Venture Funding for Game Studios, with Jason Della Rocca

Jordan: 00:00

Welcome to Playmakers. I'm your host, Jordan Blackman. On every episode I interview a game industry expert, legend, or luminary so that you can get better at what you do, whatever that may be. This week, an interview with Jason DeLaRocca for episode number one. Jason is a co founder of Execution Labs, an early stage funding company that helps game developers get the money they need to get their games made. Lots of great learnings in this one. Stay tuned, episode one, right now.

I'll be, here we are, episode one of Playmakers, the podcast for you, the game industry pro; whether you're an indie, whether you're working at a huge company, whether you are just learning about the industry because you are, you know, on your way in, this is the show that helps you get an understanding of the entire game industry from the creative to the business, because it all matters, and we want to make you successful creatively, and in terms of your career and business.

On this week's episode, I have a fantastic interview for you, full of incredible information. This is with Jason DeLaRocca. Now Jason, you may know him as having been the co founder of Execution Labs. Jason's been around for a long time. He is a man in the scene and he knows how it works and he breaks a lot of stuff down in this episode.

Now, as the co founder at Execution Labs, a lot of what he's doing is evaluating studios as investment opportunities for his fund. And we talked a lot about what he's looking for in companies, in studios, in products. This is stuff that is going to be helpful to you, whether you're pitching your studio to publishers or to get venture funding, or maybe you're on the other side and you want a really experienced perspective on how Jason looks at opportunities. You get all that and much more in this episode. Make sure to keep your ear out for a really great breakdown of many of the key words and terms that come up in venture funding, A round, B round, C round, an incubator versus an accelerator and a lot more. So that's all in this episode and it's coming on up.

Now this is episode one. We are in our launch week and boy, you could help me out if you believe in this show, the way I do, if you believe that the industry needs great learnings each and every week, something you can listen to on your commute, something that is going to help you get more successful, both creatively and in terms of the business, because that does matter and you're going to hear more about that on this interview with Jason. If you believe in the mission, please support us. All you got to do is head to our webpage brightblack.co/playmakers. And there you can do all the things that help us grow the show, which is to subscribe, to rate, review. We're going to have quick links for all that stuff for you. Thanks. And without much further ado, without any more ado. No adieu, but I bid you adieu. Here's Jason.

Alright, Jason, it is great to have you on PlayMakers. Thanks for coming on.

Jason: 03:18

Thanks for having me.

Jordan: 03:19

We're gonna, like, dive right into fundraising and venture capital and all that good stuff. But just before we do, I wanted to talk a little bit about you and how you got into the industry. You know, you're a face that I've seen my entire career

Jason: 03:33

Haha just means I'm old.

Jordan: 03:36

Well, we're both old at this point.

Jason: 03:39

Yeah. I mean, I think this might be my 21st or 22nd year in the industry. I mean, this, Past GDC was my 21st consecutive GDC. So I think that, maybe qualifies me as an old timer. I mean, the early days, you know, going back 20 plus years, I mean, there really weren't that, there weren't any game schools.

There wasn't much in the way of textbooks. I mean, you know, you just sort of hacked your into the industry. And for the first few years, I was more on the hardware and graphics side of things. So I worked for a Canadian hardware manufacturer called Matrox, that back in the day did the Millennium, which was one of the first graphics cards that had 3D acceleration.

Jordan: 04:22

I do remember the matrox cards.

Jason: 04:23

Yeah. The matrox millennium and mystique and all that. I remember working with John Carmack in the early days when he was getting open GL sort of first going on 3D hardware and working with the team, from core doing Tomb Raider. I'm not sure many people remember, but the very first Tomb Raider was one of the first natively coded, this was like before Direct3D and DirectX APIs and all that kind of stuff existed. And we were working with them to like get Lara Croft to run on 3D hardware and stuff like that.

Jordan: 04:56

You cut out for a second. It was the first game to be natively coded for what?

Jason: 05:00

For 3D acceleration.

Jordan: 05:02

Oh.

Jason: 05:02

Right. So this was before you had DirectX APIs and native access through OpenGL and other APIs and stuff. So you were like booting games in MS DOS and then, you were going directly to the metal to access the hardware.

Jordan: 05:18

You just needed enough EMS memory, you know, I just remember the memory nightmares.

Jason: 05:22

Yeah, you had to optimize your .Bat file, your batch file, whatever. So, yeah, we're sort of revealing how old we actually are. But, for a bunch of years, I worked with Matrox and essentially my role was working with game developers all over the world and supporting them instead of adopting hardware acceleration stuff after that it was still sort of in the tech side working with a networking middleware company that eventually got bought by Ubisoft, called Quasal, that didn't last very long, although they're a bunch of cool guys. And then, without getting into all the sort of details, I ended up with the IGDA, you know, this kind of weird role, having never run or done anything on the non profit side or about sort of the meta issues of the industry, just kind of, landed in that position, and I was there for nine years. I mean, I think a lot of people who have been in the industry for a while now kind of met me first in that role.

That was a very challenging position, really kind of trial by fire in many ways, but also was extremely rewarding and did allow me to work with developers, from top to bottom, meaning the kids just getting started versus, the AAA veterans that have been at it for the longest time; as well as working in academia, working with government, working with all the tech providers and platforms. I mean, really kind of every corner of the industry, top to bottom, as well as every corner of the globe. So it was a huge opportunity, just sort of dealing with all of those different constituents and stakeholders, regions and stuff. So, that was quite exciting. And then after that, I mean, nine years was time to-

Jordan: 07:17

You just sum it up in 15 to 20 seconds.

