EGD News #135 — How an ecosystem produces startups
Sent on May 20th, 2022.
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I’ve been wondering why there haven’t been any big fundraising announcements from the Finnish games industry for the last twelve months.
The apparent reason is that there are not that many startups. But I want to keep asking why to get to the first principles of why we don’t have those big fundraises happening here in Finland.
The last Series A rounds were in by Lightheart Entertainment and Superplus Games, which both raised their Series A funding over a year ago.
Besides these announcements, there have been only a few pre-seed rounds happening. It feels like things have died down in Helsinki regarding exciting startups.
In 2013, Small Giant Games, Seriously, Futureplay, and Next Games were founded. They all raised multi-million dollar rounds, later to exit at valuations of tens or hundreds of millions.
Is the Helsinki games ecosystem changing, and could this be a permanent change?
I believe there are five distinct reasons for a specific amount of new high-quality startups getting formed in any ecosystem.
No more management teams
We aren’t seeing new Small Giant Games and Seriously getting started because there have been no traditional management teams left in Finnish games companies.
The model of the C-suite doesn’t exist anymore. Supercell cut it by creating the lean operation model, with light or non-existent management and independent teams. Suppose you have product managers, UA managers, and creative people working directly on the game, and the PM reports now to the CEO. In that case, there’s no old-school management team that gets to operate the business and learn the ropes of company building.
If you work on a game as a PM, that work is very different from building a company. The previous companies had founders that got valuable management team experience from working in the 2000s and early 2010s in companies like Digital Chocolate, Sulake, and Rovio.
In Good to Great, Jim Collins talks about Wells Fargo executives and management team members becoming precious assets after they’d gone through the transition of taking Wells Fargo from a good company to a great company:Wells Fargo’s approach was simple: You get the best people, you build them into the best managers in the industry, and you accept that some of them will be recruited to become CEOs of other companies.
Since we don’t have management teams as training grounds for future entrepreneurs, we’ve eliminated the university from getting first-hand experience building a big business.
Ten years ago, salaries and the annual development of wages in game studios were not that great. In 2022, talent competition is fierce, and it has brought up the wages.
Let’s compare two studies on annual salaries that have been done in the Finnish games industry.
- For 2019, the median was 44.4K euros, and the average was 47.4K euros.
- For 2022, the median is 48.0K euros, and the average is 49.2K euros.
In 2013, a salary of 50K euros annually was very uncommon in the games industry. Not anymore.
People aren’t switching jobs since they get paid so well. And the risks of doing a startup while taking a significant pay cut aren’t that attractive.
Why is Silicon Valley still producing startups when you could make so much more at a FAANG? When companies grow beyond 500 people, you start losing the people who want to feel that they can contribute.
Startups are great at providing possibilities for people to contribute, and in the past ten years, the games industry has embraced as de-facto the model of small teams. This and other lean mechanisms have to keep headcount low, only maxing out at one hundred or two hundred people in outlier cases.
This means that you don’t need to start your own startup to gain autonomy and have a meaningful impact. The teams are small, and your work shows.
When I look at the turn of the 2000s to 2010s, future prospects weren’t clear as the industry was in flux as it transitioned from premium to free-to-play.
The flux created lots of uncertainty, and these camps of people who wanted to be conservative, preserve models that had worked, and camps where you’d embrace the new and shake off all the old.
It’s not only about new realms of gaming, where you’re going from premium to free-to-play or from free-to-play to web3 gaming. It’s also about management and culture shifts. If a big studio can’t adapt to a remote future or to other new ways of working, there will be people who want to do their own thing in their own way.
Setting an example
Here is some media coverage from 2012 and 2013 when Supercell grew like crazy, and the press loved it.
- “Supercell pays millions in taxes to the city of Helsinki.”
- “Supercell owners made 200 million euros in the sale.”
- “Games industry believes that the sale of Supercell will advance the industry.”
- “The Finnish games industry is doing well — passed Sweden in numbers.”
I recently visited Turkey for the Deconstructor of Fun event in Istanbul. I saw how everyone worked in a startup, founded a startup, or planned to get into startups soon.
The Turkish gaming ecosystem is experiencing the Supercell moment.
So many acquisitions: Peak got sold to Zynga for a few billion, followed by hundred-million-dollar acquisitions of Gram Games, Rollic, Masomo, Ruby Games, and Alictus. There’s more news like this coming every month.
VCs are pouring in the money: Dream Games has raised several rounds, including their latest of $255 million. Other companies that have raised multi-million dollar rounds include Spyke Games, Ace Games, and Bigger Games. The list goes on and on.
Javier Barnes from King was also visiting Turkey, and he wrote a blog post about the scene in Istanbul:Everyone I talked to had the feeling that something big was going on in the city. And I believe that this feeling is shared in the game industry circles because the Turkish game development scene is heavily on the rise, which is why actors like Zynga and AppLovin have acquired companies there, and VCs are very active.
Now think about all of this happening in your city. If anything, wouldn’t it make you want to start a games company?
(Photo by Paula Schmidt)
Get my book, “Long Term Game: How to build a video games company” from Amazon. Available on Kindle, audiobook and paperback.
Alexander Bergendahl — A repeat founder story
In this podcast episode, I’m talking with Alexander Bergendahl, who is the co-founder and CEO of LootLocker, a games backend solutions company from Stockholm, Sweden.
Alexander is a repeat founder, who’s been doing games companies for a while now. With Alexander, we talk about his founder journey, learnings from doing his companies, and how Alexander is still learning to be a better founder.
Listen to the full episode by going here.
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- Helping founders build
- Founder dilution
- and more
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Quote that I’ve been thinking about
“I can’t make you the smartest or the brightest, but it’s doable to be the most knowledgeable. It’s possible to gather more information than somebody else.”
— Bill Gurley
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