ABOUT JERE: LinkedIn | Sisu Game Ventures

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KEY HIGHLIGHTS

📈 Milestones to consider before raising investments.

🔑Key metrics investors like to look at during a pitch.

❌Common mistakes made post-funding by companies.

💰Fundraising for games has become tougher, what can they do about it?

🎮Game launches are becoming expensive. How this impacts investing decisions.

FULL TRANSCRIPT BELOW

Shamanth 

Our guest today is Jere Partanen. Jere, welcome to the show.

Jere 

Hello, nice to be here.

Shamanth 

We’re excited to have you as you’re very highly recommended and very plugged into gaming. I’m excited to dive into aspects of game investing.

To get started, when entrepreneurs are looking to raise a seed round for a gaming company, what are some of the typical milestones at which you recommend that they start to raise?

Jere 

In the post-IDFA era, especially for mobile studios, the question of raising funds is intriguing. There’s no clear answer.

Some funds that invest larger amounts in traditional seed rounds, around three to five million dollars, might prefer companies to skip pre-seed funding.

Pre-seed investments don’t always provide meaningful indicators for the subsequent seed funding, creating a challenge.

Raising funds post-IDFA has no simple playbook. Previously, benchmarks like early retention, monetization, and marketability justified pre-seed raises, but that’s not necessarily the case anymore.

It varies based on project ambition and team. Experienced teams could consider raising with just a vision and team, even avoiding metrics. Your raise depends on the type of studio you’re building.

When investing in pre-seed, we seek evidence that companies are validating a core differentiator before pursuing seed funding.

For instance, are they demonstrating unique personalized content early in the player journey? Can they prove this with their pre-seed amount or bootstrap phase? This challenge affects many mobile startups today.

If they aren’t going for pre-seed, can they show improvements during bootstrapping? The conventional milestones have lost some significance.

Generally, for a meaningful seed round, showcasing substantial cohorts over a multi-month period with more content for longer retention is crucial. Achieving this takes various forms and is especially tough for companies with limited initial or seed funding.

Consequently, many gaming funds are moving away from pre-seed, including us. Unless there’s a clear novelty or strong justification, the old playbook no longer applies.

Shamanth 

Yeah, it’s crazy how ATT has disrupted so much of the early process of the game. As you said, marketability used to be a lot cleaner and clearer. It used to be much easier to get those early signals.

I spoke with the UA head of a publicly traded company. They mentioned that recent game launches were expensive and very unclear, compared to the clear metrics never getting added, and that’s completely understandable.

You briefly mentioned wanting to look at the retention metrics. So what are the key metrics or product readiness checkpoints that you would like to see when you’re looking at a pitch?

Jere 

For pre-seed funding, product readiness isn’t crucial. We invest based on the team’s thinking, expertise, and identified gaps.

It’s not about where the product is, or if that’s the specific thing that you’re looking for.

It’s more about – at pre-seed, entrepreneurs should focus on testing vital project elements early, being resourceful, and showing potential, even with limited funds.

If your project is an ambitious game and you can only provide marketability metrics, expecting meaningful day 3 retention metrics would be challenging.

We’re keen on companies exploring distinct operational strategies and creating unique advantages, such as proprietary technology.

Products at this initial stage often differ significantly from their eventual launch versions. In early seed or pre-seed stages, product status can be misleading for investors.

Overemphasizing product readiness without considering it as a reflection of the founders’ mindset can be detrimental.

Shamanth 

If I understand correctly, what you’re looking at is – what’s the vision for where this can be more than one of the products right now?

Jere 

Yeah, to an extent, it’s about that. But it’s more about showcasing, not just artistic ambition.

But even metrics without spending or a challenging situation with no hires can be impactful. Having something to showcase is valuable, as many pre-seed companies start with nothing tangible.

Shamanth 

And once they raise a pre-seed round, what do you see are the common mistakes that companies make post the pre-seed with the funds that they’ve raised in such an early stage?

Overspending and overhiring harm startups, especially those new to mobile. Efficient small teams can achieve more.

Additionally, committing prematurely to ideas without market humility is a pitfall. Some firms stick to a game and spend far too much of their time and resources without clear milestones at which they should potentially kill the game.

Pivoting is common in the mobile industry due to evolving benchmarks. Few succeed with their first game.

A mistake is pivoting too far from the initial idea, losing original insights. Changing genres or mechanics too drastically might negate the benefits of the first game. These are core issues we often observe.

Shamanth 

It’s also challenging because they’re operating with relatively limited time and resources, and it’s easy for them to go to either extreme, an easy temptation to fall into.