Jason: 07:20

Yeah, I was doing consulting and I was doing more sort of business like consulting, but also consulting with governments who are particularly keen on supporting the growth of their game industry and their given country or region. Part of that had to do with tax incentives and regimes, part of that had to do with nurturing talent and working with academia and all these sort of different pieces of the puzzle to kind of foster and support the growth of the game industry.

And that really was sort of the first place where I started to get my toes wet on the funding and finance side of things. And that also happens to be the time frame when you had, you know, resurgence in the sort of startup, angel investing community and sort of the broader technological, tech and web and all that kind of stuff, not specifically game related.

And you had stuff like Y Combinator and tech stars getting rolling and all the action happening there. And so in a lot of my consulting work with governments, I would say you should start a Y Combinator type activity for games and game studios and help nurture the startups and provide early stage funding.

I talked a lot about incubation, early stage funding, startups and so on, but I was a consultant, so I didn't have to do anything. I just wrote nice reports and said, you should do this, here's my advice. Some investors local here in Canada, had a similar idea and said, you should stop talking about it and like, you should do it and we're willing to back that.

So in a kind of ironic twist, it was investors who pitched me to like, do this for real, as opposed to the way around. And that, that's kind of what got execution labs rolling was the sort of clouds parting because this investor said, like, "Stop just talking about it. Go do this. We think this could really be interesting." And it's like, "Oh crap. Yeah, sure. Let's do that" And so that, that was about five years ago. And then, we've been working on execution labs since then.

Jordan: 09:20

For people in the audience who might not know execution labs is a fund. You guys choose particular companies that you want to work with, like early stage game studios, and you give them some cash.

You just stop me when I say something that's not quite correct, but you give them some cash in exchange for some equity and you probably also are giving them some support resources, some expertise, some other things like that, which I want to hear about. And you help them bring their ideas and their products to market.

Jason: 09:49

Pretty accurate. We call ourselves an early stage investor in game studios. You know, in the game industry, most people think of funding as, for projects, project financing, whereas there's less folks that are investing in the company equity directly. So we do, invest in the companies, which is an interesting perspective in that we care about the team. We care about the company and the vision, and the road map of products or projects, not just this one project, so it's a slightly longer term, more holistic mindset than, "Hey, that's a cool game. I'll publish it. Let's make a couple of bucks together."

We sort of say that we provide three things. One is funding, the other is mentorship, coaching, guidance, expertise. You know, help, on many aspects of the game, but more importantly, on the business and the company. And the third element is connections, right? So essentially we know everybody. So if you need to talk to someone at Steam or you have a problem with Apple or you need to get your dev kits from Microsoft expedite, you know, whatever. Or you need help from unity and so like, we just know those people, we can pick up the phone and in most cases, sort of get help faster than if you were just a random guy off the street or whatever.

Jordan: 11:11

That's huge. I mean, that is huge.

Jason: 11:13

Yeah, yeah, it makes a difference. And the idea is that, with us on board, not only do you get some funding, but you really get that kind of unfair advantage to succeed in the market because we're calling in those favors, we're coaching and mentoring, we're helping to guide, and so on.

Jordan: 11:31

This is really what I want to talk with you about today. You know, kind of your decision making process, what you've learned in this experience, working with studios, how long has execution labs been around now?

Jason: 11:42

We opened our doors officially in January of 2013. I mean, the company technically started a bit before that, but we were sort of getting set up and all that kind of jazz. And so the first investments we made were, in sort of January, the beginning of 2013. We've done 25 studio investments, since then. Yeah. So it's been, call it four years. We've been, investing, mentoring, connecting all that jazz.

Jordan: 12:12

As you transition from talking about how this is something worth doing and that should be done to actually doing it, what were some of the things that kind of surprised you?

Jason: 12:23

Yeah, I mean, the list is so long, it's crazy. What's interesting is that we set it up almost with the admission that we didn't really know what we were doing. I mean, obviously, the team, my co founder Keith Katz, also has lots of experience in the industry. You know, we had a strong team, so we had a certain level of confidence in our own knowledge of how the industry worked and, et cetera, but nothing like this had really been attempted before. There were no one we can kind of model ourself after. We can look at Y Combinator as a sort of generic successful way to incubate early stage tech companies, but they don't really touch game so there wasn't sort of a direct analog.

So, when we got started, we kind of said, “Listen, we need to be humble and keep our eyes open and our ears to the ground.” So, we're attentive to be able to course correct on the fly. and so, I mean, literally the day we opened the doors and the first teams came in, I mean, we were already making adjustments and rethinking things.

What's interesting is we evolved the models. On day one, we were calling ourselves an incubator, and the model worked in a certain way, and how we operate was a certain way. And then we kind of quickly moved on to more of a “accelerator model” And then, moved on to more of a sort of VC style model.

So, we were always adjusting. I mean, again, there's so much stuff we learned along the way, but I mean, a lot of it was on team construction. Who was the core team that was pitching like the co founders of the company and the kind of the difference between the co founding leadership, vis a vis the kind of minions that were just sort of working on the project. And just as one example, what we looked for was, someone who had the creative leadership, someone who had the technical leadership and someone who had some kind of business leadership and sort of took those roles. And if one of those key roles were missing, it was a major red flag.

