Questions from an investor to a founder
Note: Next week there will be no newsletter as I will be at the Deconstructor of Fun Gaming Summit event in Istanbul, Turkey. The next EGD News will go out on March 17th.
Now to this week's piece:
"Being clueless outside of Facebook and Google ads can signal that you aren't prepared to think outside the box regarding go-to-market."
I've often talked about asking questions to understand how the founder thinks.
The investor asks, "Tell me about the total addressable market for your game." It's not about the number. It's more about understanding how the founder's mind works, how they asses challenging questions, how creative and curious they are, etc.
The way the founder answers is as important as the answer. I'm happy to hear if the founder is uncertain about how to answer a question versus them being more than pretending to know the answer. You don't need to have all the answers.
It's also like interviewing somebody for a job; you want them to be suitable for what they're signing up for, which is to run a venture-backed company.
When I started as a founder, I was utterly clueless about fundraising and what investors would ask me. And also why they were asking specific questions. I don't think the process should ever blindside founders.
This week I published a free eBook called "20 Questions Gaming Investors Ask." You can download the book from here.
In essence, these are the main areas of questions:
The team is the main thing in any startup, and the investor will want to focus on them. Some of the questions that will come up include these.
How did you decide on who the CEO should be? This question talks about how the founders thought about leadership and how they decided who the captain would be.
Who is designing the game? I've often seen teams with team members with a business, marketing, and tech background but lack a clear game designer or a product person. When it's a small startup, still at the pre-seed stage, someone must have ownership over the creative decisions regarding the game. I've seen discussions and debates over products become hard to manage if no one has the final say.
Do you lack anything in the team to build the game? There's also the question of having a CTO in place. I believe the tech effort should have similar ownership as the creative side. There needs to be someone who owns the tech stack that will be used for the games. You can't outsource those things or decide without the CTO's knowledge of how to build something.
Red flags related to the team
How committed is the team? If they have a side business, the extent of how much time they will have for the startup, the side business, and their personal life and family is highly questionable. I'd rather have the founder spending 6 hours on their startup and the rest of their time on their personal life and family to stay healthy.
There's a saying in startups: it's better to be a missionary than a mercenary. The missionary wants to build a company because they know it must exist. There's a significant need for them to have the company.
What is a mercenary founder? It's often hard to spot, but asking about the motivations to do a company can reveal the need to be a founder because "I always wanted to do this founder thing" or that "It seems like a good time to start a company" or "My ex-colleagues are doing startups, why not me." These are fine, but the missionary will start the company and not care as much about the circumstances. They must do the company since they are obsessed with the idea.
Another crucial area is the product. Clarity about the market is one of the key areas that investors will want to focus on. It's fantastic that you know a lot about making games, but the problems usually start when founders aren't concentrated enough on market dynamics.
Some of the questions that will come up:
Why did you pick this game concept as the one to make? The question is asked to understand if the founders have studied the market, if they've worked on similar games before and know the business, or if they have other insights that led them to pursue the concept. You want to clarify the business reasons so that it doesn't come off as solely a pursuit of a passion project or a gaming genre that the founders adore.
What's unique about your game, the unique selling points, and the unfair advantage over others in the genre? Why will you win in this genre? I would have been asking the Dream Games founders why Royal Match would win over the other Match 3 games. You want to convince others that you are building the winning product and that you can share the insight to prove what you are saying. The proof might come from seeing first-hand why the existing games in the genre aren't working, i.e., Dream Games founders had worked at Peak Games and had built major mobile titles like Toy Blast and Toon Blast, and they knew what the market truly needed.
Hopefully, the team made some progress before they came out to raise funding. The questions regarding progress will be ones like these.
When did you start the company? The underlying curiosity is to see how long the founders have been together and how much they've achieved. If it's been six months and the game has already been beta launched, that's quite impressive. If it's a year and nothing has been released, and there isn't even a playable available, that might cause some alarm.
Many founding teams pitch their companies to investors while working for an existing company. It can be hard to show progress at that stage, but it all comes down to showing how committed the team is. A playable game will go a long way to demonstrate commitment.
The investor will want to understand that the founder understands the dynamics of VC investing. Some questions in this area will include:
Why are you fundraising? This question will uncover why the founders embark on the venture-backed path. It's not always evident that the founders know all the nuances of being venture-backed, especially the investor expectations from the company.
In a recent podcast interview, I talk about this topic:
"You're a team, experienced in making games, and you're starting your own studio. It's good to ask, Hey, can we build something big here? Does everyone have a shared ambition level? Or you decide, "We're not going to go and raise investor money. We're just going to bootstrap. We're going to see where it goes." That's totally fine. But you want to understand if you want to raise money and start building a big company. Then you want to have people who really can build big companies."
If you raise now, do you know what to do in the next 12 months? If it all goes well, what do you need to do after that in the next 12 months? A detailed roadmap of feature releases, marketing activities, etc., is acceptable. Still, it would help if you thought about other big things like hiring key people, where you make risky bets, and how you will approach the next funding raise in twelve months. Now that I've been involved with a few dozen venture-backed gaming companies, they all have or will go through the next fundraise. So, you'll want to spend time imagining what needs to happen for the fundraise. And don't shy away from Plan B if things don't go as planned.
I hope you will pick up the ebook. I'll end this piece with a few bonus questions that weren't in the book:
What makes you a more prepared team to create a successful company than what you could have accomplished five years earlier? Here it's essential to highlight why your team has come a long way in building games and what makes you more prepared to build a company. The latter is more critical, although a strong combination will sound great to the investor.
Why is Dream Games doing so well (or isn't doing so well) with Royal Match? This question is about understanding how the founders understand their competitors and what they are doing right and wrong.
What kind of salaries are you currently paying the founders? This question is getting into the weeds of how the founders balance their expenses, whether they are taking a pay cut from their previous non-startup jobs, etc.
What are the top three risks for your company? This is a great one to end with. The investor will want to know that the founder has looked at the risks in the market, their team, and their plan. Then there will be lots of discussions to be had about these risks.
(Image by Dean Moriarty from Pixabay)