EGD News #96 — Start a games company on the side
Sent on August 20th, 2021.
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It’s Joakim here. Greetings from Helsinki!
First, let’s start by expanding on something that came up in the last week.
🙌 Start a games company on the side
I recently wrote a post on LinkedIn about my thoughts on founding a game studio right now.
I thought it would be a good idea to expand on some of these points.
First, I want to cover my second point about getting the right team to work on prototypes for concepts before leaving their day jobs. I think there is a lot to consider here, and it’s not as black and white as it seems.
A side project
A comment in the LinkedIn post mentioned that people couldn’t work on their own games on the side, as many companies don’t permit side-projects, deeming them as competition. Often, if you start a game project in your spare time, the contracts explicitly state the games will become the employer’s property.
I’ve seen these contracts as well. But I believe that future startups will be more lenient about their employees working on side-projects. Leaders trust their employees to work from home, and that trust will eventually find its way to other things.
Recently, Amazon Games got rid of this old-fashioned policy after the Twitter mob made an uproar about the rules on Twitter. Here’s what Gamasutra wrote about the case.
Let’s face it: if an employee wants to work on a side-project but isn’t allowed, how motivated and happy will they be at work? Will they give it their best? What kind of leaders want to motivate and get the best performance out of their employees by stifling their creative output?
Dream scenario: the employer allows a game developer to have side-projects, create games in their spare time with other groups of people, and let the creators retain the rights to those games. The developer is happy and starts expressing their own ideas through side-projects—ones that might never materialize in their day job.
With my investor hat on, I’d like to see the entrepreneur-spirited people employed in the companies I work with, which I’ve invested in, trying out ideas and being creative. If they want to go out on their own, that’s what they should be doing. If a side-project is harming their performance at work, it’s the leader’s fault for not understanding their employees.
Working on game projects on the side can become strenuous and time-consuming. You have a nine to five job, and you are also coding a game on the side. As one commenter on the LinkedIn post noted:
“Encouraging working two jobs is essentially crunching at the genesis of the company and could make it harder to reset those foundations later and send the right message of sustainable work-life balance for future early employees.”
As a big believer in time blocking and doing meaningful deep work, I have empathy for not creating a harmful foundation for success. Workdays of 12 to 14 hours games won’t make a great place to work. Building a games company is a long-term effort, with many years of work before stable success.
But is a counterargument: I’ve seen many studios going from zero to colossal success when burning the midnight oil, in short intervals, with long intervals of serene, deep, and meaningful work in between.
Supercell is a prime example. When Hay Day and Clash of Clans were started as game projects in December 2011, the company had about thirty people with no product generating revenues. The cash position was great, but the company needed a successful product. The teams were small, with only four or five people working on each game, and they had to work many hours a day on making these games work. Hay Day launched in June 2012, followed by Clash of Clans in August 2012, becoming fantastic success stories.
Creating hit games with an eternal crunch isn’t sustainable, but an extraordinary effort from time to time does move groups of people from one level to the next. It’s not the worst place to start pushing those intervals when you’re still a small group of people working on a game in your spare time.
📝 Free tools and docs for gaming startups
- Convertible note
- Non-disclosure agreement
- Cashflow spreadsheet
- Games company pitch deck
- Cap table spreadsheet
- Stock options calculator
- Co-founder equity calculator
- Investor update
More templates, tools and docs can be found here.
🎙 Podcast with Martin Macmillan, Pollen VC
Martin Macmillan is the founder and CEO of Pollen VC, a financing company that provides flexible credit facilities for mobile game developers conducting user acquisition. With Martin, we talk about the evolution of UA funding in mobile games, how debt financing is becoming the norm for marketing, and hear Martin’s views on the boom of the games industry and how that affects everything.
Here’s one highlight that I want to bring from the discussion.
Does the Metacore and Supercell credit facility of €150m make financial sense for the parties involved?
Supercell had made an investment into Metacore, and they looking to back up that investment with a sizable credit facility. Supercell is obviously very cash rich and they’re looking at what to do with those massive cash reserves. Do they put them in the bank and earn virtually 0% as a return? Or can they deploy into into something that that’s going to make them a sensible yield on their cash reserves.
If you look at the genre, it seems that the ROAS on merge games can be recovered fairly quickly. But obviously, the long term LTV potential of these things is huge. It’s almost like the new Match-3 where you’ve got very long dated LTVs.
Theoretically, you have something where you’re going to break even in six months on your ad spend, and you’re thinking about LTV on an 18 month, maybe even 24 months: if you want to keep spending, working on the basis that you’re going to have an 18 or 24 month LTV return, it’s very capital intensive to keep spending in the early days the amounts of money you want to spend.
What seems to have happened here is that the Metacore guys have recognized this, and they’ve very smartly put a deal in place that is funding the user acquisition through debt, as opposed to taking a huge mega round, and funding it through equity.
From a founder perspective, you are able to have tremendous UA firepower, but without diluting yourself using venture money. And it just comes down to the concept of capital efficiency. Using the right financing products, for the right risk profile of where the capital is going to be deployed.
Listen to the full episode by going here.
📃 Articles worth reading
+ Player freedom and prototyping exploration mechanics — “During my research, I examined meaningfulness through the lens of various disciplinary perspectives such as philosophy, psychology and spirituality. One such perspective that arose is the philosophical theory of Subjective Naturalism. The theory suggests that individuals find meaning in their lives when they can establish their own goals and pursue actions that are personally meaningful or purposeful to them.”
+ Game consoles were once banned in China — “The ban was finally lifted in 2014. While these consoles were available on the so-called “grey market” — places that would sell imported devices for a high price — the prohibition led to the surge in popularity of PC and mobile games.”
+ Working from home — “I have been working from home since March 2020. At the time of writing this text, the end of this arrangement is nowhere near in sight. Looking back at this year and a half I can say that this was all in all a dismal experience. This is a brief breakdown of my observations.”
💬 Quote that I’ve been thinking about
Many entrepreneurs take plenty of risks—but those are generally the failed entrepreneurs, not the success stories.
— Malcolm Gladwell
Sponsored by Pollen VC
Pollen VC provides flexible lines of credit to mobile app and game developers, enabling you to borrow up to 4x your monthly revenues on a simple, transparent interest rate basis.
Unlock the value trapped in your platform receivables (AR) and in your existing marketing cohorts – get an elastic line of credit that flexes in line with your business growth. Capital can be rapidly reinvested back into user acquisition to help growth without relying on dilutive venture capital funding, or expensive revenue based loans.
Go to www.pollen.vc to learn more.
Sponsored by Opera Event
Looking for some great new authentic video creative? Try something totally new with Influencer Generated Content (IGC) by Opera Event. Influencers or actors will make specific creative content for your games and Opera Event will deliver you high-quality video ads that highlight the best parts of your game.
Note! You get a free video with the purchase of 4 or more videos. Remember to say that Elite Game Developers sent you!
Go to www.getigc.com to see some examples and get more information.
Sponsored by AppMagic
I (Joakim) wrote an article with the AppMagic folks, and in it, we talk about the ways that developers of mobile games should think about market insights in the early stages of concepting and prototyping of their games.
Read this article by going here
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I hope you have a great weekend!