From startup to global growth: insights from a venture capital expert
Learn how to navigate the investment process and maximize investor appeal — part of the Apps, Games, & Insights podcast
The content in this post builds upon the discussion around venture capital funding and the investment process for mobile games businesses on Google’s Apps, Games, & Insights podcast — tune in to the episode to learn more about maximizing investor appeal .
Having spent almost 10 years at Google, my time there taught me that I was passionate about gaming and working with startups and investors. So it was a natural transition to the world of venture capital as I got to marry both these passions. Almost three years ago I joined London-based Initial Capital, focusing on gaming, media, and entertainment, and now at Cherry Ventures, I focus on seed-stage funding but across more verticals.
Whether you are a startup in search of funding or an established business looking to accelerate your investment, venture capital can often be a good source of funds. In this blog post, I will share with you some insights into the venture capital process and how you might approach searching for venture capital for your business. I’ll also look at some trends in games that are of interest to venture capital firms.
1. Determine what you want first
Before looking for investment, it’s important to think carefully about your aspirations and the type of company you want to build. That way, you can find the right type of investor: not everyone will benefit from venture capital investment. When you take venture capital money you should expect investors to be very ambitious about what the company can achieve. If your level of ambition doesn’t match theirs you might find yourself in some difficult conversations. Also, when venture capital deploys big funds into a company they expect it to become a very big business. So, you need to know if that’s the way you want to take your business.
For example, you want to build an indie game in an obscure category and what switches you on is winning industry awards and delighting a niche audience. These are valid reasons to build a business and can be the foundation of a very good business. However, that business is probably not bankable to a venture capitalist because it’s not going to grow to scale, no matter how successful you are.
And chances are you don’t just need money. At the seed stage, businesses typically need expert advice to help with product market fit and building a business model. Therefore, you may want to find an investor that prioritizes providing advice over simply being a financial investor.
2. Inside the venture-capital process
At Cherry Ventures, we invest at the seed stage meaning we are typically the first institutional money a company raises. This can be when there is just an idea and a founding team. There is usually no product, but sometimes there might be a prototype. So, in addition to funding, we focus on helping the startup team, finding product market fit, and developing their business model.
The next round of funding is Series A and Series B. After we invest, our focus is helping our founders effectively use their time and avoid mistakes commonly made by companies at this early stage. Through regular consultation and communication, we help companies identify — and avoid — possible obstacles to make their ride to success smoother.
While our coaching keeps teams focused when things are going well, we also know building a business is tough and provide reassurance and assistance when some obstacles are unavoidable.
3. Understand what investors look for
Your product and team
When looking to invest, particularly at the seed stage, investors will evaluate the product or service and team. The team is the most important element, but evaluating it can be difficult, mainly because it’s common to be a new team that has never started a company before. There are however patterns and signals that tell us whether a team is strong.
Key attributes include the founder’s ability to articulate their vision and understanding of the milestones they need to achieve it. So, it helps to have a good idea, a good business plan, and a good thesis around the product as well — these things are more tangible and easier to evaluate.
Adaptability
Sometimes startups that look most likely to succeed fail very quickly, while ones that seemed more of a risk end up succeeding. The difference between these businesses is their ability to adapt. Teams that show they can relentlessly execute and change their narrative, adapting to circumstances are more likely to succeed.
For startups, the most constrained resource is not money: it’s time, the time to convert and be flexible. So, while flexibility is an important indicator of success, there are not an infinite number of pivots available. Therefore, the ability to change quickly and correctly is married to flexibility. I haven’t seen many companies pivoting more than two or three times, because they run out of money before they could implement another change.
4. Build and grow your startup
So, how do you create a startup that is going to be of interest to venture capital investors?
- First, you need to be very clear about the problem you’re trying to solve. You can then prioritize the skill sets you need to have on board.
- Find ways to validate your theses efficiently: As it can take a long time to develop an app or game, one strategy worth considering is creating an ad for your proposed product to see how people respond. If the response is positive you might continue with iterations on the messaging to help understand what people are interested in. This can help to de-risk before you commit to significant engineering cycles.
- Fast release cycles and constant iteration: As long as it’s good enough for you to prove the core-mechanic, it’s useful to develop and release prototypes. And, it’s worth remembering that, if you launch something that feels really good and perfect, you have probably launched too late.
