3 min read

Market possibilities and risk mitigation

Market possibilities and risk mitigation

This past week I talked to several founders, who were pitching to me, about two things.

1) Understanding where the puck is going

One of the greatest hockey players of all time, Wayne Gretzky, was known for his exceptional ability to anticipate where the puck was going to be and to position himself accordingly rather than simply reacting to where the puck currently was.

I'm trying to push founders to become more obsessed with new market possibilities than an obsession with a game idea. Gretzky's saying can be translated to founders developing an ability to anticipate future trends and staying ahead of the curve.

If I see a pitch deck saying "Play & Earn" in 2023, it indicates that the founder has not cultivated the ability to see where the puck is going.

Here's another one: When I see a generative AI tools company without proper differentiation, I think that this is where the puck is right now. Instead, I want to see what is a superior solution to the possibilities that AI grants for game developers, hence, where the puck will be.

2) Reducing risk

Being venture-backable is more about reducing the investor's risk than founders realize.

There are three types of risks in startups:

Financial risk: the company doesn't have enough capital to pursue its plan, either because they lack the revenue, there are unexpected costs, or there is an inability to raise additional funds.

Team risk: is the team capable of pursuing their plan? Do they have the attitude, skills, ethics, and curiosity to understand the macro and micro trends to win?

Market risk: One of the most significant risks in game investing is not knowing if the game will work. The 2010s created the mobile games gold rush, and there was actual revenue, culminating in whale hunting with targeted ads. The risks were tolerable since the upside was so huge. Now we are sobering to the fact that the odds aren't as favorable.

I sent a pass note this week with the particular game idea redacted.

"I love the game concept, but the model you use to approach this is not for me. What I mean by the model is the high cost, high headcount, and the business model. Example of something that I've previously said Yes to: I've previously backed companies that are making PC games with a smaller 15-20 person team, with the angle of a live service game, where they start building their audience on day zero: recruiting early fans, having them join a Facebook group or Discord, showing them the concept, getting feedback, sharing builds, playtests, etc. All this reduces the investor's risk significantly. They raise the first round to show that they can produce a product with the support of an audience already in the hundreds who validate what is being built. Happy to keep chatting over email. I really love the concept you are thinking about.

I love the game concept, but the model you use to approach this is not for me. What I mean by the model is the high cost, high headcount, and the business model. Example of something that I've previously said Yes to:I've previously backed companies that are making PC games with a smaller 15-20 person team, with the angle of a live service game, where they start building their audience on day zero: recruiting early fans, having them join a Facebook group or Discord, showing them the concept, getting feedback, sharing builds, playtests, etc.All this reduces the investor's risk significantly. They raise the first round to show that they can produce a product with the support of an audience already in the hundreds who validate what is being built. Happy to keep chatting over email.I really love the concept you are thinking about.

My message to the founder in the pass note is to mitigate risks as much as possible before attempting to raise capital.

Here are a few:

  • PC developers should learn from mobile's soft launch and testing to validate the game.
  • Mobile developers should learn from PC developers about building communities much earlier and not rely on Facebook ads to bring the players.

(Photo by Jonathan Cooper)