I mean, the most obvious one is if there's no one with any business leadership, well then, they're not able to sort of do the businessy stuff well enough, you know? So that one was kind of an obvious one, but the more interesting one was, for example, technical leadership. So imagine that you had, I don't know, two co-founders like you and me, and you're the creative visionary and I'm the business guy and we're the co-founders.

Jordan: 15:02

I get 60%. You get 40%.

Jason: 15:04

Yeah fine 'cause you're a genius, I'll give you that. But, so it's just you and me and we go pitching to game investors or us, or you know, like whatever. And when there's no technical leadership, it'll be a red flag, because what'll happen is, the creative genius, you, or I, or myself, we'll come up with all these ideas to conquer the world, to create this amazing stuff, and then the programmer, who's our minion, will say, "Hey, boss, like, I can't do that, or I can't do it," and you'll say, "I'm a genius, shut up and get back to work."

Jordan: 15:36

We'll just get four more programmers. Problem solved.

Jason: 15:40

Exactly. And so because we don't have anyone at the leadership level that's on par with you and I as co-founders to kind of put their foot on the ground and say, "Hey guys, listen, like this is not achievable. We have to take a different path or use a difference." we'll always sort of just dismiss that as lazy workers.

Jordan: 15:59

That is fascinating.

Jason: 16:01

I mean, that's just one example of a potential red flag when a team comes into pitch we'll say, “Hey, where's your technical co founder, because you need that as a counterbalance to the creative genius and also to the money hungry guy that will just sort of do all the all the money focused stuff.”

Little things like that, on day one, when you open the doors, you just haven't been sort of confronted with those situations. And so that was just one sort of example of many.

Jordan: 16:29

Well, I love that one because for people in the audience who maybe have a studio or want to have a studio, that's something where it's like, even if they're not necessarily looking for early stage funding at this point, they can think, “Yeah, do we have someone on our team in each of those areas that we will listen to and can really put their foot down” because no matter what they're doing, that's still a red flag.

Jason: 16:51

Yeah, absolutely. Absolutely. I mean, I was at a conference just this weekend, I was giving a couple of students advice. And they were two programmers and so they wanted to start a company and they're like, "well, we're two programmers.” I'm like, I mean, great. It's wonderful that you're two programmers, but you need to find someone with some business savvy. You need to find someone that's on the creative side because you just can't do it if you're two coders, even if you hire a bunch of minions, it's just not the same thing.

And so you know what one of the bits of advice I often give to folks that are just getting rolling is you need to design your team- like it has to be so intentional who your co founders and who your partners are. It can't just be "Jordan's my buddy, let's go get rolling."

Jordan: 17:40

“I have a cool idea.”

Jason: 17:42

And that's a starting point, but you really need to design the company and be intentional about sort of the business you're creating as much as you're thinking about the cool project and cool gameplay that you're working on.

Jordan: 17:55

Well, that's also something that I'm hearing. And when you say that you're looking for companies that don't just have a particular product, but have an entire business strategy that they can build multiple products around.

Jason: 10:08

I mean, this is generally what we call, a roadmap or kind of a vision for the company. It also links to a notion of what I call scaffolding, which is a concept that I've talked about in a bunch of my conference lectures. Studio has greater chance of succeeding long term, the more shots on goal, right? The more projects are able to create, the more efficient it becomes, the better it becomes, the more reputation it grows.

Like your chances of succeeding scale up just with every project you release. And so what you want to do is have a roadmap such that each project becomes easier, better, quicker to create. Now, that doesn't mean you're making sequels, but it does mean that you have to make, sort of a decision about what kinds of games you want to develop.

Worst case scenario is , 'game one' is, a racing game on XBox and we try that out. And then 'game two', we're like, well, that was boring that didn't work. Let's go make a Pokemon AR game on mobile. Right. And like, "oh, well that didn't work of course, because we didn't have a Pokemon license."

Well now let's go do a Steam game that's a survival horror game. Like each one of those is completely different. There's very little sharing of technology. There's very little sort of accumulation of design knowledge as you were designing the racing game versus the Pokemon AR game versus the Steam survival game.

Jordan: 19:34

Your hiring strategy is going to be kind of a mess.

Jason: 19:37

Exactly. So yeah, cause if on the first game, I hired someone that had racing physics experience, well, now that person's completely irrelevant for the Pokemon clone. And then the guy I hired or the girl I hired for the Pokemon economy balancing is going to be completely irrelevant for a steam premium, so nevermind whatever little sort of pipeline tools I created or workflow tools or unity plugins, it's all kind of, you're just throwing it all away each time you start a new project.

And so one of the studios we invested in has talked about this quite a bit. Kitfox, Kitfox games, often talks about procedural generation. Like one of the pillars of their company is relying on procedural generation in what they do. And so the very first game they did was like a sci fi mobile game, free to play. But all the levels were constructed procedurally and they had built some unity plugins and they hired someone with that expertise, et cetera. The second game they built completely different game and like Mesopotamian inspired theme, roguelike, multiplayer steam and console.

Like if you look at those two games, it's like, these are completely different games. But under the hood, the same plugins and technology they used to do the level generation on the first game, Shattered Planet, that was the starting point then to do the level generation procedural tech for Moon Hunters.

So the second game became easier and faster. The person, the specialist they hired, directly relevant. The tech and tools and plugins they built, directly relevant. The design knowledge of working with procedural generation, all of it was an investment on the first one that now carries over to the second game. Even though when you look at those two games, it's like, man, those are completely different games.

