India is already an economic powerhouse that has over 100 unicorns. Most of these are in eCommerce, Fintech, Healthtech, Logistics and SaaS. There are a couple from the Real Money Gaming space (RMG). In non-RMG gaming where the monetization model is through in-app purchases or microtransactions, India is #1 in game downloads globally. This is $100b+ in annual revenues globally with Indian companies contributing less than 0.2%. While there have been a few Indian companies that achieved reasonable success and interesting exits, we have barely scratched the surface. There is good scope for venture-funded gaming businesses, and in recent years, tremendous interest from indies and gaming start-ups to build world-class games.
While in India, we have been consuming games created by global gaming companies, the desi consumer is beginning to favour games which resonate with local cultures and history. This coupled with a rising per-capita GDP will make India one of the most interesting gaming markets in the world, in this decade.
Source: Zee Business
The race has begun to build great games that resonate with a billion-plus population. And in the coming decade, hundreds of teams will attempt to build some of the most incredible games and IPs in the country. Since this market is relatively unexplored, the size and history don’t really matter. A five-person team has as much chance of success as a billion-dollar established behemoth from the East or West. Some of the best ones will get funded and go on to become unicorns in the coming decade. Having witnessed the best of both worlds, here are a few tips on fundraising if you’re a founder looking to navigate through this complex process:
1. Founding teams. And why is it so important?
Gaming is a pure-play content business. Great games are a confluence of a compelling story which is visualised through appealing art, stitched together by strong game and economy design, and powered by efficient engineering to entertain for years. It is important to have the right mix to attract the best funds. Besides a well-rounded founding team, another important aspect is founder pedigree. Where did the founders last work at? Team members from established companies like Zynga and EA will always curry favour with a category of investors, but you needn’t be disheartened if you aren’t from one of them. I wasn’t.
2. Is Equity financing really for you?
The next tip is to decide if you’re really looking for Equity financing. Let me save some of you a Google search – Equity financing is the process of raising capital through the sale or issuance of shares. This translates to a change in ownership, and generally in-control structure changes too. It isn’t worth it if you aren’t aiming for venture-sized outcomes. So, it is important to align both short-term and long-term goals with your investor. This is akin to a marriage, once you get into it, you’ll need to figure out a way of getting it to work for the long term.
3. What are the different stages of funding?
Pre-seed vs Seed vs Series A vs Series B: There are many definitions for all these terms, but I believe the following are a close approximation.
Pre-seed funding typically happens from friends/families/former colleagues/professional Angels, and Seed funding is typically the first institutional round in a company. After your first or second institutional rounds, current investors need to be best buddies with founders and strategically always aligned with them. Any follow-on investment needs their active participation, or such exercises are doomed for failure.
4. What goes into a pitch deck?
I’m often asked about my pitch decks and if there’s a trick I use. I’ve written about this in a previous article – ‘9-slide pitch deck framework for gaming founders’.
5. Do we need to incorporate outside India before fundraising?
This is something I grappled with for several years in my own journey. While it used to make sense in the past, I don’t think this is required any longer. India is increasingly becoming one of the brightest spots in the otherwise gloomy climate for investments. And the Indian Government is always looking at plugging all the loopholes which makes foreign incorporation attractive. Just say BMKJ and put this one behind you!
6. What are the different types of funds/investors?
7. How much should founders dilute at each round?
Founders should not dilute too much for too little. There are no hard and fast rules. A good rule of thumb would be up to:
You will also need to consider the ESOP pools among other things. If the founders are too diluted by Series A, they will find it difficult to raise funds in subsequent rounds.
8. Is it ok to do reference checks with portfolio companies?
Yes. It is always advisable to speak to founders of portfolio companies and understand how funds help their portfolio companies. Founders will need help with introductions to future investors, head-hunters, press, and speaking engagements at industry events. Some investors encourage their founders towards these whereas others need a lot of coaxing for assistance. Know your strengths and comfort zone and plan accordingly.
9. Should founders really worry about a Fund life?
This is a complex but important aspect that founders need to understand. Each institutional investor needs to create an investment vehicle (the Fund). They pool funds from money with their investors (called Limited Partners or LPs) while the fund managers themselves are its General Partners (GPs). Investments into portfolio companies happen from this Fund and the fund managers set aside some amount from each Fund for follow-on rounds. Just like the founder’s obligation to provide a handsome return to their investor, GPs also need to provide an exit to their LPs in a time-bound manner. This is generally between 5-7 years depending on the promise made to LPs. While raising funding, founders should be aware of this timeline and ensure that they have enough time to take their companies to a stage of exit. Fund managers will be forced to liquidate all their holdings if you don’t give them an exit before this timeline. VC and PE firms can create new/multiple Funds as they deploy but the LPs will be different for different Funds. LPs are generally wary about allowing their GPs to invest in a portfolio company from across different Funds.
If you’ve patiently read all the way through, I’m certain you may have questions. Do read my article on '9 Tips for Founders'. You can always reach out to me on LinkedIn or Twitter – I’m active on both. And if you find me at any of the conferences, come over and say hi!
While there is a lot of information cut out for you on fundraising, everyone has a different journey and at some point, you'll need to pave your own path by making the choices that feel right to YOU!