Video games are a creative business, and as the industry's various marketplaces swell with more and more product, a nuanced understanding of the "business" aspect is more important than ever before.
When Jason Della Rocca was running Execution Labs, evidence of business acumen was hugely attractive when listening to developer pitches. The startup accelerator wrapped up in May last year, with all of its funding deployed across 19 studios, and in each case the presence of a business focused person in the core team was vital in the decision to invest.
"The vast majority of game studios are started by game makers, which is not a bad thing in and of itself," Della Rocca said, when we spoke this week. "But when we were doing Execution Labs, we always wanted to see someone on the core team with some business sense, with some understanding of managing a company. It was one of the requirements of us investing."
"The CEO's role is to ensure the viability and sustainability of the business, and not to design all of the game's levels"
Knowledge of running a company may seem like an essential strength for any new business, but Della Rocca has worked with enough startups to know that it is rare in the games industry. New developers are founded by groups of programmers and designers and artists, he says, and very often it is one of these skilled craftspeople that ends up at the head of the company - a position that is supposed to be focused as much on the health of the business as the product itself.
"It's the programmer that's the CEO, and they're focused on programming the game. They're not focused on the viability of the company," he said. "Realistically, the CEO or the president, their role is to ensure the viability and sustainability of the business, and not to design all of the game's levels.
"But it's super rare to have that, certainly in early stage game studios. You end up having programmers and artists with no background in business or management, zero experience with fundraising and pitching... That's why, I think, game developers in general are poor at pitching, and also are kind of lost when it comes to pursuing investors. They just don't know."
For the most part, this lack of familiarity with how to find and secure investment comes from a positive place. Della Rocca mentioned the humility, creative focus, and determination to get a project finished that drives so many independent developers. However, these qualities also lead most developers to think about funding as a way of fixing a problem, rather than building on an opportunity.
"A lot of developers realise they have a money problem, and they'd better go out into the world and get some money because they need money. How you do that really depends on whether you're trying to get that money from VCs, or you're trying to get that from publishers."
"The reality is that nobody gives a crap about your lack of money problem. They want opportunities"
Time and again in his time in the industry, Della Rocca has encountered a lack of understanding of the difference between these two options, and the kind of projects that are best suited to each. With equity funding, in particular, the mindset that frames funding as a way to fix problems is incompatible with what VC investors need to hear to be confident in writing a cheque.
"Most developers think of funding as fixing their problem," Della Rocca said. "And the reality is that nobody [equity investors] gives a crap about your lack of money problem. They want opportunities.
"Developers don't necessarily think about their project as a thing that has the potential to grow, to build a big fanbase, and to make lots of money. They're not framing it as an amazing opportunity. They're framing it as, 'Holy crap, I have five programmers to pay, and I have a money problem.' Never mind the extra layer of building a business, growing a studio, and so on."
There are always exceptions, of course, but Della Rocca offered a general "rule of thumb" for all developers to consider when looking for funding. With premium games the opportunity is the product, and "project funding" from sources like a publisher or Kickstarter are the best fit. With equity funding, it will be difficult to tempt a VC investor with anything that isn't a live, service-based product.
"Games as a service," Della Rocca elaborated. "Usually that implies a company that will grow over time as all these games accumulate a big audience. The opportunity is more company oriented."
For a VC investor, the "success curve" of a premium game is simply too linear in a world where games operated as services can bring in hundreds of millions in revenue each year. As a premium developer, doubling your money might be a desirable outcome, and a three- or four-fold return on investment the stuff of dreams. But that is the success curve on which publishers build their businesses, and of little interest to equity investors.
"If what you're working on is double your money, and amazing success is 10x, don't go talk to VCs. They don't care about your 10x"
"If what you're working on is double your money, and a big, amazing success is 10x, don't go talk to VCs. They don't care about your 10x," Della Rocca said. "They don't care about linear success. It's often not so much that developers don't articulate what they're doing effectively. It's that they don't even realise that they're on the wrong curve, and they should not even be talking to VCs."
At this year's Nordic Game Conference, Della Rocca has designed an event format with this contradiction firmly in mind. The Games Capital Summit, a new addition to NGC, will address an issue often found in pitching events, which generally contain an "ambiguous" mismatch of every kind of investment for every kind of project - from VCs to crowdfunding, and from indie passion projects to mobile startups with plans for billion-dollar revenues.
"You have this really strange mix of people in the room," Della Rocca said, and it's a mix that results in nobody leaving fully satisfied. "My main point to Nordic Game Conference is that we should focus an event specifically on venture or equity investing."
"At the Games Capital Summit, we'll be doing a pre-filter before anyone gets on stage to pitch, It's not a come one, come all approach. You submit, and we're going to review to make sure the opportunity your building is an exponential opportunity, its games as a service, it's suitable for equity investing.
"My guess is that we'll get a ton of stuff, in terms of the actual submissions, that's still more focused on project funding. 'My game is cool, so I'm just going to submit and get in front of those people with money.'... That's why we're doing the pre-filter, so we can pick the ones that meet the criteria.
"It's not to say that one form is better than the other. All of it is valid. You just need to make sure you're matching the right opportunity to the right source of funds."
The Games Capital Summit will take place at this year's Nordic Game Conference, an annual event for which GamesIndustry.biz is a media partner. We will attend the show with assistance from the organiser.