So as an investor, I want to see that you have that roadmap, that you know what game one, game two, game three look like, and that you can point your resources and optimize down that path. So that again, the investment you're making in those hirings or those plugins, et cetera, get leverage across more games and you're not starting from scratch.

Jordan: 21:49

You know, I want to ask you to just do something for us. So you mentioned execution was first doing an accelerator model and then an incubator model, and maybe I got it backwards, could you just explain for the audience, what those different models are? We know there's seed money and there's angel money and there's incubators. And I think a lot of people are confused. I would love to hear your thoughts on it.

Jason: 22:10

We'll tackle those in two parts, right? One is a sort of the incubator accelerator stuff and then this other part is this called the stages of funding. The sad thing is, there's really no kind of agreed upon accurate definition for what an accelerator or what an incubator is. I mean, in our mindset

Jordan: 22:29

Incubator hatches eggs and an accelerator, like pushes them off the tree or yeah, the nest.

Jason: 22:35

So, I mean, the incubator generally has been, you know, starting literally from scratch and you're helping the team, Incubating the team to kind of come up with the idea and sort of come up with a prototype, et cetera. Whereas an accelerator is meant to accelerate your traction in the marketplace.

So now you have the product, you have the prototype, and now you need to go somewhere with it. And so it's sort of a different mindset. So in our case, the incubator meant that we funded you for nine months. You came in on day one, the company just got started, literally you came together, founded a company, walked in the door, and you had a concept.

Better if you had a super rough like game jam style prototype, like a weekend prototype or something you've been noodling on, but really you were starting from scratch. And at that point, the very, very first batch, very first cohort, we were focused on mobile and so we said, “Okay, we'll give you nine months of funding.”

ven for a mobile game back in: 2014

So the ability for those scaled down games to generate revenue was extremely limited. And so a bunch of the teams, while they were great teams, given that kind of constraint, really had a hard time building meaningful success. Now, luckily, several of those teams sort of weathered the storm and were able to move on and sort of do other projects. And so on a couple of them, just fell apart. And so, a few of our failed studios really happened earlier during that sort of initial, batch or two, when we ourselves were kind of learning what was suitable to invest in. So, really from scratch, nine months to get to product.

So we realized that that was probably not the best way to do business. It was fun. And we worked with some really great teams, but not very sustainable. And so then we switched to an accelerator model, which was a three month program, fixed amount of funding. And the idea was that we were joining you on the journey you were already on.

Jordan: 25:03

Right. Right.

Jason: 25:04

So you already had a team, you've been at this for six months, a year. You had a project, it was past the prototype phase and you were sort of later in pre production early in production. And, geez, if only you had a bit of money and some guidance and some connections it would go that much better for you.

And so we would join that journey. You were already on and sort of accelerate you along that path. and oftentimes that meant we were preparing you to get a bigger chunk of funding, right? Cause we were still doing early stage. And so what happened was then we ended up picking up slightly bigger teams, working on larger projects that were taking much longer than nine years.

But we were only providing a little bit of funding at the beginning or at that sort of time, time stage, but then we were working with you to score other investment, to go out to CVCs, to put you in front of publishers, because then those, that next level of investor, they were going to be the ones that were going to put down the big money. But with our connections and our guidance and our little bit of initial money, it sort of got you in the door to have those bigger conversations. So that was sort of acceleration.

Jordan: 26:19

I like that because you have so much more, you have a lot more information when you meet a company and they've been together even six months.

Jason: 26:25

Yeah, yeah, exactly. Exactly. And there's more to chew on now. I mean, that means that if you were just starting out, then execution ladder is no longer an option for you. Whereas the year prior you could have been, “Hey, we're just getting started and you walk in the door and we would have had a program for you.”

But now we had this sort of crossover line, but you know, whatever that was part of our own learning. And that was super interesting. And that we picked up a lot of really amazing teams. We're going to do some fantastic projects. A bunch of those were released last year, and there's still a couple of those projects on the way out.

That was super exciting, but then you also realize, because we were doing these cohorts where you had to come into Montreal for three months. I mean, we were picking up teams from London, San Francisco, Poland and, Denmark, and they would come to Montreal for three months and sort of get all boot camped up and they would go home after, but it was still quite a logistical burden.

And then we realized we were missing out on a lot of good teams because, you just had a baby or someone just got married. Like it's just life got in the way of picking up shop and coming to Montreal for three months. And there was just one time too many where we kind of lost the deal or the next cohort was only starting five months from now, but you needed it now.

“I'm like, well, geez, Jordan, the next one's five months.” And so we would lose an opportunity because we were sort of held by those constraints. Or that kind of the box of an accelerator and so last year we kind of abandoned the notion of running physical cohorts and running an accelerator and we just sort of were behaving more VC like, "We discovered you at GDC and we thought it was awesome. We wanted to do a deal." We would just do the deal. Like we wouldn't worry about, “Oh, well, the next class starts in three months or whatever,” and we wouldn't force you to come to Montreal. Of course, if you wanted to, that'd be great, but it wasn't mandatory.

And so then we just sort of the program and really just behave more VC like in that sense, that's a bit sort of the evolution of how we structured our model. If you go out in the world and ask people, “How do you define an accelerator?” Like you'll get different answers, but again, incubator tends to be earlier and an accelerator tends to be slightly later, but both of them are still early stage kind of instruments. Not going to an accelerator if you're a hundred person company with millions of dollars of revenue, like you just don't need that. Still both of those are still mechanisms for earlier stage companies.

