Mobile Mavens

Is it worth developers sacrificing their freedom to foster funding?

Our Mobile Gaming Mavens on the art of investment

Is it worth developers sacrificing their freedom to foster funding?

It appears to be the season for investment, with developers around the globe – and, indeed, other major players in the mobile market – seeking funding left, right and centre to grow their businesses and pursue their respective goals.

But is this the only way studios can look to expand?

Should developers instead be looking to grow organically, holding on to complete control of their operations, or is this a sacrifice worth making?

We asked the Mavens:

Do you think now is the right time to be raising more money? And, furthermore, is it now essential for studios looking for longterm growth to raise money along the way?

Harry Holmwood, MAQL Europe

The right time to be raising money is while investors are excited about the sector and your business in particular, so the deals are more palatable.

Seeing some exciting IPOs on the horizon, new deals like the Supercell investment and increased M&A has shown that there's a lot of upside for investors to get into the right businesses again. So, if you have a promising games business, now looks like a good time to raise money.

That said, I'm not sure it's getting easier for smaller, pre-revenue startups to raise money for game development - the funds are going towards the huge, proven success stories, from investors that, rightly or wrongly, think their cash will help those companies replicate those successes.

So, if you can get money and - more importantly, you're sure you want it - now should be a good time. But be sure you want it - investors don't necessarily want what you want.

Running a VC-backed company or one on the public markets is a very different life from making games for a living. It's all about the growth, not the art. So be careful what you wish for, and work out what really makes you happy before you jump in.

It's easy to think that raising money is the end goal when, in fact, it's just the start of a very long and arduous journey.

Jon Hare, Tower Studios
This time I am in 100 percent agreement with Harry. Wise words indeed.

Oscar Clark, Applifier

There does seem to be a lot of interest (and the associated concerns) as Harry has stated.

I agree that the concept stage startups will continue to have problems and need friends/family/fools for investment (hence why I'm not doing RocketLolly any more), but if you have revenue or downloads to show substance behind the concept then you may well be courted.

I know a number of studios, especially those with F2P experience, that are actively being courted.

The risks Harry talks about are very real - how to get the money you need to realise your vision without compromising your scope or too much control.

Interesting times to be involved in a small studio.

Paul Virapen, Big Pixel Studios

I'd agree that unless a studio has existing products with considerable downloads and revenue which shows potential for growth, or previous success with free-to-play, they'll find it difficult to raise funds.

That being said, it's not impossible. The company behind the recent App Store hit QuizUp raised $2m in Series A funding just a few days before the release of their game. It went on to hit number one in the free charts and is continuing to do very well a few weeks later.

Was this the right time to take further investment? Or would they have been able to raise significantly more had they waited until they had those few million downloads and a product that is clearly a success.

John Ozimek, Dimoso
Perhaps a different way to look at the question is whether companies looking to raise funding will get the correct valuation in the present market. There is always going to be funding available - it just depends at what price you are willing to take it.

Harry is right that funding also comes with handcuffs as well as freedom - so it's a big decision for any company to take.

Having worked with a couple of early stage companies in the past year, there does seem to be plenty of interest for anything mobile related, which reflects the keenness of investors to spend what are relatively small amounts - there will be few deals in the Supercell scale of things - but on a high risk/reward outlook.

I do feel some of this is connected to last weeks Maven's thread about gaming as a service; the companies who are able to show a scalable business look a better bet than a studio with one great idea.

Often it's what is deemed to be the 'next big thing' is where all the funding will gravitate; witness the amount of money still being thrown at anything social, as the investors that didn't see Facebook coming try to get into that space any way they can.

Just a few days ago there was an interesting survey published that showed almost 50 percent of Angel investors actually regretted investments they had made this year. The biggest reason was an overly optimistic valuation.

I do wonder whether, with so few mobile games becoming the kind of global hits that investors expect, it may be a great time to raise money, but for investors, it's also a time to be more diligent with their cash to prevent a bubble forming (or, if you are a cynic, expanding the existing one).

Jared Steffes, Furywing
Harry summed up the whole situation very nicely.

I am close to a lot of folks raising money all the time because I consult/advise startups while building my own. Depending on the area in the US you are located defines how much, and how easy it will be to raise money for an app/game.

On the seed/angel front, the money is primarily going to people that have left successful game companies and starting a new one. The valuation doesn't matter if you are raising on a convertible note, which most people are on the coasts.

In the heartland - middle USA - deals are likely done with a valuation built in because the angel investors are not as savvy yet. If you are lucky enough to get money for an app in the midwest, and want to stay in the midwest, you would probably be okay with it.

The market is saturated with a lot of previously funded social game studios, and the new investment money is looking for that public IPO or big acquisition return.

The big deals are what attract angels to an area and the more we talk about them in public the easier it is for companies doing something similar to explain their business model to investors.

With a fine eye for detail, Keith Andrew is fuelled by strong coffee, Kylie Minogue and the shapely curve of a san serif font.