“We are the first venture fund in the CIS with a focus on gaming companies” — Yeremeyev, Kochmola and GEM Capital about their new fund

Ilya Eremeev and Maria Kochmola

Interview participants:

• Maria Kochmola — GP The Games Fund;
• Ilya Eremeev — GP The Games Fund;
• Roman Gursky is a representative of GEM Capital, GP The Games Fund.

Alexander Semenov, Editor-in-Chief App2Top.ru : For the last couple of years, you have been the faces of another gaming foundation — MGVC. Why did you decide to leave and launch your own?

Ilya: Yes, when you are active in the media, you always become the face of the company in a sense. This was the case with past companies, and with MGVC. This is a strategic step. It is important that people see that there are also living, accessible people on the other side, and not a faceless corporation.

We have been at MGVC since the very foundation and together we have been building a unique structure for the Russian market. But being the owner of a business, having complete freedom of decisions, determining the strategy yourself and taking full responsibility is another level.

MGVC is a strategic investor, which gives its advantages, but has a lot of limitations. For example, we really believe in the format of a venture fund, but it did not fit into the strategy Mail.ru . Therefore, we decided to act independently, according to our vision.

Was there an event that was the catalyst for the decision? A story or a conversation, after which you realized: everything, you need to do your own?

Ilya: There was no specific event. The main role was played by the accumulated experience. Plus, we found partners in the person of Sergey Titov and GEM Capital, with whom our views on the future of the industry coincided.

We realized that we don’t want to lose most of the deals by offering the company a buyout of control at the start, but we want to give the founders flexibility in business development, equal partnership and choice.

At the end of 2020, the idea was formed into a plan, and after leaving the Mail.ru in February 2021, we started organizing the foundation and fundraising.

How difficult was this decision on a personal level? After all, you have been working with Mail for a relatively long time.Ru, led a number of teams.

Maria: On the one hand, it is difficult, because working in a corporation gives a high level of stability, and your business is a completely different level of risk. On the other hand, we are 100% confident in the correctness of this step, both for the industry and for us personally. Therefore, we had no doubts.

As for the teams, it’s true — in 3 years you get used to the people you helped build a business. But the MGVC team is already big and experienced, and companies are developing with excellent dynamics and we are not worried about their future.

We maintain friendly relations with many of them even after leaving.

By the way, how did colleagues from MGVC react to this decision?

Maria: Calm down. We have been transferring cases as comfortably as possible for several months. And here we must pay tribute to the MGVC management: it always supports the entrepreneurial aspirations of employees.

Moreover, Ilya Karpinsky, our former head and creator of MGVC, is our advisor in the new fund.

So, you decided some time ago to create a fund. What happened next, what actions had to be taken to launch it?

Maria: To begin with, it was necessary to decide on the form and jurisdiction for our future fund. We decided to structure The Games Fund in the form of a classic structure for most VC funds — Limited Partnership in the USA. We will omit the technical side of fund registration. Although it can be mentioned here that it is much more difficult than just starting a company, since the fund in the United States has many regulatory requirements. But we managed to structure everything as correctly and transparently as possible.

We expected that the most difficult thing in creating a fund would be fundraising and attracting investors to the fund. Initially, we planned to raise $30 million by the end of the year. But we underestimated people’s interest in investing in games: in just two months we have raised more than $30 million and now we are aiming at $50 million by the end of the summer.

And then the most interesting thing begins — investments. And we are already actively investing and looking for teams with potential.

You just mentioned that it was necessary to raise money to launch the fund. I know that part of the audience quite reasonably believes that funds are launched by those who have money. But it’s really a little different, isn’t it? Tell us about it!

Ilya: Yes, that’s right. Usually the fund’s managing partners contribute 1-2% of the fund’s size. In our case, we decided that we needed to show our confidence to investors. So the partners contributed 17% of the size of the fund. Skin in the game!

The remaining amount is paid from Limited Partners — investors in the fund.

Attracting LP is again more difficult than attracting money to the company. In fact, you convince people that you can find other people with the right ideas and we will all make money on it together. In VC funds, unlike a strategic investor or a family office, there is not one beneficiary whose money you manage, here you need to convince 20-30 people.

