Game On: Self-Publishing Key To Attracting VC Money For Mobile Game Studios

Fintech lender Pollen VC, a leading provider of credit facilities to app and game developers, today reveals what should be the top priority for mobile game startups looking to create enough value to become a target of mergers and acquisitions or attract a base of public investors in the future.

Analyzing transaction data for the mobile game industry from InvestGame (excluding Chinese studios and acquirers) between January 2020 and the end of March 2021, Pollen VC found that out of a total reported transaction value of $ 6.73 billion out of 22 transactions in value:

  • 83% (17 deals) were acquisitions of studios whose main business model was to self-publish their own games.
  • 15% (4 transactions) were third party publishers; and fair
  • 2% (1 transaction) was a studio whose delivery to the market was done via a third-party publisher.

Martin Macmillan, CEO and co-founder of Pollen VC, said: “It is clear from this data that when founders think about what kind of studio they want to be, making the decision to self-publish is critical if they want to build a business that can become valuable enough to be acquired or acquired. to be listed on a large stock exchange (IPO) – the main exit routes for VCs with an eye on producing returns for their LPs.

Self-publishing, which involves taking full financial responsibility for the production, distribution and marketing of a game, has always been difficult for independent studios. In the old physical world of console and PC games, publishers would have borne the cost of advancements in making games, handling boxed game manufacturing and distribution to retail stores across the world, taking significant financial resources. But in the democratized world of app stores, the model has changed dramatically as the barriers to self-publishing have disappeared and virtually any developer can reach a global audience by posting directly to the stores and gaining a base. global users using Facebook and Google ads. .

In mobile gaming today, working with third-party publishers can reduce the risk of the process by outsourcing user acquisition and monetization and accessing capital for user acquisition. A good publisher will also have a background and platform contacts that can increase the chances of being featured on app stores. In contrast, they seek a substantial percentage of future revenue and often a degree of control over game design and mechanics, which some founders deem out of proportion to the added value.

But self-publishing, although difficult to achieve, is today the preferred route of the most ambitious founders. A confluence of trends is behind this as the market continues to move rapidly.

“On the one hand, user acquisition is increasingly based on algorithms rather than human touch, while monetization becomes easier to optimize with technologies such as header auctions and AI-powered dynamic pricing platforms for in-app purchases. Even the automated production of advertising creations are now possible from a variety of suppliers. ” Martin Macmillan. “It’s clear that incremental improvements in all of these areas are eroding the value that a traditional publisher once delivered. “

At the same time, ambitious gaming startups looking to scale before becoming cash generators have greater access to innovative financing solutions, like the one offered by Pollen VC. The UA can be a capital intensive business and generally a large part of the publisher’s role is to face the balance sheet to fund it. But increased access to debt capital – accounts receivable (AR) financing and income-based loans – allows founders to finance user acquisition on their own rather than effectively “renting” a bank’s balance sheet. publisher in exchange for a share of the revenue, generally around 50% after taking UA costs into account.

“Pollen VC is being approached by a growing number of studios that have previously worked with third-party publishers who are now looking to self-publish their next game, taking user acquisition in-house and seeking loan capital to fund. their spending in UA “, comments Martin macmillan. “Our customers can evolve their games without giving up any revenue share and above all maintain their position as game publisher, which increases their chances of a successful release.”

Key points for ambitious studios

Venture capital financing in the mobile gaming industry is hot, and there are more gaming venture capitalists raising and deploying capital than ever before. In February 2021, GamesOne released a list of the best gaming venture capital funds. They had assets under management of $ 1.577 billion. Many new funds have also been launched over the past 12 months, such as Lumikai, a fund focused on Indian gaming startups.

Founders looking to grab the attention of these venture capitalists should study the business models of these studios that have been involved in recent M&A deals. Self-publishing means keeping control of the business financially and creatively.

Using a third-party editor can be a way to learn the ropes for developers who aspire to self-publish. This is a valid strategy for those who have gaps in their knowledge and abilities, or in certain geographies, but the aspiration should ultimately be to self-publish future titles.

For founders who are content to outsource AU, monetization and funding, then working with the right publisher can be a great option for bringing great games to market, but it’s important to understand your horizons at the business. ahead and plan accordingly to avoid disappointment.

About Cedric Lloyd

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