What top VCs look for in gaming startups

The following is an excerpt from a chapter of “Game Design Secrets,” a new book by Wagner James Au. In this excerpt, two experienced venture capitalists talk about how they decide which game startups to invest in.

Nabeel Hyatt, a venture partner with Spark Capital, is in a unique position to understand game design as a VC, because he began his career as a developer himself. Founder of Conduit Labs, a game studio acquired by Zynga in 2010, Hyatt then became a General Manager at the social game giant, where he led development of Adventure World.

Create games with great retention—and understand why they’re succeeding

Hyatt’s number one metric for games that interest him as investment prospects: Day-one retention, i.e. whether new users come back the next day to play. This is an especially important way for Hyatt to evaluate games he might not personally “get” himself. His rule of thumb: Anything below 13 percent day-one retention is bad, while a great target is toward the 60-percent range. (If a game remains below 13 percent after a couple months despite attempts to grow retention, it may be time to kill it.)

Hyatt also looks for teams to invest in who understand why their game is succeeding—for instance, why players are rating the game highly, why day-one retention is strong, or even something as simple as why people smile while playing the game. “That tells me a lot about their thought process,” Hyatt says. “The games companies in this new ecosystem that are doing better and better are the ones asking why.” It used to be that games would evolve every few years with the launch of a new console; now, however, game evolution cycles are happening on a near quarterly cycle. For that reason, Hyatt says, “It doesn’t matter how analytical you are or how cutthroat you are; it comes down to measuring those results to figure out how to get better.”

Pitch games that give players long-term aspirations

Hyatt puts a lot of stock in the long-term goals a game creates for a player: “What’s the aspiration of a player? What’s the thing they’re trying to build in the future? How would they imagine themselves playing the game in a year? What’s the moment-to-moment experience in order to meet the aspiration?” This isn’t just a high-minded design goal, but good business sense. After all his firm invests in games as a recurring service, not games enjoyed for a day or two then discarded.

For the company pitching Hyatt, they need to answer two key questions: Why now? Why you? “We invest in areas where there might be an opportunity for explosive growth,” he says. Most companies aren’t likely to realize such growth, so the developer must explain to him why they’re the exception.

Name your strengths as a startup—and your weaknesses

“What I want to see is an entrepreneur who understands their biggest strength and their biggest weakness and be able to talk about both honestly,” says Hyatt. Understandably, some developers in search of funding may hope to obscure their shortcomings, but Hyatt insists he would prefer if they instead face them head on, saying something like: “If yo’’re not going to invest, this is the number one reason you’re not going to invest.” Not only does this demonstrate that the developer truly understands his or her business, it also opens up an opportunity for the VC to offer suggestions and help the start-up.

There’s a corollary to this advice: The developer should know what they’re best at, and be able to explain why and how. “A small company can’t be good at one hundred things,” Hyatt says. “They can only afford to be number one in one area.”

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A managing director with Lightspeed Venture PartnersJeremy Liew has invested in a number of successful gaming companies, including Playdom (acquired by Disney), Serious Business (bought by Zynga), and KIXEYE.

Have a plan that demonstrates repeatability and discoverability

As Liew puts it: “How do you build a hit factory?” While not every game will be a hit, a startup should have some kind of native advantage which makes their games more likely to be a hit. That could be due to a built-in audience created by a series of sequels, or a hit niche game genre with real complexity and a passionate playerbase. As an example of that, he cites KIXEYE, which focuses on core gamers who are under-served by Facebook games.

For discoverability, Liew describes the current playing field this way: Whereas in the past, game distribution used to be the bottleneck (i.e., selling games in boxes on shelves), now most games are available online, so distribution is free and easy and democratic, and development on the larger platforms is relatively inexpensive. However, this very fact makes discoverability quite crucial. “In a world where there’s tons and tons of games, how do you get to be the one people try and our talking about?” Liew says. As he notes, it’s just simply not enough to create a great game, unfortunately. “There are [already] so many great games that are sitting out there, languishing,” he notes.

Don’t just talk about how good your game is—prove it with user data

Liew says this is a common mistake, with developers insisting in the face of his skeptical questions, “Yeah, but the game is going to be awesome… that’s why it’s definitely going to work.” The hard user data shows that prediction, however, is almost always wrong. Instead, show Liew the data. He adds an adage that may be hard for developers to swallow: “Game design is not predictive… user engagement is predictive.

Wagner James Au is a game-development consultant and writes the gaming/virtual culture blog New World Notes. Follow him on Twitter @SLHamlet.

Excerpted with permission from the publisher (Wiley) from “Game Design Secrets” by Wagner James Au, copyright © 2012.  Now available in paperback and e-book (use code “GDS12” for a 40 percent discount at checkout).

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