We’ve had about 100 meetings in these few months, and we’ve polished our pitch perfectly. In many ways, of course, the experience of listening to and discussing several thousand pitches during our time at MGVC helped us. Well, our clear positioning and clear strategy.

Who were the investors of the fund?

Novel: We are glad that among the TGF investors who have already confirmed their participation in the fund, there are a large number of reputable representatives of the gaming industry, including such companies and their founders as Panoramik Games, X-FLOW, Plarium, Deus Craft and Aream & Co., an international investment bank with a focus on gaming.

Lev Leviev, co-founder of the largest Russian social network VKontakte, will also act as an investor and adviser to TGF. It is worth saying that at TGF we managed to assemble an excellent team of fund advisors, including, in addition to Lev Leviev, Viktor Orlovsky, managing partner and founder of the Fort Ross Ventures venture fund, Igor Ryabenky, founder of the AltaIR Capital investment firm, Ilya Karpinsky, head of MGVC, and Mike Vorhaus, a well-known gaming industry professional.

All listed investors and advancers have deep expertise in various segments of the gaming or venture capital markets and will be able to share this experience with TGF portfolio studios. I would also like to note that our investors have a wide network of contacts in the industry and are already helping the fund to find potential investment opportunities.

By the way, is there any connection between the new fund and MGVC, besides the fact that Karpinsky is one of the advisers?

Maria: No, and it was a fundamental moment. We deliberately did not attract money from Mail.ru .

TGF is a completely independent structure that does not have exclusive terms with any of the strategists. We want to create a balance of forces so that when working with us, the founders understand that they are not connected with any of the big players and maintain their independence.

So we took only experience from MGVC.

When did you realize that the main milestone was passed and you can already take a breath?

Roman: I think that the main milestone was passed when my partners and I decided that we were starting this new story together called The Games Fund. And we will be able to take a breath only when we provide TGF investors with a high level of profitability. In parallel with the process of attracting money to the fund, TGF is actively investing. There is a lot of work ahead and now is not the time to relax.

Let’s go directly to the conversation about the fund. Tell us about it, how does it differ from the same MGVC?

Ilya: The difference between the VC fund and any of the strategists is the lack of strategic interests (that is, he is not interested in gaining control, takeover, rebranding, influencing the product strategy, and so on). VC is a long—term, but temporary partner, leaving the founders room for maneuver in the future.

Otherwise, our work with companies is similar. In addition to money, we help them with expertise, hiring, BI, building and structuring a company, and act as mentors. In addition, we help to properly package the company to attract the next rounds and sales. We have partners — HR agencies, marketing agencies, financial partners, lawyers and more. All these services become available to our companies on more favorable terms.

But the main difference, perhaps, lies in motivation. Our goal is to help grow the company and sell it as dearly as possible. Our investors are also helping us with this. The strategist’s idea is the opposite. He is more interested in growing the company inside, after the purchase.

We are convinced that by working with the VC fund, the founders will be able to earn much more.

Are there many similar funds in Russia at all?

Maria: We are the first VC fund in the CIS, with a focus on gaming companies. There are public holdings, investment companies (for example GEM Capital), gaming companies investing in startups. But there were no venture funds yet. And this is one of the reasons for the creation of The Games Fund.

And abroad?

Maria: There are foreign funds. There are about 10 active ones. But it is quite difficult for foreign funds to enter the Russian and CIS markets. The language barrier and the difference in mentality are affected. Our goal is to be a link between startups in our region and global capital.

Under what conditions do investors invest money in your fund, what revenue and how long do they plan to receive?

Maria: Good funds have about 30% annual return. We plan to show at least no less.

This is a great tool for diversifying your capital. Funds have a life span for which they must invest money and exit assets. In our case, it is 5 years. It is possible to extend up to 8.

While we are talking about cash out, there is still a question. What percentage of “profit” is considered good when entering the venture environment? And what do you want to strive for? Or is all this so little predictable that they usually do not consider and tend to just be in the black?

Roman: The target level of TGF profitability is 30% per annum, which corresponds to the average level of profitability targeted by other, including non-gaming, venture funds.