All right, so part two, I've actually done a lecture. I did a good lecture at GDC Europe as well as GDC San Francisco on funding models, so there's a much more detailed lecture on funding models and stages and so on. But, this question of “where are you in the life cycle of your studio vis a vis who you can go talk to to get money?" is a critical one. A lot of people just like they just don't know, right? It's just not knowledge that they have.

And so, the different stages of funding, the initial one is called the three F's: for friends, family and fools, or also you call love money, meaning only someone who loves you is going to be crazy enough to give you money at the very beginning. You know, that's like your spouse, your rich uncle, or your mom says, “Oh, Jordan, you're cute. Here's some money I've been saving” five grand, 10 grand, like these are small amounts of money, but then these tend to be the money that allow you to like not have a full time job and work for a few months to build a prototype. That's the initial stage. And normally that's like day zero. Like you've got nothing. It's you and your dream or you and your co-founder in a dream or a sketch or two. And you go see the people you love and you ask them for a couple of bucks to support you in your dream.

Jordan: 30:20

And what do you give them for that? Like, what's the right way to kind of evaluate that at that point in a way that's fair to the people you love? Because I think a lot of people don't know how to handle those situations almost more than any other.

Jason: 30:31

Yeah. I mean it could be handled in different ways. I mean, if they really love you, they'll ask for nothing in return and say, "Here's a couple of bucks, go have some fun." What's the more likely scenario is you give them some amount of small amount of equity in the studio, right? So if your mom gives you $5000, you don't give her half the shares of your company. You give her a percent or two or five, you give her a couple of percent so you can do it as equity so that they're sort of initial investors in the company and you give them equity for that or shares for that or you do it on a revenue kind of a loan basis, right?

Where you say, "Okay, mom I'll take your 10 grand, but I'll pay it back. I promise. And as soon as I get, a big investor or a big publishing deal or my game sells or I have some money coming in, then I'll pay you back that money." And then the terms of that payback could be non-interest bearing interest. But I mean, whatever you sort of work out with your uncle or your mom, it feels fair, whatever. It's more of a kind of a friendly deal. So usually that's how it is, you're giving a couple of shares or you're doing some kind of custom negotiated loan type of repayment schedule and stuff like that.

As a bit of advice, you generally do not want to do that as a percentage of gross revenue. You don't want to say, "okay, mom or uncle, I'll take your 10 grand and for 10 grand, I'll give you 10 percent revenue of the compass." Like, you know, because whenever you have a hit,

Jordan: 32:05

No investor wants to be a part of that after that as well. Right? I mean, that's going to make it really hard.

Jason: 32:11

Yeah. And actually that's a good sort of tip also, like if you're bringing people on board. Like an audio, music person, or you can't pay an artist, but they're willing to work based on a rev share. I mean, you don't want to do kind of an uncapped share of gross revenue because that'll sort of taint you for doing deals with publishers or other investors.

I just can't invest if you're siphoning off 20 percent of all your revenue to this art, like it's just not going to work now. I mean, it's fair if you cap it or kind of to exit, or there's some kind of formula that makes sense and recognizes the risk. That those individuals are taking to kind of work for free or invest in that early stage, but you just have to be really careful on what you're promising and that you're not kind of cursing yourself down the road when a bigger scale deal needs to get done.

Anyway, so that's the very initial stages, the friends and family or fools, the love money stage, the next stage after that is the angel investor stage. Angel investors could be anywhere from call it 25, 50, 100 to 50. I mean, depending what part of the country you're in, could go much higher than that. Now these tend to be, these are individuals, right? They're investing for fun. They're investing for profit. They're investing their own money. They want to sort of support you as well. So you often will get some sort of mentoring and coaching. Now, the thing with angels are they're kind of invisible, right?

I mean, you can't see them. They're hard to find and angels tend to sort of leverage their network to find other investment opportunities and stuff. so unlike VCs, which have websites, staff, and receptionists and you can find them online and like call them up and so on-angels, they don't have that. They don't have website. I don't have a website that says "I'm a rich guy. I'll give you money if you pitch me" like it just they're harder to get to, but angels like to generally invest close by. Right. Because they want to like show up for a board meeting or they want to pop into the office and see what you're up to.

And so generally speaking, angels invest in their backyard. And so if you're looking for, one of these mysterious angel investors and you're in, I don't know, Boston, you can't like say, "I'm going to go to Silicon Valley and find me some angels." Because they're just not going to be interested in a company from Boston or see it like wherever you are. So if you're looking for angels, you have to kind of look in the sort of that city in that region and figure out the angel networks, the different events and startup activities where those angels may show up at and sort of cultivate that network of people in that area, specifically for angels.

Jordan: 35:03

It seems like there's a bit of a pitfall as well there, where there really has to be a good match between the angels and the company, kind of both ways, right? Because if the angel is going to be popping in to meetings, they're going to be suggesting things. People are going to want to make that person happy. They actually have a lot of impact on the future of the company.

Jason: 35:21

Yeah. I mean, potentially, some angels might say, "Hey, Jordan, you're cool. Here's the money. Let me know when you made the millions and I'll collect my check." like, it's not to say they're automatically going to be sort of squinting around in your junk.

Jordan: 35:33

And they could offer a lot of value doing it. It could be great, as well.

Jason: 36:37

It could be, but usually, like, in terms of the paper, there is no formal method for them to impact, they can't give you the money and say, "well, now I get creative veto or something like that." like it doesn't exist, right? It's just, cause they kind of show up for the day and hang out with you and then they're giving you feedback, like, so they have that kind of,

Jordan: 35:39

But you might knock on their door again down the road.

