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How to avoid a bad investor

Financial experts discuss the warning signs developers should look out for during the GamesIndustry.biz Investment Summit

Bad chemistry, lack of experience and unreasonable demands are all indications that a potential investment partnership is doomed to fail.

These were the combined warnings of several industry experts during a panel session at yesterday's GamesIndustry.biz Investment Summit, which ran alongside EGX 2017.

When asked what separates a good investor from a bad one, Mercia Technologies' investment director and former Sega Europe CEO Mike Hayes said the personal relationship developers forge with them will be a great indicator of how well they will work together.

"You'll get a feel, I think," he told attendees. "When you first start talking to whoever it's going to be... it comes down to the chemistry. If you're looking for an investor, do they appreciate what you're doing? Do you get on? Is there a rapport? Do you feel like you trust them. I think there's a lot of soft factors in deciding to work with an investor."

"If you don't like the person you're talking to, don't take their money because it's honestly not worth it. It'll end up being a disaster"

Mike Hayes, Mercia Technologies

He went on to describe the different relationships he has with Mercia's partners, emphasising that no two partnerships are the same. Patrick O'Luanaigh of nDreams, he said, is on the phone "more or less every other day" while others like to keep investors "at arm's length - and that's fine".

"A lot of it's emotional," he continued. "It's about character. A lot of people I've invested in are now my friends. Those sort of things are more important than people think they are, and sometimes people rely too much on business plans, structures and things like that. There are a lot of 'soft' values you should take into account. If you don't like the person you're talking to, I would suggest you don't take their money because it's honestly not worth it. It'll end up being a disaster."

Miniclip CCO Saad Choudri reminded developers that they're unlikely to be dealing with just one investors, but instead be maintaining several such relationships. He also urged them to caster a wider net when it comes to seeking finance.

"A lot of games developers out there seeking investment look for people who are interested in games, people who understand it, but there are a lot of angels out there, a lot of other funds out there that might give you fresh insight from another industry," he said. "They won't necessarily give you the understanding you need when it comes to the games part, but if you can connect with them, it might help.

"There's this idea of smart money and dumb money, but money is money at the end of the day. If that's what you need, it might seem like you should just take it, but to Mike's point you really need to think about whether that money or that person will help you. Because it's only the start. A lot of people raise money and think that's the time to celebrate, but the hard work begins after that. That's why it's super important to get on with your investors, because it's definitely a mutual relationship."

"Steer clear of city boys... There is an ego thing there and the fact that they can somehow control you as an investor is very, very dangerous"

Paul Sulyok, Green Man Gaming

Paul Sulyok, founder and CEO of Green Man Gaming, had very different views on angel investors - or at least a certain subset of them.

"Steer clear of city boys," he warned. "City boys who have made ton of money working on the cash equities trading desk from Goldman Sachs tend to think they are the gods of the world, and they tend to push that on you. You are a person who has the guts to stop what you're doing, pursue your dream and set up a company - they don't have the guts to do that. They have the guts to take several millions pounds of bonus a year off Goldman Sachs. Watch out for those guys, because there is an ego thing there and the fact that they can somehow control you as an investor is very, very dangerous."

He still recommends considering the use of angel investors, but stresses that developers need to look very carefully at who they approach. Crucially, they need to research whether the targeted investor has supported companies before and whether this worked out. If they have never invested in anyone before, it's likely they "don't know what they are doing" and will be "very, very nervous about their investment". As such, they may continually harass you about how you're running their business because they can't afford for you to fail.

"A good investor can afford to do ten investments and lose nine of them," Sulyok continued. "They're only going to make a winner out of one of them, but they could make 10, 20, 30 times they're money out of them. That's the approach they need to take, a bulk thing.

"Do take money from interesting people. Our shareholders include Harley Street doctors and shipbrokers. People who have made a lot of money in their specialist field always have something to contribute. They will teach you something they've picked up over the years which will be invaluable to how you run your business going forward."

Altara Games' Ella Romanos called back to Choudri's point about the importance of a mutually respectful relationship, and said the best sign as to whether you might have one can often be seen in the deal they're offering.

She said: "Obviously, you have to be realistic - you will be giving something away, but if you feel like the investor is not taking any risk... If someone is going to get involved in your business, they have to believe in you, and one way to know is if they're actually willing to take a risk on you.

"Also, are they going to make your life difficult? Any investor should want you as the team running this to be 100% focused and motivated. Taking too much from you or saying that you can't take enough salary to live comfortably is a bad sign. If they want you to live of 10,000 per year and take 70% of your business, they're not in it for you, they're just in it for a quick buck."

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