Are games still part of tech ? some of our partners and advisors still think so and the answer may different by region. For example under the Thai govt's eyes, games are considered "digital" and along with the rest of the tech industry - a favored "S Curve" industry. However in the west, largely not so much. Many now consider the industry to be a part of entertainment and even back in the 90's, many including ourselves noted the similarity to film industry who are now often our most frequent bedfellows creatively and in shared IP development. Yet tech is still used to build games.
Examining the differences also yields understanding into how the divergence likely happened historically and unconsciously. By the end of this article and this process, the need for specialized game investors becomes more clear. It should also be clear by the end of this article that we understand both worlds which is a strong reason to invest in us but also if you are a founder that has built something that leverages a similar understanding of both, you'll also have an understanding ear wth us which at this time of writing is very rare if not non-existent altogether.
- The tech stack is different
In the typical startup world, whether someone is working SaaS, Fintech, AI etc, there's a common tech stack. Some kind of front end Javascript i.e. React, Node, Vue on the front end, Node and Mongo DB towards the back end with Python often uses as a glue language in-between and also for math and machine learning for AI based startups.
In the game industry, usually a powerful off the shelf game engine such as Unity and Unreal engine are used and the programming languages (C++ and C# along with specialized hardware languages like CUA) as well as how code excution works (compiled, faster vs interpreted in browser) are all different. "10x engineers" are less recognizable in games vs the web side since these are often completely dffere
If you're reading this as a non-technical person especially if unfamiliar with startups you're probably completely lost. Even self taught web developers are at a loss as to the latter while game programmers will have heard of the former but will likely have had little direct experience or exposure unless they've spent awhile outside of games.
On the UX side, traditional tech UX is pretty basic by comparison. Usually decisions made around web design and to much time spent on things like kerning when it comes to fonts. Games have to consider all of that in terms of UI inside of the game but also have to consider things like lighting algorithms, shaders, level of detal optimisation and I'll digress... essentially creating artificial reality with graphics card performance constraints always in mind while... web pages essentally can render on virtualy any device with only differences in browsers to consider.
TLDR - The rockstars are also different. Rockstar developers from often don't know enough to tell an equivalent counterpart from the other, much less be able to or have interest in angel investing in them in the same way that most of the usual tech verticals back each other while having a relatively common set of tools and problems as a frame of reference.
- The exits are different
This one's a little easier to understand. The typical exit targets for selling a startup into either aquisition are usually the "FANG" (Facebook, Amazon, Netflix, Google). Other common marquee acqui-hiring companies might be Salesforce, Microsoft, Stripe and others. Out of all of these, Microsoft is the only on that has a general games business, Facebook would only be interested if it was VR/XR related via Oculus, Amazon and Google have both flirted with games but have already experienced some high profile flameouts in terms of Amazon Game Studios and Google Stadia. Netflix doesn't have a game business and in general... the answer is a bit murkier here but definitely different. Games are not a core business unit for growth for most of these companies with Microsoft being the biggest and closest of the "usual suspets" to having a core business in games with both Xbox and Microsoft Game Studios.
- The monetization is different
Games dont solve a problem.. unless you consider boredom or quality of gaming to be a problem. How/If a game can monetize, where and when are completely different to say WHY a SaaS product is paid for and how a customer is both acquired and converted. Games also feed us joy and dopamine in ways that other tech products often do not, Facebook, Tiktok etc have some elements of this but they don't drive the same passion or its darker counterpart - addiction in the same way. Understandng this also requires a specialized knowledge of how a game fits and may need to compete for time in terms of graphics, gameplay, concept against a much larger # of other games that are vying for the same attention. Even more when considering a game's release window vs those outside of it both future and prior. When evaluatng a typical startup solving a problem, by comparison an investor only has to figure out which out of a pool of of competing products and teams, less than 10 at most to bet on and to win with a winner takes all scenario. The tech industry equivalent might be wondering if AirBNB can win both attention and spending from Amazon, Google, Salesforce and others. Investors who only look at tech wouldn't know where to begin. By comparison a good game does not necessarily diminish another outside of competing for playtime. Gamers often buy good games in a genre or category they love and the trend of buying games and not playing them being backlogged until "someday" is only grownig. By comparison the power law that often applies to winning in tech investing applies less to games. It's such a large market because things are relatively more egalitarian and there's room for comparatively more winners and small empires.
- The financing is different
Financing for games has typically come from traditional publishers using combinatons of project financing and royalty recoupment models with venture financing being a minority with still the majority of games not being built via the "games as a service model". Most developers and publishers are usually happy with a 2-3x return which would be considered mediocre by venture standards. Things are inverted in tech with revenue based financing being a minority and the venture/equity model being predominant. The distinction gets blurrier every day and there is much that can be learned and applied from both sides.
- There Is an A&R component... which is different :D
As we noted and quoted from our intro, Charles Hudson of Precursor Ventures who was once a game founder himself said that usually tech investors want to reduce everything down to SaaS style metrics which also helps them benchmark startups from other typical tech verticals. They'll only want to talk about things like aquisition costs, churn rates and payback periods. The game itself is an inconvenient chore and not a factor to evaluate.
The term A&R come from the music industry and is an abbreviation of "artists and repertoire" encompassing eveything from talent assessment and development in terms of creativity to having a layer of initial contact and junior management that speaks the same language, often having a musical background themelves that makes the artists more comfortable wth the label. Make no bones about it, this is the part which we'll be enjoying most.... getting into the games or better yet, hooked by them. Going back and forth on both design and techncal decisions and problems. All of this is well outside the scope and norm of regular tech investing and likely an unusual chore comparded to lookng at other portfolio companies. We say.... they don't know what they're missing!