Jason: 36:02

Yeah. So kind of cultivating that relation is valuable. It's not, but I think some developers are afraid of this. Just because they invest in you and you give them some shares in your company doesn't mean you relinquish control of the company, right? If they gave you 50 grand and that bought them 5 percent of the company or whatever, that means they get 5 percent of the vote at the board level or shareholder level. Which generally has no impact on design decisions and gameplay mechanics and whatever. It's corporate governance stuff. Now, if you were desperate and you sold the angel 51% of your company, all of a sudden, sure, they do have much greater impact, but, you don't really lose lose control.

But the point is that angels tend to invest slightly more emotionally, meaning they don't do dumb deals because they think you're cool. They do a deal they can rationalize as a smart deal, but they're also doing it because it's like, "Hey, I think what Jordan's doing is interesting. I like the space that he's going into. I don't know that space. I'm going to learn, or I think it's going to be fun because I've never done a game investment" or there's other sort of personal motivators for that individual because they're investing their own money. They're not going to throw the money away, but they're also not just a banker that's sort of making decisions based on a spreadsheet. That's kind of the key point there. Once you're sort of past the angels and an important note is, you're usually using the money from the earlier stage investor to open the door to the later stage investor.

So for example, you take the 10 grand from your uncle, so you can hire the artist and you and your programmer buddy can like make the prototype, right? And you've kind of spend the 10 grand and then you take the prototype and then you go see the angels and say, "Hey, listen, I took an early state and I took some money from my uncle, paid an artist, my programmer buddy and I, here's the prototype." And then they'll say, "well, that's great. Here's 50 grand now make the first playable or the soft launch ready, because I believe that's good enough to go get the next investor, which will be a VC or a publishing deal or whatever." So each sort of initial investor is thinking downstream to the next possible investor and say, "Well, if I give Jordan money now, will that enable them to get money at the next checkpoint for the next milestone?" and then the guy at the next milestone say, "Okay, well, great. I see what you did with your uncle's money. If I give you money now, does that get us to the next checkpoint?" And so each one sort of looking back and then looking forward.

So, you've taken the 10 grand from your uncle. You've made your prototype. You've gone to see an angel. Angel says, "That's cool. I believe this has potential. Here's 50 grand or 100 grand, whatever." Then you use that to make your called soft launch version. you know, and then you're in soft launch and KPIs are looking good. Then you go see VCs.

And now this is the first time you're going to hit formal investors. There are different kinds of VCs, right? There are seed stage or early stage VCs, which means they usually invest before you've generated any meaningful revenue, right? So they're investing based on the team, on the vision, on the sizzle, the hype that you've generated so far, and so they're not writing big checks, a couple hundred grand, but they're taking a huge risk because you have not yet proven that your concept or idea or plan is going to work. So they're not as risky as your uncle that kind of gave it to you just cause he loves you, but also you haven't yet proven yourself. So it's still pretty risky for them.

Jordan: 39:47

Is the seed stage the same as like a round A, round B, round C, how does that fit in?

Jason: 39:53

So the seed round would be the first formal investment round, right? If it's you and me and your uncle, that would be kind of just considered like the founding of the company, right? Like we all take common shares and your uncle would, get 10 percent common shares or whatever.

Jordan: 40:11

We have our meeting with him after this.

Jason: 40:12

Yeah, you know, and then when we get the angels on board, then that would be the seed round. And then after, or what you would call series seed, then you do series A, which would be, let's say, the first formal investor. So that's after there's some revenue come series A usually, but it depends. It depends if you're like Twitter and it's not so much about revenue. It's about building user base and engagement, then you can do much bigger series of funding without any revenue, but that's slightly different.

Anyway, so you've got your sort of siege stage, early stage investor, this is pre revenue. So there's still kind of taking that unproven gamble and then, you have the sort of normal VCs. You know, once you're generating revenue and you're kind of a growing company and you need capital to expand and accelerate, whatever. And then those are the guys that are writing million dollar checks, multi million dollar checks. And then, you have the much later stage VCs, which are growth investors. and they're investing when you're already a hundred million dollars and you need another hundred million to like conquer China or something like that.

So, ironically, the folks writing the biggest checks, that a hundred million dollar check are also the guys taking the least risk. Because you've already proven that your company is worth a hundred million. So writing another hundred or fifty, like, Yeah, there's risk there for sure, but it's still it's your poor uncle that gave you the 10 grand on day one when it was you and me and an idea. Like in fact, he was the craziest and biggest risk taker even though the amount was small.

Jordan: 41:57

Well hopefully those 2 percent we gave we gave him really paid out.

Jason: 42:01

Yeah, exactly. So like you can sort of follow them depending where you are on that cycle of day one versus I have a prototype versus our pre revenue versus post revenue versus like, you can sort of draw those on a curve and then sort of create slices of where you talk to investors.

But the point there is understanding where you are as a company. So you talk to the right people at the right time, but the same way that on day one, when you and I have an idea, we're not going to go talk to the growth VCs that write a hundred million dollar checks. Kids are crazy. What, you know, what the hell are you doing? Coming to waste my time. The same way that if we're at the growth stage and we're generating a hundred million, we don't call up your uncle and say, "Hey uncle, here's your time to get in with your 10 grand," because we're way priced out of his range and 10 grand at that point, will get him a fraction of a fraction of a share. So it goes in both directions, right? You want to be really targeted. Depending where you are in the life cycle of the studio, who you talk to and who are viable investors at that stage.

