EGD News #80 — Founder Meditations
Sent on May 7th 2021.
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Hi there,
It’s Joakim here. Greetings from Helsinki!
I’ve been busy this week with the Shareholders’ Agreement template and other stuff that I can’t get into yet, but eventually will. I’m going to be appearing as a guest on some podcasts soon, and will be sharing links to those as they become available.
My first Ask Me Anything episode has gotten thousands of downloads in its first few days since going live. If you want to ask me a question and get featured on a future Ask Me Anything episode, you can go and fill out in this form.
Now, on to the news.
🎙 Ask me anything
This week I published my first Ask Me Anything podcast episode, where I answer people’s questions related to game studios, fundraising, all entrepreneur related stuff. I will be recording another episode quite soon, so please submit your questions by filling out this form.
Here are some of the questions that I answered on the episode
- Does Day-0 session time work as a leading indicator for Day-1 retention?
- How do you validate product/market fit?
- It has been a while that I am thinking about our startup story. I wanted to ask you what kind of stories do you like to invest in? How could we find our story?
- How likely is it to attract outside investment during the pandemic for said early-stage startup? Does it have any benefit or drawbacks to wait for a post-Covid world?
- What kind of changes to games have you seen take them from bad D1 to great D1 retention?
- How much equity is a fair share for investors at the Seed Stage when the funding amount is between EUR 350-450K?
You can go and listen to my answers or read the full transcript, which includes links to content that I mention in the episode, by going here.
📝 EGD Shareholders’ Agreement
This week I released the EGD Shareholders’ Agreement template, which is now available as a template on the Elite Game Developers website. A typical abbreviation for the agreement is an SHA, and I’ll use it from now on. 😊
There are a few reasons why I think all game companies should have an SHA in place as soon as possible.
Founders keep each other in check. You might be in the spot that you’ve done the co-founder equity split and have decided how much each founder will get. And you’ve started to work on the game. It would be best if you put the SHA in place to protect the shareholders and the company. First off, no founder can leave and walk away with the company shares. Several clauses in the SHA will prevent them from doing that. Also, you clearly state how disputes will be handled between the key people in the company or key people versus the company. Better be safe than sorry.
Investors and priced round When you do a priced round, where the investors join your cap table, you’ll need to create a new SHA where the investor’s clauses are included. But when you have your own SHA in place, you show that you are already in a good spot regarding the “legal health” of the company.
Investors and SAFE notes or convertible notes. If you raise angel investor money with SAFE notes or convertible notes, you can use your existing SHA to show that you are taking things seriously. You’d share that with the angel investors and make them feel comfortable that the company is operating with a sufficient SHA in place.
Finally, an important lesson: You should make sure that you and your co-founders understand everything in the SHA. Learning all the terms will pay off when you go out to raise a round of funding. I’ve been in a spot in 2007 where I was the only person in the room who didn’t understand what they were signing.
Get the template, an example SHA, and watch my instruction video by going here.
🙌 Founder motivation
Besides the extrinsic “getting wealthy” motivation, I feel that there are always two intrinsic motivations for people to start companies.
The first one is to seek agency. I started my career in gaming by indie development, making games, and selling them as a kid. But I didn’t understand how I could scale that business. After the university, I was an employee for a few years, but it was demotivating. I’d already been autonomous, building my stuff and selling my stuff. I got back into entrepreneurship at 27, when I founded Ironstar Helsinki, my first gaming company.
I was driven and still am driven by the feeling of agency. I was my boss. After my first company failed, I was at Supercell for a year and a half, but it was not my thing. I wanted agency, and I got it by starting Next Games in 2013.
The second primary motivation is to seek approval. I believe that I was also motivated by approval, which means that I’m seeking the approval of my peers. With Next Games, I’d get to be a founder of a billion-dollar company. Running through brick walls, that’s how it felt. Since I’d been at Supercell, and I’d raised VC funding on the promise that “this guy was at Supercell,” I needed to live up to those expectations.
After a lot of soul searching and a series of burnouts in 2018 and 2019, I left Next Games in March 2019. I eventually realized that I don’t need to build the next Supercell to be fulfilled. I brushed aside the motivation of seeking approval. But then I was left with seeking agency, which is still my motivation for being an entrepreneur today and writing this newsletter.
But there’s more. I believe that many lack the healthy ingredients in their entrepreneur fairytale. This goes beyond the “start with why” and all the things that happen after the fact.
I recently read about a concept called existential disappointment. I’ll give an example. An entrepreneur sets a goal, like “I want to sell my company for 100 million dollars,” and that is their life goal as an entrepreneur. What ends up happening is that the entrepreneur creates a threshold for how they can be happy in life instead of seeing out what would make them happy.
And, what ends up happening is that you achieve this goal, but it doesn’t fulfill you. I recently listened to Justin Kan talk about his exit to Amazon when Twitch was acquired, a billion-dollar exit. But he still wanted to build an even bigger company. He wasn’t happy with that billion-dollar outcome, and often, you won’t either.
In gaming, the road to success isn’t always the Rosie. There can be many bumps, but you want happiness in your life now, not when you have a successful exit.
In the happy situation that you have a rocket ship in your hands, with the most awesome KPIs ever, don’t waste time on growing as quickly as possible. But if that doesn’t happen, it’s good to prepare for stability.
Here’s how I see stable startup life looking like.
- Reach profitability The failure rate of startups is incredibly high. To mitigate the risk of failing and going out of business, the startup should first make small bets on products. Once you have a game that works, it doesn’t need to be mind-blowing, but it needs to be a way for the company to be profitable. First and foremost, seek profitability to pay salaries. It’s the best feeling when you’ve achieved a state where you control the company’s fate, and you don’t need to go on the investor roadshow to keep going.
- Slow upward trajectory. After you are profitable or approaching profitability soon, it’s a healthy approach to think about your growth as a slow upward trajectory. It’s not the sexy hockey stick, but it’s a healthy upwards slope.
📃 Articles worth reading
+ Deconstructing Clash Quest: The Key to Solving Supercell’s Puzzle — “Regardless of how good the game is, there is only a finite amount of time a player will be engaged before becoming bored. Games that are able to retain long-term drive players to meaningfully interact with one another, whether that be via gifting, a clan feature, or multiplayer modes. In addition, social play and competition and social comparison drive spend behavior amongst players, improving revenue.”
+ Accelerated Learning: Learn Faster and Remember More — “You can train your brain to retain knowledge and insight better by understanding how you learn. Once you understand the keys to learning, everything changes—from the way you ask questions to the way you consume information. People will think you have a superpower.”
+ World Building and Antifragility — “The goal of world-building, to recap, is to create and nurture purposeful environments where people find a clear role to play, and understand the narratives around it. World-building goes beyond linear storytelling, because if you do it right, the world you’ve created starts telling the story for you. You don’t have to be there all the time, or micro-manage every part of the storyline. Your job is to create a world that’s interesting for people, let others find their purpose inside it, and then run with it.”
💬 Quote that I’m thinking about
“We have an unshakeable conviction that the long-term interests of shareowners are perfectly aligned with the interests of customers.” — Jeff Bezos, in a 2010 letter to shareholders
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That’s all for this week! I hope to see you next week! 🙂
Cheers,
Joakim
