A lot of VCs are cold on investing in gaming right now, as Kim-Mai covered on Techcrunch yesterday. Most investors say the problem is Zynga’s stock price, and the hits-driven nature of the business, but this is a short-sighted view.
The real problem with investing in games isn’t the hit-driven nature, it’s that there are very few founders aiming for real disruption. Few companies are trying to reinvent the act of making games, or utilize entirely new distribution channels, or in general take a bold new step forward that will create a sustainable advantage.
I support that some founders want to just build wonderful content, and I look forward to playing those games just as I like to watch HBO. But those are not venture capital bets. Those companies have used publishers or game specific funding vehicles or bootstrapping to get going and create the wonderful content we all fall in love with. And they still will.
That’s not the only company to start though. This is the most disruptive time I can think of in games, with changes in: the role of a publisher, a new generation of consoles, the rise of tablet gaming, the lowering cost of producing a game, crowdfunding, service-based games, analytics, and new interfaces like Oculus, Myo, Xbox One, and Leap.
In general, when the rules of the business are static it favors the big guys. And this is a trying time to be a big guy in the industry precisely because so much is in flux. The opportunity for audacious visions is quite high right now. As a founder, if I was starting a gaming company right now that would be my threshold. As an investor it’s what I try to encourage.
I’m not sure that a lot of the investment community is looking for that disruption, since most have just written off gaming. But we should encourage it instead of painting the whole gaming market with a broad brush. It’s not enough just to start another free to play gaming company. That’s like deciding to make another photo app without any internal belief as to why you, your team, or anyone else should believe this is going to be the one that makes a huge difference.
The world will certainly use more photo apps, and play more games. But the lasting impact will be those who build content on a technology, a platform, or a method that is differentiated. Valve, EA, Pixar, Disney, Zynga, all reached scale not just because they created great content, but because they shaped the landscape in a new way that gave them leverage as they grew. (How they performed once they achieved scale is another post)
The beauty is that if you truly disrupt then it will also make others believe, and all the funding and scale and high valuations and other things you want to happen have the opportunity to happen. But it starts with a founders desire to mold the world into some future vision they have of it. That feels like a venture worth backing.