Jordan: 43:06

I'll tell you, Jason, that was amazing. That was an amazing rundown. I really appreciate it. And I know a lot of people listening will as well. Now that people listening kind of understand how the system works and maybe they're thinking, "Oh, we might be a good fit to pursue something like this." I'm curious to know what kinds of pitches you look for, what kinds of pitches, who you think is ready to go looking for some early capital and also who's not. When I was in publishing, I would get the same kinds of wrong pitches a lot that made the same kinds of errors. And so I kind of knew like, "okay, if I saw a pitch that claimed it was better than that, they had a product that was better than Madden or something like that." I would just "okay, they're not like really trying to connect." What are some of the common errors that you see and what are some things that you really would love to have people approach you about?

Jason: 44:04

Yeah, I mean, so that's, we'll try to do the fast version on that one. The very first thing is understanding whether you are pitching for project funding or company funding.

Because how you pitch, who you pitch to, deal structure, economics, all that kind of stuff, I mean, are dramatically different. If I'm chasing company funding versus project funding. And so an initial mistake we see from a lot of folks is they just need money, right? They wake up one day like, "Oh crap, we're running out of money. Like my uncle's 10 grand is running out. Like we need to go get some more money." And they just sort of pop up and say, let's go get us some money. Because I need money. There's no sort of thinking about, well, hold a second. Do we believe we're going to raise funds for our studio or we believe we need product finance?

So that's sort of an initial step related to that is understanding what the opportunity is. Right. And so we often get pitched problems, meaning we get pitched the problem of not having money. And maybe as a publisher, when you were doing publishing, you may have solved this where it's like, "Oh, hey, we got this game. We have a cool team. We're working on stuff. but it's taking longer than we thought. We need a couple more months of polish. We're running out of budget. We also didn't think to conserve anything to go to PAX or do any marketing. So we've got no marketing budget. Are you interested?"

Jordan: 45:33

You know, we would not get that kind of honesty. We would get a lot of like, this brand is going to have a comic book and a movie and board games and the video game. We're starting with the video game though. So can you help us with that?

Jason: 45:44

That's a slightly different, yeah. I don't know. Maybe it's because I'm a nice guy that they kind of open up in that way, but we often have developers who come to us with their lack of money problem, and that's a non-starter, right? Like, I don't care that you have a money problem. Tell me what the opportunity is. And part of this is, developers are problem solvers. They're trying to solve their problem with not having money. They're not being empathetic towards the investors or publishers who are looking for opportunities.

Now it may be true that you have a money problem but don't pitch it to me that way, pitch it to me that you have this great game that has brand potential that you've built the scaffolding and so this is the third game in this series where you're using all your procedural generation tech that you've built up over the past couple of years, like pitch me the opportunity. Now are you pitching me the opportunity to back a game are you pitching me the opportunity to back a company, what are those opportunities look like etc. But at least frame it as an opportunity and you know this is your chance to get on board and you know help us to do X Y Z. But even thinking in that way is often lacking.

Those two pieces are pretty fundamental. And then the other one, or another one, is understanding the stage, right? So, we will often get pitched by studios that have a 10 million budget and they need five more million. And we do sub 1 million early stage deals, right? We're not doing multimillion dollar investments. And so they'll pitch us anyways, and they'll send us decks and all that. And they'll try to convince us why it's the best 5 million deal. It's like, dude-do your homework. On our website, it says early stage, sub one mil, like we just don't do that.

Jordan: 47:33

So just to break that down for some people in the audience, what you're saying is the company's asking for more money than you give in your deals. And that also means that they can't really give you the leverage that you're looking for in your deals. So it doesn't really work on either end.

Jason: 47:50

Yeah, correct. You know, there are economics that play on our side of why we go in early and why we do deals at that level. And we state that on our website. So don't kind of be the rhinoceros that just runs at every brick wall, regardless. Do your homework, and realize that you're barking up the wrong tree kind of thing. And so that just sort of, to me shows a lack of well, they're just not doing their homework, right? I mean, same thing with publishers, right? I mean, know who you're pitching to, what kinds of games are on that publisher's portfolios, don't go to a publisher that only does super edgy, hardcore stuff and pitch them a match three casual game. You know, you think about who you're gonna pitch to. And so the same sort of rules about being smart about which publishers you pitch to, the same thing applies to other kinds of investors as well.

Jordan: 48:47

Now, on the publisher side, we would look a lot at sort of the ability to show, not tell, right? So a lot of this was project, these were project based deals, right? And we might be looking for a strategic partner, but basically it was a project based deal. So if a company, if a pitch says 'incredibly atmospheric and scary', but it's on like a blue and red powerpoint slide as like bullets in a default template, we think, well, why should we believe that it will be atmospheric and scary.

Jason: 49:22

Yeah, that's a great point. I mean, interestingly enough, the teams that we've invested in a big chunk of what we spend our mentoring on is the pitching. It is prepping them and dealing with that kind of stuff and improving the decks and also kind of really articulating what the opportunity is, et cetera, et cetera. But you're right. I mean, there has to be cohesion, right? Or coherence. If you're in there saying, "Oh, we're doing this moody, whatever," but like, you're smiling and wearing a bright-like the whole package has to make sense so that you're creating that trust or that credibility in what you're doing. So yeah, I agree.

