“For once, porn isn’t leading business models. It’s games!” – Chris Petrovic, GM, Digital Ventures, GameStop
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The Current State of the VC Market: The House Always WINS
By Henry Bokenham
RITZ CARLTON HOTEL, MARINA DEL REY, CA (HOLLYWOOD TODAY)10/28/11/—Whilst other arenas are failing to excite VC interest, the gaming industry, and specifically the social gaming industry, remains in an attractive bubble. Chris Petrovic thinks this is a feature driven by the fact that gaming is no longer something you do on your own, in a dressing gown.
“People are not gaming for the sake of gaming but rather for the sake of socializing.” – Petrovic
The removal of stigma surrounding gaming has resulted in mass-adoption and increasing VC interest.
To some extent this is due to the fact that social gaming companies have proved capable of generating business models which do not rely on the “fundamentally broken” patent protection framework.
Successful games companies these days give their content away for free and don’t intend to create valuable IP. Their mission is solely to drive traffic and then to roll users into another game. Newcomers to the fray would do well to heed the panels advice
The social element is critical and is evidenced by a lack of funding going into platform games at the moment.
Though the “connected livingroom” space remains interesting.
The panel highlighted, unsurprisingly, that the commercial line of credit has dried up. The Banks are not backing anyone up and this has lead to a stalling market.
Is there any light on the horizon? Well for one there are more funding sources available than ever before (Kickstarter to name but a few). In addition there are numerous incubators offering office space that is almost free. It is certainly much cheaper to start a company than it was 10 years ago. But it is certainly NOT cheaper to market it.
With this general discussion of market trends the panel then went on to outline 8 key factor which every entrepreneur needs to address when considering seeking VC investment in today’s market.
1). Regionalization – “In Silicon Valley an App is a business plan. In NYC an App is part of a media strategy” – Steve Masur, Managing Parter (MasurLaw). New businesses now need to think carefully about which state to raise money in as the market is highly regionalized.
2). Revenue – Rather than pitching an “exit plan” model to investors, a start-up must demonstrate how its business will make cash money from the outset. Be strategic about what revenue you have and ask whether it is exemplary of what you could do in the future.
3). Total Addressable Market – This must be “huge” and you must demonstrate that your model has sufficient scaleability to address it.
4). Do you have a Rockstar Team?
5). Outside Money – Entrepreneurs should avoid taking outside money for as long as possible. “You give up A LOT in exchange for the perceived benefit of being associated with a Venture Capital firm” – Petrovic. The people who built the company end up getting no more than a good bonus. So be creative with family and friends.
6). “Don’t stall learning how to make money by raising it!”. – Masur Understand what it takes to make money and TEST your hypothesis.
7). Social Media – Whilst Uniques may be relevant if you can truly link them to purchases, the panel was clear that social media ‘likes’, tweets etc. do not go towards valuation in the mind of VCs.
8). Don’t give a Valuation too early – Despite receiving unattractive press recently, it was suggested that entrepreneurs should condier the use of convertible notes which would postpone the question of valuation until the VC’s round and offer a discounted share price into which Angels’ contributions are converted.
Digital Hollywood L.A. 2011: The Gaming Addiction
By Patty Rappa
Digital Hollywood 2011 – Venture Funding – The State of the Art
CEO, Founder of Demoverse -