London Venture Partners (Lvp) is a gaming-focused venture capital fund investing exclusively across the games ecosystem. General Partner Are Mack Growen is located in Berlin and talks with us about Berlin's gaming industry, what Lvp looks for in a project or studio, and how to seperate the real opportunities from the hype.
Lvp has been investing in games successfully for 10 years. What makes a good game and a good game company?
Investing into gaming poses challenges for VC funds unfamiliar with the industry, especially in the early stage: not only is it understanding the macro and technological trends that unlock opportunities for certain games, but also marrying that with a creative and artistic vision that appeals and is ultimately fun. Lvp invests in not just content studios, but also technology and platforms within gaming. From working with both game content and game technology companies over the past decade, what sets apart the most successful is when the two visions for the product and company are aligned, there's high talent density, particularly within the founding team, and the companies are building on broader trends that can deliver growth (e.g. Supercell on mobile games, or Unity on the mobile democratization opportunity).
Being the first institutional fund focussed on gaming, and led by a partnership team of ex-gaming operators however, we aren't afraid to invest when it's a couple of people with an idea. Some of our notable investments have included Supercell and Unity alongside more recently, Singularity 6 and Klang.
You get very involved with the companies you invest in. How do you secure both the creative freedom and profitability?
Indeed, retaining both creative freedom and being primed for the moonshot is part of the appeal of partnering with a VC vs a gaming publisher, as VCs invest in the underlying companies. We back teams and visions as much as products, so we are aligned in maximising the probability of success. We love to get hands-on to support our portfolio and provide true value-add whether that be assisting with recruitment of key hires due to our unparalleled network within gaming or helping to develop/define a company's strategy. At the end of the day, we invest in people. We try and maximise the company's potential and are not in the habit of impinging on creative freedom, quite the contrary, in the majority of cases we are encouraging companies to let loose and be more ambitious which may lead to an increased burn of capital. However, success for us is success over a 10-year investment horizon, so we would rather wait and support a company to a billion-dollar outcome than potentially stifling this with a rush to early profitability.
Investing very early is your cup of tea. How can you evaluate the chance of success from initial business plans?
Usually, when we look, there's no product, no metrics, and potentially not even an incorporated company. Therefore, we assess based on different criteria depending on the opportunity. The most common criteria we look at are the founding team, product vision, market, go-to-market strategy and potential exit opportunities. I would say the largest focus is on the company vision (both in terms of the market opportunity and financial opportunity) alongside aligning this with the founding team and their ability to execute the said vision.
What advice would you give a studio that is seeking investment?
Practice and iteration. At the start, try to get as much feedback on your pitch and proposition from friends in the industry and preferably, other founders who have raised capital before. Being energetic/enthusiastic about your product and being prepared for questions such as company differentiation and ultimate ambition really helps us to develop confidence and believe in your vision. It goes without saying but even the simplest of things like being on time and prepared can make a difference with some investors.
In order to meet investors, try to get warm introductions to give the best possible impression: it is often a signal of quality and a founder's ability to network/hustle. For us at Lvp, it's less detrimental and we explicitly hold open office hours to ensure that we chat with all gaming companies, regardless of how we might be introduced or where they come from. Lastly, come and talk to Lvp as there is no too early for us!
In Germany, there haven’t been many companies investing in games. Why do you think that is and what needs to change to encourage investors to dare the step?
In my opinion, this represents an opportunity for VCs and one that we here at Lvp have taken. Germany’s tech scene is booming and is one of the major hubs in Europe which is attracting strong investment. We see strong deal flow from gaming companies in Germany and have invested in five. If I had to give one reason, it’s probably the lack of presence from larger developers and more recent studio successes who inspire budding founders and create ‘founder factories’. Of course, you have the likes of Crytek, Good Game, Yager, and of course, our very own Klang. But compared with the US, UK, and Finland, Germany has been slightly slower in developing its gaming infrastructure as well as startup culture. I think it’s more a question of time and we will see that change very soon.
What needs to change? More commercially experienced founders who have more understanding of the business of gaming and not just the artistry of gaming. Since most generalist VCs aren’t comfortable with investing in games at their earliest stages (often due to a lack of understanding), these founders need to be confident and convince them of the opportunity.
Having worked worldwide, how would you rate Berlin’s games industry ecosystem?
I would say it is becoming one of the strongest ecosystems in Europe having incredible talent density, and an increasingly open and collaborative network of game developers: this will only further enhance the flywheel effect of founder factories. If you look at the data (courtesy of Pitchbook), Germany is one of the top European countries for producing the mythical unicorn companies that VCs look for, with a total of 48 of which 25 are based in Berlin. From those 25 companies, a further 165 VC-backed companies have been founded by ex-employees. It is only a matter of time before Germany produces a gaming unicorn and the flywheel effects come to life for Berlin’s gaming ecosystem. Again, we have invested heavily in Berlin and German-based companies, so we're putting our money where our mouth is. We are really excited for what's to come.
You invest in games from all over the world. How do studios from Berlin and Germany perform in comparison to the international competition?
German studios tend to excel at certain things and require support on others. Not to resort to crude generalisations, but they are usually strong on product and team-building whilst lacking some of the commercialism and ambition of the American founders we see. This is not necessarily a bad thing, especially in light of the current financial markets, and is a reflection of more risk-averse nature of European venture capital alongside German cultural traits. At the end of the day however, all studios face unique challenges in their journey to becoming a leading player in the market; whether that be issues with hiring, game launches not going to plan or even being thrown out of your office/squat (see our portfolio company, Betadwarf, story about that here). The cost and standard of living here in Germany means that studios can afford more shots on goal relative to more expensive gaming hubs.
How do you separate real opportunities from the hype?
That is half the battle as an investor! There are two aspects here: working out whether there is indeed fire within the smoke, and then separating the two. We try to evaluate the wider commercial opportunity as much as a game vision or technological solution. Then we try to think through where startups can capture value, and what kind of teams are best placed to deliver on this. A particular red flag is when a company simply inserts the "hype" technology or buzzword onto a game or product without any thought as to whether it makes sense or improves the experience for the end user (for example, blockchain startups in 2021/22). We have managed to steer clear of other hype cycles within VR and esports in the past, but we feel that the hype is justified within generative AI. We are keen to hear from startups utilising or developing generative AI technologies within the gaming space.