Jordan: 50:07

And is there anyone in the audience, you know, I guess, the message is kind of, "Hey, check the website, see the kinds of stuff that you guys do and I know that's what people are going to be thinking about. I just know it.

Jason: 50:25

Well, I mean, the tricky thing with our portfolio is that it's not quite indicative of what we're doing now. And that because we've changed our model so much, there's teams in the portfolio that we did as the very initial incubator model that we've since abandoned. So you're like, "Oh, look at that team. We're just like them." It's like, well, yeah, we don't do that anymore. You know? So on the one hand, I'm saying like, go do your homework and read up on the websites and stuff in our case is a little bit tricky given that we've evolved the model over time.

I think the other fundamental thing is if you're looking for external investments. You really do have to think about what the market potential is because no one's going to fund you just so you can get the game made, right? And we see that a lot. It's like I just need some money to do this and we'll be in a conversation.

I'll be like, "Okay, well, how much budget?" "Oh, half a million. That's all, that's what I need. Here's the plan."

And from a production point of view, it's like, "Okay, that makes sense. I'm not sure that the style of game you're working on has that much market potential. Have you done any analysis?"

"Nope. We're so focused on brand."

"So you haven't checked comparables. You don't know what your competition has done in a similar style as on Steam. You haven't looked at Steam."

"Eh, not really. We've been busy."

"Well, how many copies do you think you're going to sell?" "Well I don't we think we can sell, you know, X at a whatever, I don't know, a hundred thousand units"

Like, dude, you've just said you're going to break even. And that's like your best guess. So why am I going to invest in you to break even? It's like, "Oh, well, we just want to get the game made." I'm not your uncle that loves you, I want to know that there's business opportunity here that if I'm going to risk funding, it's not just so you can have fun making a game.

It's because I believe that there's really a financial opportunity here. And so I think there's a bit of a disconnect there in terms of, who the potential investor is versus what your ambitions are. And so that was something we looked for is "Does Jordan just want to get this thing made? Or does he actually believe there's a business opportunity here and there's the potential for real success?"

Now, I mean, you may not succeed in the end because anything can happen, so there's no guarantees, but if your mindset is, "listen, I'm not even thinking about that. I just want to get this thing made." I mean that's not a good sort of mindset. I mean, in the US I think this is slightly less of an issue, but in certain regions where you have other sources of government funding, where there is less pressure on financial gain, and it's more about investing in culture and creating content from a given population, this kind of stuff. We see those programs where the pressure is just, get something made as a voice as a Canadian, which is wonderful. And that's great that it exists, but you can't come with the same mindset to a financial investor that's thinking in a financial way.

Jordan: 53:37

That makes sense. And, you know, most financial investors, certainly organizations, they have their own people who are investing in them. You know, they have the same responsibilities. This is part of what this podcast about for me is, I think part of the issue is just that there's lots of tutorials online on how to do stuff in Unity.

There's not as much stuff in the game industry around how to run the business. How do you model the potential of a game and how do you do that in a way that's credible? And exactly the kind of information we're talking about today in terms of funding. This is, a big part of what I'm hoping this podcast can help people in the industry with. And you've been a big part of it today. I know we just hit an hour and I do want to be respectful of your time. There's so much I would love to talk with you about.

Jason: 54:24

I'll just say, for maybe some of the listeners that are just getting rolling as an indie developer, I mean, you have to embrace an entrepreneurial identity. It's one thing if you're going to live at home and your mom's going to pay for it, or I don't know, you just have money because you're in a rich family. I mean, obviously, some people, their situations are different and they can just sort of, you know, games are their canvas and they'll just paint because they love it and they want to do it.

But for those who actually want to build a business and create company and generate revenue and livelihood and be sustainable. I mean, you have to embrace the entrepreneurial mindset and it has to be intentional, not accidental. And that means reading some books, taking some courses, finding the people that have this knowledge, learning from others, and just as much effort as you're taking to make a great game, you have to put in the same amount of effort to also make a great company, to build a strong team, to have a vision and roadmap. And it's not something you can just sort of, "Oh, someone else will take care of that. Or if I get a publisher, they'll worry about those things." Like it's not allowed. Like it's one in the same. If you're an indie, you have to be an indie entrepreneur with intent.

Jordan: 55:46

I am going to be, repeating that back myself and on other episodes because I love it. It is so true. And I think it's just what a lot of people need to embrace.

Jason: 55:56

Awesome.

Jordan: 55:57

Thank you very much, Jason. It's been great having you on the show.

Jason: 56:00

Thank you so much.

Jordan: 56:04

Well, I am just thrilled with that interview with Jason and with the incredible information that he gave to any of us who are interested in starting a studio or who have a studio and are looking to grow it or who evaluate opportunities that involve games and tech.

Right. I loved his kind of three key areas that you need to see people in: business, creative and tech. I thought that was really useful both for evaluating companies that you might work with and if you have a company thinking where you might need to, to bolster up or how you might need to present yourself most effectively. And that's what this is all about. We're going to be talking about how you get it done in the business and how you get it done creatively. Coming up episode two, Mike J. Micah, legendary developer of over 190 games. Great episode. More on that coming up. And on every episode, we put all the links to all the resources we talk about in the interview. Whether that's people, whether that's games, whether that's software tools. It all goes on the blog, brightblack.co/playmakers. And, that's also where you can support what we're doing as well. Check out the next episode, stay in touch. Episode one is one and done. You've been listening to playmakers. That sounded super cheesy. I kind of liked it.