Ilya Eremeev, co-founder of The Games Fund, shared the subtleties of working with investors. He told what they pay attention to during the pitch, and also gave some advice to developers on evaluating the market and choosing the right niche for their game.

The material is an edited version of Ilya Eremeev’s lecture at the Game Design Festival, which was held as part of the HSE educational program “Game Project Management“.

Ilya Yeremeyev

Types of investors

There are several types of investors who are looking for different companies and are interested in different games. Globally, they can be divided into three types:

  • publishers;
  • strategic investors;
  • VC funds.

They have similar features, although the methods of their evaluation may differ. We will focus on how venture investors evaluate the game.

For them, first of all, the following are important:

  • founder;
  • the team;
  • idea;
  • the market where they are trying to launch the game;
  • terms of the deal.

Evaluation of the idea

It is important for investors whether the founders use their previous experience. This is a big plus and can be an advantage of a startup over its competitors. For example, you have gained experience in the casual segment, you have experience in developing match-3 or farms and you want to make a game in the same niche. Let it not be match-3, but you understand this area, the audience and want to do something for it using your previous experience.

If you completely abandon your previous experience and do something completely different, it’s almost the same as starting from scratch. For investors, this is not always a minus. However, they will study in more detail why the founders do not want to use all their experience, advantages and accumulated knowledge.

Market assessment

If you are doing business, and not just an art object, your game should have commercial potential.

The market assessment can be divided into two parts.

1. Audience

Who will potentially play your game and pay in it?

Demand is important here. How much can the game you want to make be in demand by the audience? What is the demand for such games at the moment? This applies to the genre, setting, platform and a combination of all of the above. After all, you can make a mistake not only in choosing a genre, but also, for example, choose the wrong setting for it.

As an example, the Criminal Case game in the hidden object genre, which was quite popular at the time, can be cited (although by modern standards it was not of very high quality). Its creators decided to make a new project based on their experience, but chose a setting for children. And hidden object titles are played by people from 35-40 years old. These setting and genre are separately popular, but it was their combination that was unsuccessful.

Next, you should look at the size of the niche. How much can games in this genre earn? There are niches and genres that earn a total of $10 million per month. At the same time, in another genre, only one game can earn $ 10-15 million per month, and the total monthly revenue of the entire niche can reach $ 200-300 million. This means that even if you make a super-cool game in some genre, you have a certain ceiling of maximum earnings. Most investors are aiming for highly profitable niches and the creation of top projects in the genre.

In addition, dynamics are important. Here it is worth considering how revenue is growing in this niche. There are genres that grow by 20% per year, but there are also those that do not show growth at all. Some categories of games actively respond to various crises or stimuli (for example, a pandemic), while others do not feel these effects. In 2020, most games grew a lot during lockdowns, then rolled back a little, but overall their dynamics were positive compared to previous periods. However, there are genres that for some reason did not react to the lockdown and did not grow at all. Accordingly, actively growing niches have the greatest potential.

Another important point is the emergence of new players and their ability to gain market share. It’s good when there are already successful titles in your chosen genre that allow you to evaluate potential earnings. If someone earns $5-10 million a month, this is a good signal. Thus, you can potentially earn a fairly high income if you become a leader in this segment.

There are niches in which the market has already formed. It’s difficult to bring new players there. For example, quiz games, which have a very loyal audience. We need a strong incentive for a person to move from one quiz title, which he has been playing for several years, to another. However, it also happens the other way around. There are niches where new leaders appear regularly and the top is constantly shuffled.

At the same time, the state of the niche itself may also change. Once upon a time, shooters were considered a fairly conservative genre that could not be “scrapped”. But then PUBG, Fortnite, Guns of Boom, Call of Duty Mobile, Garena Free Fire, etc. appeared. These games managed to take the lead in the already established niches.

It was also believed that the match-3 market is in the status quo, and no one will be able to move Playrix, and before it King and PopCap. However, new players are emerging in the niche, who are actively and very aggressively beginning to capture this market. It turns out that such genres are also subject to “disrapt”.

2. Competition

In ASO, when selecting special keywords, there are two indicators: traffic and competition (or complexity). It is necessary to find words and ideas at the junction of maximum traffic and minimum competition. This also works in our case.

There are large niches where there are strong competitors. This sets the bar for quality and gives an understanding of what level products need to be produced in order to “bite off” part of the market.

There are less competitive niches where there is very strong growth and there are one or two major players who show the upper limit of earnings. At the same time, new players are constantly emerging that take a certain market share. You can make good money in such a niche, because it is not so big yet. It does not have such a high level of production and not so high marketing budgets compared to other segments, but at the same time the interest of players in such games is growing. It’s a great combination.

