The VC void: Games, content, and film
June 30th, 2008 by Benjamin KuoI am frequently asked by entrepreneurs on how to find the right angel or VC backers for their companies, and am finding there are three areas where I constantly get questions — but have few answers — are computer games, films, and content. It appears that here in the Southern California area, there are plenty of people looking to start up video game related companies, trying to find funding for their films, or want to create Internet content. However–at least, given my experience–there are very, very few traditional venture firms or even angels who fund any of those three sectors.
What’s common about those sectors, aside from having lots of folks in the Southern California area active in those industries, is they’ve traditionally been thought of as hits-driven businesses.
In the case of films, this is pretty obvious — there are lots of well funded films from studios which fail miserably at the box office. But it’s also fairly true of online content (which arguably even if it attracts viewers and might be considered a hit doesn’t yet have a feasible business model attached in the online world). It’s also true of the video game business, which currently takes millions of dollars and often hundreds of developers to develop, and is driven by a similar distribution model.
Because of that, the vast majority of financial folks do not invest in any of those areas. The exceptions tend to be technology platforms behind the video game and online distribution market, where the technology–not the games or content–is the primary focus. But even those are few and far between.
It’s just those opportunities tend to not match the ideal VC profile in terms of scalability and repeatability. Namely, investors are looking for something which scales out fairly well–i.e. something you can gain lots of additional business for without investing as much into a company–and which is also repeatable — i.e. it does not require a new team, retooling, or the same effort to get your next product out. In most of these cases, it misses the mark on both. Scalability is limited, because in order to create your next content title/game/etc. it takes the same, or more effort to create. Repeatability is limited, because usually you have to sell your customers all over again, and your next title is not necessarily going to be successful.
I’ll admit, there are a few areas where some of these are mitigated — I’d point to a number of well funded, online massively multiplayer game companies, where the attraction of both a monthly subscription and “virtual item” economies has attracted funding. Also, to some extent casual games, because of the low development costs involved. But “traditional” computer games companies almost never get venture funding. On the content side, you do see “platform” plays and studio plays — where either a technology platform, or a stable of project creators has scored funding. But, you’ll never see funding for just creating a single web series or show. Finally, on the film side–despite inquiries I get every week–I have never, ever, ever, seen a VC fund a film, and have no idea why anyone would think a technology VC would have any interest in doing so.
July 10th, 2008 at 8:10 am
[...] wrote a few days ago about the dearth of venture capital for projects in the video games space. Two interesting developments in the area are worth watching [...]