EGD News #100 — From pre-seed to seed
Sent on September 17th 2021.
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🌱 From Pre-seed to Seed
Before diving into this piece, I want to define pre-seed in some terms.
A pre-seed round can be an angel round, a VC round. It doesn’t matter, but the sum should be around half a million to a million.
No investor is expecting you to launch and become profitable with the pre-seed raise. The expectation is to raise 2-3 million as soon as possible and continue growing.
The reasons are apparent. The fundraising path is meant for growth. That’s what VC money is intended to do: fuel the growth of the company. After a pre-seed round, the VC path dictates an immediate raise so that you can hire a team who can handle marketing, player support, Live Ops, etc.
But what is common knowledge to VCs isn’t evident to founders. Many founders believe that fundraising isn’t supposed to be done before the money is running low. Or that it is a necessary evil.
To continue on the VC path that they started on, how should founders shift their mindset to go from pre-seed to seed?
I recently read Leading, the book by Manchester United’s famed coach Alex Ferguson. The book’s epilogue was written by Ferguson’s friend and co-author of the book, Sequoia general partner and venture capitalist Michael Moritz, who has backed companies like Apple, Cisco, Google, Airbnb, and countless others.
What I took from the book was how Moritz distilled Ferguson’s approach to his work.
“Press Sir Alex [Ferguson] to choose three words to summarize his approach to leadership, and he would pick three that begin with the same letter – preparation, perseverance, and patience. Compel him to select one word, and he would fasten on – consistency.”
I find that these immediately relate to the fundraising process, guiding founders to shift their mindset in VC-backed company building. Graduating from pre-seed stage to seed-stage and beyond.
Preparation: It all starts with knowing what you should prepare for and then start preparing. VC investing is about fueling growth, so the founder needs to think big. What does a thriving studio look like? That’s what a founding team will be going towards, backed by a product strategy that supports the VC-backed trajectory. Work backward from a vision and prepare for the road ahead. Also, ask your pre-seed investors for their advice for raising the next round. There will always be the next round, so bring it up. Generate an understanding of what is needed.
Perseverance: Once your pre-seed money is in the bank account, you want to kick off the seed round process immediately. Create a list of the best VCs you’d like to approach. But don’t approach them yet. Hire key team members. Launch a website, update and beautify your pitch deck. In a way, the founders must throw caution to the wind at this stage, as they are spending lots of pre-seed cash to get to the next stage.
Patience: Don’t soft launch yet, even though you’d want to. You’d like to launch to get numbers, but it’s often counterproductive: in a blue ocean, there might be no need for KPIs to prove your business at the Seed stage. VCs are almost like professional gamblers—often, you’ll have the same chances of raising with numbers as without them. Don’t get me wrong, I’m all for getting early KPIs, but in an ideal fundraising situation, you’ll only need numbers when you go for Series A and beyond.
Consistency: Keyword in fundraising is momentum. Here’s the situation. You’ve met VCs in the pre-seed fundraise circuit, and you want them to have the impression that you are a startup that is going place. How to create momentum? Key hires and investors with immense domain expertise have validated the team and the game, and a soft launch is coming soon. A show of consistency will lead to a successful seed raise.
At Next Games, we raised our pre-seed in Q1 of 2013, then skipped seed and went for Series A in less than ten months. Our preparation came from being repeat founders; four out of five founders had already done startups before. We’d worked at Rovio and Supercell and other successful game studios. We didn’t stick around as five guys in a room but scaled the team to thirteen people by the time we closed the Series A.
If you can’t say that you’ve worked at Rovio or Supercell or that you’ve done startups before, then what? Perhaps you should look for team members who can take you to the next level. If you’ve managed to raise a pre-seed, someone believes in you. Hire team members and give them considerable amounts of equity, enough to justify them joining.
If I’d need to double down on Sir Alex’s approaches, I’d prepare. With the right idea and the right team. I would work on both at the same time before raising a dime.
(Photo by Garrett Butler on Unsplash)
📈 Elad Levy on Custom Analytics
In this episode, I’m talking with Elad Levy, the founder, and CEO of Dive, a new kind of game analytics provider. As many of you know, I’ve previously worked at Supercell as Director of Analytics in 2011 and 2012, before I found Next Games in 2013. I’ve worked with data in gaming for over ten years, and I was thrilled to have this discussion with Elad. His company, Dive, is operating in free-to-play gaming, especially with mobile developers, and they are now also providing analytics for Roblox games. In this first episode with Elad, we talk about how game studios are embracing and how studios are building data into their decision-making.
Here are my highlights from the discussion.
How would you build the data team and the presence of analytics into the company and the game teams?
I would focus first on a product manager or possibly a game designer/product manager. I see this person as the one that centralizes everything and executes the product vision, ensuring its performance.
The company can start small by focusing on basic KPIs, but over time you will need a data analyst to help out with getting the right insight. Raw data means you need a data engineer (or more than one), means you need to start developing in-house tools, and babysit reports that fail at night or weekend because the next day there is an important investors presentation. And this is where we come in. If you start putting energy into all those things, you are wasting valuable time instead of focusing on the game. Like the saying “Content is king” – this is the same for games.
What are the areas that you are most passionate about when it comes to understanding games with analytics?
I think the fascinating areas are around game economy, game progression, content consumption and churn points. I am a strong believer of good old data analysis work. Specifically in early stages of the game.
Games, like any other product, should rely on two main channels to get feedback. The first is obviously data, but the 2nd is the community. This is something that many miss but the community tells a story that quite often data will not.
Free-to-play appeals to a small % of the population, and the people who engage or even pay are lower. So you need to find those people, reach them, maintain relationships with them and learn. They probably know the game way better than you.
Listen to the full episode by going here.
📝 More free tools for gaming startups
- Reference checks question list
- Board meeting
- Premium PC game sales projections template
- Investment memo template
- Ebook: Advanced Retention Metrics
- Co-founder equity split template
- and more
📃 Articles worth reading
+ The Apple v. Epic Decision — “While some of Apple’s claims were curtailed, its App Store model was by-and-large found to be legal (at least for games). Even the injunction against anti-steering made clear that Apple can, if it wishes, insist that apps include its IAP system alongside links to another platform (i.e. the web). Might Apple start insisting that Netflix and Spotify re-add IAP at the same time they put in links to their websites?”
+ All You Need to Know About Collection Systems in Mobile Games — “Collection systems in mobile games are currently one of the biggest mobile game market trends. If you get them right, they can make your game more diverse, enjoyable, and most importantly, more lucrative. In this article, you will find out what collection systems are, how different games use them, and what are the best ways to utilize them.”
+ How Gaming Will Change Humanity as We Know It — “The advent of gaming, especially computer gaming, marks a fundamental break in human affairs. Gaming is profoundly transforming two central aspects of the modern world: culture and regulation. There will be no turning back.”
+ Loot Makes Waves — “Why is Loot Relevant to Gaming? In many ways, Loot feels like the internet, MMO version of DnD — choose your own adventure with a bunch of friends and anyone can participate regardless of if they have a genesis Loot NFT or not. Anyone can build anything off of it, and to the extent that people build off what is already built, the project becomes infinitely more expansive.”
💬 Quote that I’ve been thinking about
“When leaders are willing to prioritize trust over performance, performance almost always follows.” — Simon Sinek
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