Continuing the publication of transcript reports from the July conference "Gaming Industry," next in line is a presentation by Nikita Pokruchin, the founder of Level 26 Games. He discussed what fundraising is and how it should be approached today.
The next "Gaming Industry" conference will be held on October 15-16 in Moscow. Find out about its speakers and purchase tickets here.
Let me start by sharing a bit about myself.
I'm Nikita, the founder of the studio Level 26 Games. We have one project, a mobile game in the spirit of GTA Online — Grand Hustle (formerly Alt City Online).
I've been in game development for five years. My entire experience has been in growing my own game development studio. I started developing the game solo, with almost no prior experience.
To date, I've raised $1.5 million in investments for my studio across three funding rounds (the last being in March).
I've worked with various investors, including English investors, strategic ones, and quite large companies that also develop games themselves.
The latest valuation of our studio is $5 million.
Grand Hustle
Now, onto the topic of the presentation. Let's begin with terminology.
Fundraising is the attraction of investments into your project for its financing.
Often, creating your own business may seem like an unattainable task. How can you start from scratch without resources, without wealthy parents or inheritance, and create something that enables you to hire people, pay them salaries, and produce a product?
Fundraising is precisely the tool that allows you, to use the terminology of Peter Thiel and Blake Masters, to move from zero to one. It enables you to create something that generates revenue and captivates people, starting with nothing.
However, I must note that fundraising, launching a company, and start-up life, especially in the initial years, are not about "success stories," but about challenges, enormous responsibility, and significant risks.
Fundraising is not about living the high life or relying on luck; it's about hard work. The right way to see fundraising is as a tool. You might compare it to business loans. Working with this tool can be learned; it’s a skill, not magic.
Why do I emphasize this?
Many people hesitate to create their game or start their business because they think raising funds is a fairy tale. They wonder who would give them a few million dollars to realize a project, and if someone did, wouldn’t that person later lead them into trouble.
This attitude stems from a lack of understanding of how investments work, which halts progress and, consequently, prevents the launch of new businesses.
Investors generally seek a share in a company as a return on their investment. This share is required for them to eventually make an exit.
For example, a company invests $500,000 in a developer, acquiring a 10% stake.
The investor's goal is to sell this 10% stake to someone else in 2-3-4 years for significantly more than the initial investment, say, for $5 million.
The amount an investor gets depends on how effectively the founder, who attracted the investment, grows the business.
An investor is not a philanthropist but your business partner. You should view them accordingly, as a businessperson who invests money to later earn multiples in return. In this partnership, you provide this businessperson with the opportunity to make far more than they would from traditional investment instruments.
It’s crucial not to underestimate yourself as a founder. Both the investor and you take risks, albeit with different resources. The investor risks their money, while you risk your time, efforts, and nerve cells, which, as we know, do not regenerate.
Now for the foundational stuff; let's move on to the "meat" of the presentation.
Grand Hustle
What Works Best in 2024?
Full-time
Raising funds full-time works best.
Oftentimes, people work elsewhere while attempting to raise investments on the side. This is a bad idea.
Why?
Securing investments is a complex task in itself.
The best approach is to dedicate a substantial amount of time and energy towards:
- first, raising investments;
- secondly, acquiring the skill itself.
Balancing a job while dedicating only 10-20% of your time might still yield investments, but the likelihood is significantly lower.
Warm Intros
Warm intros work excellently.
Cold outreach, like sending 100-200 emails to various fund databases and dispatching presentations — it’s also important to do these things. However, the primary focus should be on warm introductions.
How does this work?
Analyze your environment, acquaintances, and try to identify who can make a great intro for you, who can connect you with a potential investor.
To cultivate such an environment — your network must be constantly expanding, of course.
Advisory Board
An advisory board is also important.
Who is an advisor? This person has achieved some significant result within their niche. For example, it could be a renowned game designer known across the industry.
If they are interested in the project or business, they might become an advisor for a small stake in your company.
Why do you need a group of such specialists?
Firstly, they enable much more effective decision-making. For instance, a legal advisor will assist or offer advice in case of any legal issues.
Secondly, this eases fundraising. Investors are more inclined to fund a company when they know a group of experts stands behind the founder and believes in the product.
Thirdly, advisors often have great networks. This simplifies obtaining warm introductions.
Quick Fundraising
This is an approach to raising investments wherein you generate a lot of excitement around a project in a short period.
How does it work?
Initially, over several months, you warm up a plethora of investors, selling them on your idea but not moving onto negotiation stages.
Then, once you have a group of 30-40 investors ready for meetings, you schedule these negotiations within a week or two.
During this time, you actively engage and aim to close the funding round with not just one large investor but by securing several small checks as well (for instance, if your entire round is $500,000, it makes sense to raise rounds of $10,000-$20,000).
This approach to fundraising works well for two reasons.
Firstly, even if a small investor agrees to a deal, others start viewing your project with more interest.
Secondly, it’s not uncommon for small investors to introduce larger investors who are ready to close the round entirely.
What I Learned from Three Investment Rounds
- Fundraising is a skill that can be learned, like any other skill.
- Networking is one of a founder's key resources and must be continually developed. If you never leave the house and only communicate with parents and a cat, attracting funds is unlikely to succeed.
- A founder shouldn’t be developing the game. They have three key tasks: assemble a team, shape the project vision, and find resources for its implementation.
If your sole focus is making a dream game, you can forget about fundraising and concentrate on creative execution. However, if you aim to create a cool, successful, income-generating game, you need a different approach to development, and securing investments will be essential.
Unfortunately, I didn’t come to this realization immediately. If I had realized earlier, my results would be drastically different now.