Another point is the dynamics of the distribution of market shares. If you are studying the top 50 games in a particular niche, it is important to see how revenue falls from the first to the 50th place. There are niches in which this happens quite smoothly. In others, the winner—takes-all rule applies, when one or two games receive 80% of all revenue, and then – the abyss. Moreover, such that the first two games earn $ 1.5-2 million, and all the others — less than $ 100 thousand. This means that the niche is quite aggressive: people choose one product, perhaps they don’t play several titles of this genre at the same time. That is, you can earn money here only if you get into a thin layer of the coolest games in this genre.

What to be guided by — passion or calculation?

There is always a question of what to choose: games that you want to do, or games that will work? In my opinion, this must necessarily coincide. It is not necessary to make games that you are interested in playing. But you should definitely be interested in making them.

If you don’t have the heart to do match-3, then you probably won’t be able to make money on it. There must be a professional interest in developing a game of this genre.

It is also necessary that your cool game has a place in the market and an opportunity to earn. A cool project can be well accepted by a narrow stratum of fans, but if the game has no commercial potential, it will be difficult to find a commercial partner. And the whole point of his business is just to find titles that earn.

“Can we do it?”

When you are planning a game, it is important to understand whether you and your team can make it. You can, of course, create a “World of Warcraft killer” with a small team, but such an idea is far from reality.

We need an adequate assessment: is it possible to make a product for a certain amount of money and time, with the current team or the one that can be attracted? If all the points are met, it will be very easy for you to find funding for the development of the game and the construction of the company.

A block of questions and answers

Which genres didn’t grow into a pandemic?

Judging by the dynamics from 2019 to 2021, idlers are among those niches that have grown less than other games. It’s a controversial genre. On the one hand, there is a feeling that they are easy to do. On the other hand, if you look at the dynamics of the niche and the distribution of revenue among competitors, you can see several top developers. First of all, Codigames studio, which takes the lion’s share of the market, although none of its games have super-high revenues.

If you are not aiming for revenue of more than $1 million, you can choose idler as your first project. Releasing a title that can bring in several hundred thousand dollars is a good idea. An equally good idea is a portfolio of idlers.

How do investors evaluate PC games?

I would say that the PC market is evaluated in a similar way to the mobile segment. However, there are other tools out there. To predict the size of a niche, you can look at, for example, SteamSpy. You can try to extrapolate the review and the number of additions to the vishlist. Although I would consult with publishers and find out what the conversion rate of these parameters into sales is now.

You can, for example, see what the audience size is for a survival horror on a PC, which can be completed in about four hours. Collect the entire list of potential competitors, see what their average sales are, see which competitors are planning a release. To estimate the size of this niche, how many people are interested in survival horror, and what kind of competition you may have.

With this method, unfortunately, it is impossible to predict the hit potential. It is impossible to predict in advance the appearance of Among Us, PUBG and other similar games, since these are non-systemic cases.

How should you properly conduct an advertising campaign before the game is released?

A common feature in the promotion of premium and mobile games is the creation of a community. This is something like developer diaries, when you start to lead communities in Discord, VK, Facebook, Reddit, etc. At the start of the closed beta, you need to talk about updates, communicate with users and show that you listen to them. It is important for the community to see that a real, living person is behind the development.

It is also necessary to participate in conferences and exhibitions — especially in consumer ones. You can find partners at DevGAMM and WN Conference. And exhibitions like PAX, Gamescom and E3 will help attract potential players. The right publishers will make a big show of your game and will promote it globally.

What conditions should I agree to when communicating with investors?

In general, this is a big conversation, but in short, it all depends on how independent you want to remain. If you want to keep control, I would recommend giving no more than 35% of the company in the first round. In the case of the publisher, I would advise you to look at the terms of parting with him. So that you can take back the rights to your product if you don’t like working with a publisher.

I also advise you to pay attention to what the publisher or investor offers in addition to money. Everyone has the same money, there are a lot of them now, and attracting them is not a problem. The problem is how much you have the same vision of the future business with your partner: sell the company or make a profit and withdraw dividends. You need to agree to those conditions that coincide with your vision of the future of the company.

How much time do I need to invest in obtaining financing?

I would say that you need to start attracting investments at least six months before you need them. Not all investors respond quickly, and it will not be possible to find the right partner right away. It takes time to come to an agreement.

The process of closing a deal itself can last from one to three months. Investors like everything to be properly designed. For example, you cannot invest in an individual, you need to register a company. The investor will help with this, but the process itself takes some time: open bank accounts, agree on the terms of cooperation, investment, communicate with lawyers so that everything is correctly spelled out in the documents.

Are there any chances to get an investment from a solo developer?

Extremely little. Even a solo founder (the sole founder and owner of the company) who has a team has a reduced chance of attracting investment. It is always better to make a company with partners.

One person is always unstable. Today you have the mood to make a game, and tomorrow — some kind of family crisis, and you can no longer make a game. The company is more stable. Partners can support you in difficult times and vice versa.

It’s better for a solo developer to look towards publishers. By the way, they can give an advance for development, which is then replenished from future revenue. This is a completely normal option.