Martin Macmillan is CEO of Pollen VC, which provides mobile game developers with fast funding.
M&A in the mobile gaming sector has been red hot over the last couple of years, but what kind of studios are being acquired, and what can aspiring founders learn from those selling their gaming studios?
We took a deep dive into recent data published by InvestGame and found some interesting results.
We looked at the primary business model of all the gaming studios that had been acquired as reported by InvestGame from January 2020 until the end of March 2021 globally, excluding Chinese studios and acquirers.
On a total reported deal value of $6.73 billion across 22 transactions by value, the results showed that
- 83% (17 transactions) were acquisitions of studios whose primary business model was to self-publish their own games.
- 15% (4 transactions) were third party publishers.
- Just 2% (1 transaction) was a studio whose route to market was via third party publishers.
What does this data signal to mobile game studio founders?
It’s clear from this data that when founders are thinking about what sort of studio they want to be, then taking the decision to self-publish is key if they want to build a company that can become valuable enough to be acquired.
Of course creating a studio that can profitably self-publish their own titles is not an easy feat and requires tenacity and talent across a range of different disciplines.
A studio that can profitably self-publish their own titles is not an easy feat and requires tenacity and talent across a range of different disciplines.
Often, working with third party publishers can derisk the process by outsourcing user acquisition and monetization, and of course a good publisher will have a wealth of experience and can add value in areas such as platform relationships for featuring, processes, tools etc. that can increase a game’s chance of success.
Changing role of mobile game publishers
Increasingly though the role of a mobile game publisher is changing.
User acquisition is a key part of the publisher’s value proposition, but over the last couple of years, programming of UA has become more algorithmically driven, and relies less on the black art of self-styled UA “ninjas”.
Similarly with monetization and improvements to mediation platforms, header bidding and other technologies have reduced the human elements that were a publisher’s traditional value add.
Another part of the publisher’s role had been fronting the balance sheet to fund UA.
Of course the publisher would only invest into UA if it was pretty sure it was going to be ROI positive. However, the wider availability of debt capital (AR financing and revenue based loans) has also helped founders realise that they have an option in terms of how user acquisition is financed.
UA can be a capital intensive business, but with access to this type of capital, founders have realised that debt financing can be a major enabling factor in studios self-publishing rather than effectively renting the balance sheet of a publisher for share of revenues, typically in the region of 50% after the costs of UA are factored in.
As a company providing debt financing, Pollen VC has seen an increase in the number of studios approaching us for capital who have previously worked with publishers.
Typically these studios are looking to take user acquisition in-house and seeking debt capital to fund that UA spending. Unlocking the value trapped in their AR and also in their existing user cohorts gives studios access to non-dilutive capital to scale their games without giving away a revenue share and importantly maintains their position as the publisher of the game.
Raising venture capital for your mobile gaming business?
If you’re looking to raise venture capital for your gaming business, it’s important to remember what VCs are looking for when making their investments.
Ultimately the way they generate returns for their LPs is via acquisitions and IPOs, so visibility of being able to build a company that is attractive to either an acquirer or a public market investor base is at the front of a VC’s mind.
There is an evolution from studios who see themselves as just game developers to those who are ‘in the games business’.
Publishing can often be seen as a way of learning the ropes for developers who have aspirations to self-publish and is a valid strategy for those with gaps in their knowledge and abilities, but with the aspiration to benefit from the learnings and self-publish future titles.
For sure there is an evolution from studios who see themselves as just “game developers” to those who are “in the games business”.
Key takeaways for ambitious studios
The message from the data is clear: if you want to build a studio that can ultimately be an acquisition target, you need to figure out how to publish your own titles and acquire the talent and skill set to self-publish.
For founders who are content to outsource UA, monetization and financing then working with the right publisher can be a great option of bringing great games to market, but it’s important to understand your horizons upfront and plan accordingly to avoid disappointment.