Jere 

Another aspect is the timing of raising funds for seed and pre-seed startups. Some companies miscalculate, having just three to four months of the runway when seeking their next round.

In the current market, this timeframe might not suffice for successful fundraising. It’s a mistake in assessing how far funds can take the company, shared by both the company and its investors.

Shamanth 

You have to be more conservative, especially with the fundraising climate being rough.

This also brings me to my next question, fundraising has gotten a lot tougher for games. What are other factors that are contributing to this? What are some of the things that you recommend that companies do to combat this?

Jere 

A few obvious challenges stand out.

While the main issue might be ATT in mobile, the combination with increased capital costs worsens scaling for UA, especially with longer payback periods.

VCs become cautious due to fund challenges, prioritizing existing portfolios and diverse bets outside mobile. This forms a tough landscape.

Companies, including new ones, must rethink the conventional CAC/LTV approach. Many are turning to non-traditional UA strategies like influencer marketing to navigate this environment effectively.

Founders should assess whether their UA or game experience brings innovation that justifies traditional mobile funding. Many options exist beyond standard studios, like tech development or leveraging gaming expertise for consumer products.

It’s important to consider if the VC path for mobile games makes sense, as often it doesn’t in the current market. Understanding VC expectations at different stages is key.

For pre-seed funding, knowing seed and series A milestones is crucial to present a realistic funding plan. So you can convince your initial investors that you’ve thought through how the first few years of the company actually look.

The UA landscape has dramatically shifted, affecting venture funds’ interest in seed and series A. Adaptation is essential in this challenging market.

Shamanth 

ATT’s ongoing disruption is often underestimated. The rise in capital costs, influenced by ATT, deserves more recognition.

While many still depend on traditional UA, others are also looking outside for influencers or other ways to grow.

Although more complex than the traditional UA playbook, it makes sense to complement the traditional UA playbook with other approaches just now.

You briefly mentioned that game launches are harder and more expensive using the traditional UA playbook lately.

Do you see that impacting your funding decisions for games as you’re coming in at a relatively early stage before the viability of the game UA is very clear?

And how does this impact the company’s future planning and roadmap?

Jere 

It does affect both categories considerably. In terms of funding decisions, there have been noticeable effects, especially among later-stage funds like us. We respond to how these other funds think about things.

Many funds are now uninterested in mobile free play due to the current dynamics. While we’re not as pessimistic, it has led to us being less excited about traditional mobile deals.

Additionally, pre-seed investments have become more cautious. We have to consider if pre-seed, a few 100k to a million dollar investments still make sense.

If there is that gap at seed, where a lot of these funds that used to be the ones funding these companies are not that interested anymore, pre-seed doesn’t make sense. 

You want to go straight for a seed, like a $3- $4 million. And that’s not accessible for most founders. It’s just reserved for those who have a lot of experience.

This also impacts our funding decisions. For some companies, a million dollars isn’t sufficient to make a meaningful impact anymore due to changing dynamics.

Early retention and monetization data may not reflect long-term game performance accurately. Consequently, we’ve engaged in fewer mobile deals and focus on those that directly address these challenges.

For example, using AI as a core part of your development approach extends the impact of a $2 million raise. You can test more ideas, and get more ideas in the hands of players to de-risk properly.

Additionally, we’ve shifted towards more PC and console deals. While this sector has its challenges, as a pre-seed fund, we adapt to the trends of subsequent investors, and lately, that’s been shifting towards PC, console, and cross-platform ventures, alongside AI integration.

So companies we fund must carefully manage their runway, aiming to extend it into early 2025 and, see if the funding situation improves.

Solutions to current UA challenges should be explored, emphasizing frugality. We’ve advised founders that the landscape has evolved. Companies need to stay aware of this changing environment.

In some cases, despite VC reservations, partnering with publishers for a specific game might be necessary, even if it means a long-term commitment as it keeps them alive and the lights on.

Shamanth 

Yeah. These are certainly challenging times. I’m hearing this out in the marketplace as well.

Thank you for shedding light on what’s driving all of this and the mechanics underneath all of what’s unfolding in front of us.

This is a good place for us to wrap. But before we do that, could you tell folks how they can find out more about you and everything you do?

Jere 

I suggest visiting sisu.vc to learn about our work and portfolio. Feel free to contact me at me@sisu.vc or through LinkedIn for prompt responses.

Shamanth 

Wonderful Jere. Thank you so much for being on the show. 

I hope to see you around.

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