The Reality of Video Game Investments

The Reality of Video Game Investments

Even now, pre-seed and seed rounds are competitive for investors: everyone wants to be the one who discovered the talent and had the highest ROI. Fund investors expect VCs to do exactly that. This leads to situations where most VCs want to participate in the first round but are reluctant to join following rounds if they weren’t in early. After all, what’s the point for LPs to back them otherwise?

This is especially true for gaming VCs, where LPs expect not just financial returns from their VCs but also co-investment opportunities and market insights, so the funds with the best access to original deal flow win. This creates a vacuum at the Series A and later stages, which can be a brutal wake-up call for founders who previously enjoyed FOMO-driven fundraising because of their ex-Riot/Blizzard/you-name-it pedigree and had no problem raising their seed round at very (stupidly) good valuation, but now are struggling to raise their Series A.

In the games industry, Series A is usually not about scaling a functional business with strong revenue yet. It’s more of a “market validation stage” – early KPIs, an MVP, a demo, or, in the best case, first revenue. So you raise to get exactly to this point. And then founders are left wondering: “How come? Where are all the investors? Why can’t we raise the next round just as easily as the first one?”

Exactly. That’s why: There simply aren’t enough growth-stage gaming investors and you are not yet attractive to financial investors – which is nuts!
Because in my opinion, it’s actually the best stage for financial investors: most of the stillborn projects are out, there’s real traction, the game will likely be released after this round, and there’s almost no competition — meaning you can get amazing terms.

Still, while the disproportion is brutal, there are active growth-stage investors out there, both VCs and strategics. We are lucky to have great partners joining us and plenty of follow-on rounds in our portfolio. The first TGF fund is $50M, and our companies have raised close to $80M in follow-on rounds. Tell you what, it is crazy hard. And I am especially proud of the rounds where we invited our LPs to participate, and now those companies are doing pretty good.

I just can’t believe how different life is at Seed compared to Series A. It’s a different world. Do not forget that when you celebrate your successful seed round!