What do Roblox, League of Legends, Candy Crush, Clash of Clans, and WordTrip have in common? All of them are multi-billion dollar gaming IPs – but more importantly they all came from startups.
There are over 3 billion gamers in the world today. More than 60% of the gaming market in terms of revenue comes from mobile games. And 23% of the total VC deal value in Q1-3Q22 went to early-stage bets.
Early-stage games have the potential for some of the most exciting returns on a venture capital investment. But from a 30,000-foot view, gaming looks like a successful business, especially in content.
How is success coded for game founders? Let’s take a look at some of the key features we’re looking for.
The right founding team: Very few game studios knock it out of the park on their first try, so iteration quickly and learning from past experiences is key to success. We are looking for founders who are truly passionate about the space they are in, and who have conviction to keep building and improving over at least 10 years. Game founders often need at least three short goals, ideally 20-28 months from the runway.
Game creators also need the flexibility to change when the realities call for it. Are the founders data driven, and curious enough to adapt to feedback from users, advisors, and investors? Are they great storytellers with the ability to package their thesis into a compelling narrative to attract the right talent and capital following?
Hyperspecialization in white space: It starts with founders who, through research or experience, have identified a core set of insights that are unique in a genre or audience. And the questions follow from here – Is there an upward scale to the adventure, local or global? What does the competitive landscape look like? Over 500 games are submitted to the App Store every day – we’re in short supply. Look at some of today’s great developers like Dream Games, Trailmix and Metacore – they pretty much double down on one game and iterate until they nail it completely.
One mental model for defining white space involves spotting and disrupting legacy, or “sleeping” categories of games that have been stagnant and haven’t seen innovation in years. Founders can also approach this from a user-centric point of view – have user expectations of a particular geography advanced beyond the type of content available to them? Are users becoming more sophisticated or maturing faster than the market? Finding these fundamental imbalances between user demand versus supply is a great way to define white space. This category is particularly poised for disruption across the Indian market.
Best in execution: Gone are the days when Indian users would settle for nothing less than flashy experiences and exceptional execution. If you are targeting a global audience, you must have the ambition and ability to perform 5-10 times better than your next competitor. Think carefully about the modulation and cadence of your game’s dopamine hits (ideally once every 60 seconds) and TTF, or fun time — a metric that tracks the time from game initiation to the experiential pleasure that is the core experience. Even for average games, again, you should be looking at less than 60 seconds. Making your tutorial (if you need one) interactive is a great way to reduce TTF.
Learn to keep you: Once you have your game on the public test, really understand the levers that drive retention in your game. A D1 score of 45-50+% is a good start. After this curve forward, a D7-14 result is between 20-25% healthy. From D30-90, you want your curve down to at least 10%. Moreover, if you keep 5% of the first cohorts, you stand a strong chance of making income in the long run. Reaching these retention numbers is critical to long-term success, and founders must ensure that retention is ‘Nth Day’ retention, not continuous retention.
Game studios that successfully navigate these key early inflection points have the ability to reach the revenue stream very quickly, and in many cases don’t require raising capital – In essence, it becomes self-sufficient in early-stage funding rounds. This means great potential for great results at scale for early stage investors.
The table below shows examples of some gaming companies that have expanded to generate large liquidity results from relatively small increments:
The opinions expressed above are those of the author.
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