It can be challenging for video game studios to secure venture capital funding due to the mature and highly competitive market. Additionally, there is no guarantee that a game will be a hit or stand out from the crowd. So, what can studios do to raise money in this scenario? In this guest post, David Kaye, co-founder and general partner at venture capital firm F4 Fund, shares four strategies to overcome investor skepticism and combat content risk.
Understanding Content Risk
In the eyes of venture capitalists (VCs), content risk is the biggest hurdle to raising venture capital for games. VCs typically make investment decisions based on a founder’s vision for how their product will transform the market. They assess the founder’s unique insights and their strategy to take the product to market. However, evaluating game concepts poses challenges for VCs due to their background, lack of relevant experience, or uncertainty about a game’s potential for success. This uncertainty is compounded by the increasing number of game releases each year. Given these odds, granting millions of dollars to develop a game seems irrational.
Overcoming Investor Skepticism
As a game developer seeking funding, you need to provide reasons for venture capitalists to believe in your potential success, despite their aversion to risk and content risk. Here are four strategies to achieve this:
Method #1: Show Proof of Demand
Proving that there is demand for your game can be challenging without the financial resources to develop an initial product. However, there are ways to demonstrate demand effectively. While survey data and revenue from comparable titles may seem convincing, they are often disregarded by investors. Instead, focus on showing proof of demand specific to your game. For mobile games, cohort retention and engagement data from an early version launched in a test market can be compelling. On PC, demonstrating demand can be achieved through various methods, such as setting up a web store and conducting marketing experiments to generate pre-orders.
Method #2: Include a Designer Founder
If one of the founding team members has experience with developing a highly successful game, investors may be more inclined to believe in their ability to replicate that success. While this may not be the sole determinant for investment, it has played a significant role in previous deals.
Method #3: Highlight Industry Tailwinds
Given that VCs are risk-averse and business-oriented individuals, positioning your game as taking advantage of an industry tailwind can be influential. By contextualizing your strategy in a way that aligns with an investor’s belief in an industry transformation, you can inspire confidence. Positioning yourself as riding a wave of success can help investors see the upside potential.
Method #4: Differentiate Go-to-Market Strategy
Many game developers excel in game design but struggle with their go-to-market strategy. To stand out, look beyond other game developers and draw inspiration from other industries. By incorporating innovative marketing tactics and strategies, you can differentiate yourself from the competition and attract investor interest.
By implementing these four strategies, you can increase your chances of overcoming investor skepticism and securing the funding needed to bring your game to market. If you are raising funds for a pre-seed or seed-stage games or technology company, feel free to reach out to F4 Fund, co-founded by David Kaye.