Game on: Top Stockholm investors share tips for investing in the gaming industry
Over the past decade Stockholm has emerged as a key player in the world’s fast-growing gaming industry.
The birthplace of gaming behemoths such as EA DICE, Mojang, and King - the creator of Candy Crush Saga, the highest revenue generating mobile game of all time - Sweden’s capital is also home to over half of the country’s 442 game companies.
And it’s growing fast. Sweden’s gaming industry saw a 23% increase in revenue generated between 2018 and 2019, bringing in over €2.29 billion. Lockdowns imposed in response to the COVID-19 pandemic look set to further boost growth of the market as an estimated 2.7 billion people increasingly turn to their mobile phones, PCs and gaming consoles for entertainment and connection.
It’s no wonder then that the gaming industry has become extremely attractive to investors. Yet even seasoned investors admit feeling deterred by their perceived lack of insight and experience. They shouldn’t, says Susana Meza Graham, co-founder of games & tech investment company Aldeon and former COO at Paradox, but they do need to lay the groundwork before investing.
“Understanding games and understanding the business of games are two different things. You don't have to be an avid gamer to understand the business of games,” explains Susana. “However, just like investing in any other industry, you need to do your homework. Look at general trends, talk to other investors in the sector, try to stay current on big news and industry reports. Recognize that breakaway hits in the industry are exceptions rather than the norm and build your strategy accordingly.”
Once you’ve wrapped your head around the business of games, you can begin your quest to find the right investment. If you aren’t already a fixture in the gaming community, this might feel like the biggest challenge of all. Angel investor and advisor to institutional investors Stefan Lindeberg suggests seeking out events organised by the various game development clusters. The events connect game developers with investors and are the ideal environment in which to begin building a network. Once you’ve found a potential investment, the next step is assess its viability - and the best way to do that is by getting to know the team.
“Ideally you want the team to have experience. Preferably they should have worked for another game developer, or started their own company before. But sometimes it’s their first time, so then I want to see a mix of competences. Do they have the different skill sets needed? Because the skill sets are much wider than your typical tech startup. You need everything from musicians to deep programmers who can optimise for a millisecond response time,” says Stefan.
Karl Magnus Troedsson, industry veteran and founder of gaming venture capital company Loot Spawn, believes the team is the most important factor when investing in a game company.
“It’s a cliché to say ‘we invest in the people’ but it’s one very important component of what any investor should look for. Experience is a good start when evaluating but an investor needs to form a point of view on many more data points. Some of them are very practical but especially during early stage funding, many are much softer and more subjective.”
Karl Magnus suggests judging how practical and realistic the team is, as well as how willing they are to listen to feedback or ask for help, and whether they can pivot if needed.
“Investing at a pre-seed stage and getting hands-on involved with the team requires the team and investor to match on several very human levels to have a solid base for great cooperation. This doesn’t mean aligning on every single topic, it’s about connecting as human beings.”
Game development life cycle
Understanding the life cycle of game development is the first step to confidently investing in the gaming industry. From developer to consumer, the game development process is a production pipeline formed of three main stages: pre-production, production and post-production. Deciding which stage to invest in depends on the goal and time horizon, says Susana.
“Just like in many industries, the earlier you invest, the bigger the risk but also a larger potential pay off. Similarly, a more diverse game company portfolio lends itself to a higher likelihood that some investments will pay off.”
The decision can also be a matter of preference, says Stefan. He favours investing early, before the bulk of the work has even begun. Having worked in the industry for 20 years, he accepts that investing at this stage comes with a higher risk of failure. This risk can be mitigated by assessing the team’s longer-term vision and grasp of their target audience.
“Some people want to invest when the game is ready to launch, and others want to invest in growing the market. It’s partly down to your own risk profile,” he says. “In the earliest stages, you don’t have any metrics to look at. So you have to look at other things such as whether they have a clear idea of who their audience is, and how they are going to reach them. If you plan to invest in a later stage, you can look at metrics like number of downloads, average monthly users, and how long people continue to play after purchasing. ”
Establishing early insights
Key to any successful investment is gaining as much insight as possible with which to craft your investment strategy. Ask questions that help you to assess the team’s capacity to execute their vision, and get a feeling for the kind of support in place to help them succeed, advises Susana.
“There will never be a shortage of great ideas in games companies, but ideas need to lead to completion. There has to be a focus in what the studio sets out to do. As an investor, I would also look at the management and board to ensure the studio has the support and industry experience it needs to execute on its plans in the best possible way.”
If assessing this experience yourself feels daunting, the natural solution is to find a partner with the right expertise, says Stefan. They can steer you in the right direction as well as make you aware of factors you might not have considered, such as the effect on revenue flow if a developer is working with a publisher or if they plan to self-publish.
“Games development is a bit special, it’s more like writing a book or producing a movie in the sense that it’s harder to evaluate the potential reaction from the audience. So you need to partner with people who have some experience in this space.”
Karl Magnus advises the same course of action, recommending finding someone who has the knowledge and skill set you lack.
“The clear advice is to get hands-on help from someone who knows the business inside out. Ask yourself what the last game you played was and why you enjoyed or disliked it. Stack it up against similar games in the same genre and compare. If you can’t break this down into a micro-report yourself, you probably need help to invest in the industry.”
Ready to take your plans to invest in Stockholm’s gaming industry to the next level? Find more information and advice: Investor’s guide - How to invest with confidence in the games industry
Read more: The Games Industry in Stockholm