It is important to understand that venture investments are inherently risky investments, so situations are inevitable in which some investments will not justify our plans, and others will repeatedly exceed them. TGF portfolio companies in the future will be organically divided into “middle-class” and “stars”. The profitability of investments in such stellar companies can reach from several hundred to thousands of percent.

The most interesting question for developers who are looking for money is: what projects are you planning to invest in. Does the foundation have a specialization?

Ilya: As you can understand from the name, we specialize in gaming companies.

These are both mobile developers and developers of premium PC/Console games. We are also ready to invest in developers of technologies for development and monetization (analytical services, tools, etc.).

In terms of genres, we are also open: we are ready to invest in casual, midcore, and hardcore. The only thing: we would like to see and support original games, not soulless clones.

Personally, I have more experience in mobile development, partners have more in PC/Console, so we complement each other perfectly.

As I understand it, the fund plans to specialize in seed investment. But there are probably some requirements for the product? Or are you going to look at the team first?

Ilya: We invest starting from the stage of collecting the backbone of the team and finding the idea of the game. We do not invest in “finding an idea”.

At the first stage, first of all, we evaluate the founders’ vision, their experience, their immersion in the market and understanding of competitors. The founders should clearly understand why it is necessary to make this particular game and have a realistic development plan.

Ideally, if the team already has a prototype showing the key features of the game. Even better, if there are the first metrics. Of course, there are no requirements for the game not to be launched yet, as it was before for publishers.

What volumes and on what terms (conditionally, for what share of the startup) are you ready to invest?

Ilya: In the CIS, at an early stage, they usually attract from several hundred thousand to one and a half million dollars. I believe that these are sufficient funds to launch the game and prepare for the next step.

The share is very individual, but it’s definitely less than 50%. I would say from 20-40% in the average case.

For later stages, the assessment is formed based on financial indicators. It can vary very much. We do not have a “minimum share”, but we have an understanding of the profitability and prospects for a particular investment.

The mentioned maximum limit of one and a half million dollars — how much is it today for development in Russia? Which game will this be enough to develop? Or do you expect that this amount will allow the team to prepare some kind of build that will attract larger investors?

Maria: I wouldn’t say it’s a limit. This is our comfortable amount, based on the current volume of the fund. In some cases, we are ready to invest more or participate jointly with other investors.

For a mobile game, the amount of $ 1.5 million should be enough for a year and a half of development and access to softlonch.

After this stage, our partners who finance the purchase of traffic are connected. Already here the company can become profitable at the operational level and no longer need investments. In an alternative scenario, we are preparing for the next round.

Yes, for premium games, the budgets announced and the deadlines, of course, will be different.

A similar question, but a little bit about something else: a little earlier you mentioned that you are ready to invest in mobile products. But, in fairness, the mobile market is now fully formed. Only a team of experts from a top company can enter it, having secured tens of millions of dollars for promotion. How much and how exactly can they be interested in small seed investments?

Ilya: That’s not quite true. The mobile market is still quite dynamic, new players are constantly emerging who occupy their niche.

We have personally witnessed how people without a lot of experience in games build great successful companies. So we think that now is a great time to create a company: the technological barrier is very low, products can be distributed independently around the world, there are many partners for development.

The main challenge is to create an interesting and high—quality game. If there is one, the remaining issues are solved. With our help, for sure.

As for your question about how seed investments can be useful for such teams, I will answer like this: they are necessary for founders who do not yet have their own funds to start a company. There are, of course, cases of bootstrap, but basically, to assemble a good prototype expressing your idea, you need a team, and it’s difficult to gather people on enthusiasm — you need initial capital to pay a salary.

Can you describe step by step how you plan to work with game teams? How will the investment process be carried out and at what stage will you be ready to enter the cache?

Maria: The investment process consists of the following stages:

• the first acquaintance and collection of information about the company (if necessary, we provide all the necessary templates, such as a financial model, presentation, and so on);
• company and market analysis, scoring, interview with the team;
• preparation of executive summary for the investment committee and decision-making;
• in case of a positive decision — formation of an offer for the company, negotiations on terms, signing of a Term Sheet;
• Financial and legal Due Diligence;
• signing documents and transferring money.

