Joe’s Take

I just left a video call with yet another game studio executive trying to navigate having secured initial funding and now running out of cash with a potential closure of their studio looming. In addition to sadness, I can’t help feeling as though both the investors and the studio headed down an unnecessarily dangerous path from the start.

Investors can play a critical role in the success of a game studio by providing capital and expertise. However, applying traditional investment models may cause developers to pivot from best practices in order to secure the investment. The unintended consequence is that risks can be added instead of mitigated, and it is important for both parties to navigate together carefully to avoid common pitfalls.

Examples of these risks include making a game larger to increase potential returns, hiring a big internal team to maximize enterprise value, setting unmovable deadlines to keep the dates of future returns in place and, as faced by the studio I just spoke with, providing only initial funding.

These decisions may lead to a riskier project to manage and one that is not attuned to the challenging reality that finding fun cannot be promised by a given date. Starting full production too soon is a recipe for the studio to risk cost overruns while piloting a battleship when the agility of a speedboat is still required. Without a clear funding path, a studio can end up burning investment capital intended for development on pitching and demos.

Games are not well suited to ‘build ten things fast, expect nine to fail and one to skyrocket’. They need to be nurtured by oversight which advances step by step towards success. This doesn’t mean a game should be finished at all costs, it just allows the investor and developer to pull the plug on a project that is not coming together before full production, so that the team can focus on the next opportunity while there is money left in the bank.

The good news is that digital games sell forever, and game franchises are strong platforms to build upon with sequels and additional content. For investors open to long term cash generation, games are a great match. If a fund has a maturation date, successful IP can be sold based on future revenues.

Fundamentally, rather than pressing for a quick home run, the most consistent returns come from supporting quality studios making games iterated through feedback from the team, testing with consumers and learnings from the industry. This approach lays the groundwork for developing “singles and doubles” into powerhouse franchises. The greatest investor impact comes from adapting fund structures and return models to account for development best practices. Success hinges on a strong partnership of developers and investors together forging new ground that is aligned to the unique dynamics of the game industry.

– Joe Minton, President, DDM