Video Game Studios Struggling to Secure Venture Capital: Overcoming Content Risk
It’s no easy feat for video game studios to attract venture capital in today’s mature and highly competitive market. The uncertainty of whether a game will be successful or stand out from the crowd poses a significant challenge for studios seeking financial support. In this guest post, David Kaye, co-founder and general partner at venture capital firm F4 Fund, shares four effective strategies to overcome investor scepticism and combat content risk.
The Challenge of Raising Venture Capital for Games
One major obstacle in securing venture capital for game development is the high level of content risk involved. Venture capitalists typically evaluate investment opportunities based on:
- A founder’s vision of how their product can create, expand, or transform a market.
- The founder’s unique insights and advantages that give them an edge in the industry.
- The company’s path to market and potential for massive success.
- The VC’s comprehensive examination of these factors to make an informed investment decision.
However, when it comes to game concepts, VCs face difficulties due to their limited experience and comfort zone with traditional business ideas. Many VCs fall into two categories:
- Lacking relevant experience, they struggle to grasp the merits of a game concept.
- Having game development expertise, they become even more doubtful of assessing a game’s potential success based on a pitch deck alone.
Furthermore, the increasing number of game releases year after year diminishes the odds of any individual game achieving commercial success.
Convincing Venture Capitalists: Strategies That Work
To gain the confidence of venture capitalists and secure funding despite content risk, game developers must provide additional reasons for investors to believe in their potential success. Here are four effective strategies to achieve this:
Method #1: Show Proof of Demand
While proving demand for a game without sufficient funding may seem daunting, it is crucial to convince investors. General survey data or revenue figures from comparable titles are often dismissed by investors. Instead, developers need to demonstrate specific demand for their game through methods like:
- Retaining and engaging cohorts in early product versions launched in test markets.
- Utilizing data from various cohorts to showcase demand, avoiding reliance on a small cherry-picked group.
Method #2: Include a Design-Oriented Founder
If a founding member of the team has a track record of creating highly successful games, investors are more likely to believe in their ability to repeat that success. While not sufficient on its own, this factor often plays a significant role in securing deals.
Method #3: Highlight Industry Tailwinds
Positioning a game’s development as taking advantage of industry trends rather than risking failure in a crowded market resonates with risk-averse venture capitalists. Developers should contextualize their strategies by:
- Articulating how their game aligns with an industry trend that investors perceive as transformative.
- Positioning themselves to benefit from the wave of change to boost the game’s chances of success.
Method #4: Implement a Unique Go-to-Market Strategy
While game developers are often creative in their game design, their go-to-market strategies can be lacking. To overcome this, developers should look beyond the gaming industry and draw inspiration from successful strategies in other sectors. This approach can differentiate their game and attract investor attention.
If you’re a game or technology company seeking pre-seed or seed-stage funding, David Kaye invites you to reach out to F4 Fund. While an introduction from a founder is preferred, a well-written cold email can also make an impact. Stay tuned for more essays on startups by subscribing to the Game Stuff substack.
Edited by Paige Cook