How to prepare your gaming business for investment
As pioneers of a number of major video games, including Grand Theft Auto, Tomb Raider and Burnout, the UK is the third largest producer of video games series in the world, second only to Japan and the US.
Our national gaming industry is currently worth an estimated $5billion to economy and, in 2018, it accounted for more than half of the entire entertainment market, outselling music and video for the first time.
Our home-grown talent boasts a portfolio of games technology across mobile, PC and console, to VR/AR, eSports and AI. With the appetite for more interactive ways of playing online increasing at an unprecedented pace, it is estimated that the global games audience will hit $180bn by 2021 (and that’s prior to the impact of COVID-19).
It therefore comes as no real surprise that investors are placing bets on the rapidly growing industry. It’s a trend that we recognise at NorthEdge, with three of the companies we’ve invested in to-date having roots in gaming – Cubic Motion, Catalis and Sumo Digital.
I would point to four investment considerations, which will hopefully help businesses in this market who are considering raising external investment.
The gaming market is crowded, but a good company always has a key point of difference. With Cubic Motion for example, we were presented with an animation services business that could fundamentally perform facial animation to a higher fidelity, quicker and cheaper than animation teams at a Rockstar or Activision Central, due to Cubic’s in-house developed IP. That’s a compelling pitch.
We approached the Cubic, Sumo and Catalis investments with a thematic thesis that as providers of “tools” (being approximately one half of the Catalis business, testing, and previously 100% of Sumo’s business), for a rapidly growing games market, they were and are well positioned to grow. Fundamentally, any firm that proffers either unique or better “tools” into this end-market, appears well placed to scale quickly.
Across all of our investments, we are focused on management. That’s no different in gaming, and so we are looking first and foremost at the founding team. We tend to ask questions like: Do they have a track record or career which suggests they’re going to build something special? Have they built a team around them? If not, are they open to new investment in relevant expertise and experience alongside them? Are they realistic when it comes to their business model, its competitive standing against existing solitons, and their route to market? Is the IP, technology or people roadmap well thought through and more substantive than a 10-page teaser document?
Asking yourself these questions aloud, and testing them on a trusted group of contacts, really gives you a sense of when you’re ready for investment.
Taking capital too early can be extremely damaging to any business for a host of reasons – so think long and hard about when the time is right. A good trigger for this decision is when scale is tangible and needs that extra capital and support to achieve. Equally, if you’ve reached the end of your risk appetite, and want a partner to share the burden of the next chapter, can prove the right moment.
If you are investment ready, you need to find the right partner that will guide, challenge and support you to build your business. It should be an investor with a wealth of experience and an outstanding network – more than just capital.