However, the investor side doesn't have a monopoly on misconceptions. Della Rocca said not all of the fears he hears from developers seeking funding are well founded.
"This is one of the myths or misconceptions, that investors are going to come in and grab 99 percent of the company and I'm left with 1 percent. But if you have 1 percent of the company, well screw that, you just throw it in the garbage and move on... Generally speaking, investors still want you to own the majority [of the company] because they want you to be motivated."
"Most investment decisions are not rational decisions."
Jason Della Rocca
Another misconception developers might have is that with the amount of money at stake, people are going to be purely objective in what they decide to support.
"Most investment decisions are not rational decisions," Della Rocca said. "It's 'Someone heard something that you were up to something cool so I had to come talk to you.' Or 'I heard two people say that so there must be something there.' Or 'I went to one of those parties and I got drunk and had a great time'... I shouldn't say this, but in part, that's how Execution Labs was funded."
Della Rocca didn't elaborate, other than to say that as silly as it might seem, networking and meeting people is crucial to the process. And that's true not just in investment circles, but also with one's fellow developers. Della Rocca encouraged creators to get frequent feedback on their work, to share it with as many other developers as possible.
"A big resistance to that I often hear is, 'I don't want my idea to get stolen.' And like, nobody cares," Della Rocca said. "Everyone has their own idea. 'But Zynga, Zynga, they clone!' Listen, Zynga will clone your game after you've made $10 million dollars and at that point, you'll have lots of money to pay lawyers."
Speaking of which, Della Rocca strongly encouraged developers to get legal help familiar with the particulars of the game industry, not just when dealing with investors but when dealing with co-founders. An equivalent of a prenuptial agreement at the outset can save a lot of drama later on. Della Rocca pointed to the Phil Fish segment of Indie Game: The Movie as evidence of that, saying his situation in the film was the result of a busted contract.
"Most game developers suck massively at presenting their games," Della Rocca said. "The industry as a whole is pretty crap at this because we're so stuck in the details."
Jason Della Rocca
Pitching was another area Della Rocca suggested developers focus on when chasing down investment.
"Most game developers suck massively at presenting their games," Della Rocca said. "The industry as a whole is pretty crap at this because we're so stuck in the details. We're stuck at, 'It's this ninja game, and there are like five different katanas with different steel...' And nobody cares. What's the core essence of the game? What's the experience you're selling, how do you present that?"
The ability to concisely articulate a vision will also benefit them when dealing with other developers, the press, fans, potential hires, and so on across the board, Della Rocca said. If developers can't explain what's so special about their vision, it's unreasonable to expect investors to share it.
"Generally speaking, investors do want to see some kind of insight," Della Rocca said. "What is it about your understanding of the marketplace that allows you to access a different audience, meet a different need that nobody else is addressing?"
Finally, investors want reassurance wherever they can get it. Della Rocca suggested pitching the pedigree of the team and showing that the project is getting traction, both internally and externally. Internally, that means showing progress on the game being made. Externally, that means providing validation that the developer has something other people are interested in and believe in, whether it's a healthy Facebook following, an abundance of press clippings, or award nominations. But those things don't generate themselves.
"Certainly if you're an independent studio, you really have to spend time on the marketing and PR side from the very beginning," Della Rocca said. "It really has to be a key role of someone on the team, even if they don't have a marketing background."