We make a decision quickly, but the whole process takes from 1 to 2 months. So, if you are thinking about investing, do not put it off.

We are ready to leave at the time of the company’s sale or IPO, as well as when a major strategist enters. At the same time, we are ready to participate in the next rounds of investments, for this we have a certain reserve. Everything here is very individual and depends on the pace of development of the company, our need for liquidity and specific exit conditions.

It is important to understand that we are in the same boat with the founders and our motivation is the same: our task is to make the next rounds or sale as profitable as possible for shareholders.

You have registered a fund in the USA. Won’t it require the registration of those companies in which the fund invests there?

Maria: The fund is registered in the USA, but can invest in any country. However, we prefer familiar jurisdictions and will help startups to properly incorporate the company and formalize contracts with employees and other contractors.

A little earlier you mentioned that the focus of the fund is teams from the CIS. You can share how it is with investing here. How difficult is it to find money for development here?

Ilya: Before MGVC, it was quite sad: people often took money from non-core investors on very bad terms. Now everything is much better, there are large professional investors who understand business and do not squeeze the founders.

But, as I said, they are mostly strategists. Accepting an offer from a strategist is a very serious decision. It is necessary to decide on the future of the company at the start.

With the advent of TGF, everything is getting better, now you don’t have to choose a side and subscribe for life. You can take money on comfortable terms, get a partner with expertise and matching motivation and, already having the results, decide which family to join or continue independent development.

At the same time, the development market in the CIS and Eastern Europe as a whole is gorgeous. There are more than 5,000 companies here, new ones are constantly appearing, more and more people are involved in game development. The quality of development is also at the world level (if not better).

At the same time, the cost of development is much lower than in the West. This makes investments in companies from our region very attractive.

Personally, I have long had the impression that many people are ready to give money on the Russian market. The problem is that there are not enough teams with good expertise to whom this money should be given. How fair is this opinion?

Ilya: I don’t see the situation as critical. Yes, there are not very many established and still independent companies. But there are a lot of young teams and tops who are ready to launch their business.

A successful company rarely consists of 100% stars. Usually these are 2-3 experienced people + middle-level people at the start. This allows you to get a balance and give employees space for growth.

I want to touch a little on the topic of investing in PC-indie. Now small asterisk teams consisting of one or three developers (Loop Hero, Cartel Tycoon) are breaking out more and more often. How interesting is investing in them for you?

Roman: In recent years, the indie segment has shown excellent results and often it is these games that become the events of the year, competing for this title with major AAA titles. Hades, Disco Elysium, Outer Wilds, GRIS, Celeste, Dead Cells, Cuphead, What Remains of Edith Finch – these are just a few examples of games released in 2017-2020 that were very warmly received by the audience. We cannot ignore the heyday of the indie scene and analyze all the opportunities that are on the market. At the same time, TGF’s main focus is on the mobile segment, which is primarily due to the huge expertise of the team in this direction.

By the way, do such teams resort to venture capital at all, or do they prefer to start working with a publisher as early as possible?

Roman: In our experience, it depends on the plans and ambitions of the founders of the companies, as well as the stage of development of the studio. One of the advantages of working with funds is that the studio can attract investments before preparing a prototype of a new game. But it is important to understand that in most cases it will be possible to do this only if the team has relevant experience and good financial results of previously released games (the so-called track record). The Foundation can give the studio a number of expertise that publishers usually do not provide, for example, assistance in attracting additional funding, including assistance in negotiations and paperwork on the transaction.

The Foundation is great, but in conditions of personnel shortage (if we talk about specialists at the middle and senior level), wasn’t there a thought to take on, for example, an incubator that will take over educational functions?

Ilya: I am a supporter of combat experience within the company. The accelerator is a very resource—intensive structure, there are very few financially successful accelerators. By creating new companies that will grow personnel internally on real tasks, we perform a much more effective educational and economic function.

What we lack is a practical business education so that people have experience in managing and managing medium and small businesses.

And the last question — have you already signed any project? Is there an opportunity to share this?

Ilya: Yes, we managed to invest in one company and in the process of closing three more deals. By the end of April, we plan to have 4 portfolio companies and further invest 10-12 companies in the next three years.

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