- Metrics reporting: It’s important to have good visibility on the metrics that matter to your business and product. Metrics are crucial and should be as specific as possible to your product and the experience you are building for your users so that you can decompose the drivers of that experience and what makes or breaks it. Being able to measure what you’re doing, and what works and what doesn’t, can then drive a process to improve iteratively. And, as I talked about earlier, the ability to adapt is key and strong metrics reporting will enable you to learn quickly, giving you more time and increase your chances of success.
5. Find the right venture capital investor
It’s important to think carefully about your aspirations and the type of company you want to build, so you can find the right type of investor: not everyone will benefit from venture capital investment. When venture capital investors deploy big funds into a company, they generally expect it to become a very big business. Therefore, you need to know if that’s the direction you want your business to take, before going down that route.
You should do your research, check out investors through their website and review their portfolio. Look for contacts that you may have in companies in their portfolio, or reach out through your other contacts, and talk to them. Ask how they work with the investor, and what value do they get beyond the money? It’s also worth looking for events, virtual or otherwise, where venture capital companies may be pitching or scouting. For example, historically Slush is a good one for game developers.
Start talking with investors as soon as possible, even if you don’t have a pitch, as it’s a good way to meet them. This is a relationship business: data matters and references matter, but ultimately not more than the relationship. Also, by talking to investors early, when you come to make your final pitch, there can already be a relationship to build on. Building a mutual understanding in advance goes a long way to achieving a successful investment.
Also, chances are you don’t just need money. At the seed stage, businesses typically need expert advice to help with product market fit and business model. Therefore, you may also want to find an investor that prioritizes providing advice, over simply being a financial investor. More importantly, you should find an investor that has real experience, networks and knowledge that you can lean on. Venture Capitalists can help by opening their networks to you, so you should get a sense of how strong and complementary their network is.
6. Share control with the investor
Many people worry that bringing on board a venture capital investor means losing control of their company: they won’t, as long as they don’t give away too much equity. In fact, I would suggest that if a potential investor wants to take too much equity, especially at the beginning, it’s not a good signal. A good venture capital company will know that in order to achieve success the founders need to remain incentivized.
But remember, there will be some level of sharing of the control. This is another reason why it’s important to be aligned with your investors and ensure you are all trying to achieve the same goals. There will definitely be differences of opinion, but again this is why relationships matter and a good relationship is the core foundation of a successful investment. Those differences can be healthy as long as the direction and ultimate goal is shared.
7. Discover trends in mobile games
One of the fascinating things that working in venture capital gives you is insight into trends in various industries.
From a venture capital point of view, the most interesting games are the ones that have a good strategy for product development or user acquisition. More to the point, strategies that help them win where there is an oversupply of content compared to demand.
From the product and content point of view, user-generated content (UGC) and mods-based content games, take an interesting approach to tackling this challenge.
When it comes to user acquisition, a fascinating trend is enabling people that watch to interact with the people that play: engaging influencers and streamers inside the game.
However, more broadly, when creating a mobile game you should think beyond the mobile games market. Consider the broader media and content market and how you can raise your product above the noise that is hitting people’s free time.
Crossovers trends
At Cherry Ventures we invested in a range of companies which opens up the possibility of applying learnings from one industry to another. Among these, we are seeing that consumer apps are learning how to build a product from games. For example, companies are adopting best practices to on-boarding, engaging, and monetizing users. You can see this in the approach taken by many wellness and fitness apps as an example.
Although perhaps one of the big crossover trends at the moment is sustainability and how apps, games and their developers are becoming aware of social and environmental issues. It’s not just about the developer being more sustainable but also offering ways to empower people to help solve these issues. Looking for companies that embrace sustainability is very important to Cherry Ventures and, no doubt, the whole venture capital market. And, again, how you funnel that energy, how you can onboard and engage people around these missions, can learn a lot from games.
Final words
As an investor I enjoy being part of the team that helps startups through all their challenges, working through the highs and lows of building a business. I hope I have given you some useful pointers for figuring out whether venture capital is the right move for your company. If you do decide to go down that path, hopefully now you have some more information to guide you on your journey.
Find out more
Listen to Matteo Vallone talk about venture capital and the mobile apps and games industry in more depth on episode 3 of the Apps, Games, & Insights podcast.
What do you think?
Do you have thoughts on acquiring investment for apps and games from a venture capitalist? Let us know in the comments below or tweet using #AskPlayDev and we’ll reply from @GooglePlayDev, where we regularly share news and tips on how to be successful on Google Play.
