According to Krasilnikov, there are several types of investments. Belka Games’ partnership with AppLovin is an example of a strategic investment. Belka Games was able to significantly expand its marketing capabilities, now it can more boldly test new ideas: try new channels, new traffic sources.
At the same time, the company remained independent – it retained all the main management, the founders are involved in the development process, they are left with key decisions – Sasha Bogdanov is in charge of the company. Belka Games is completely independent in terms of staffing solutions and new products. This was very important for the company, this is a key position from which to build on in this type of transaction.
Alex Nichiporchik said that in tinyBuild they raised two rounds: the first was with the Makers Fund, and the second was purely strategic with a large Chinese company. In the second round, the company raised $ 15 million. During such a round with such amounts, there is a dilution of shares – you lose some share of the company. At the same time, a new type of shares is created with privileges that the founders do not have.
For example, there may be a condition that the priority is now on dividends, or that these shares cannot be diluted without the consent of the board of directors. And new people are joining the board of directors.
According to Alex, all this looks insanely scary, but the main thing in strategic investments is that they must add passive value. If you go to strategic investments for money, then this is the wrong approach. The value should be in something non-monetary: access to another market, personnel, unique marketing tools.
Mikhail Kuzmin said that in the former USSR, many gaming companies, especially in the middle of the last decade, took non-core investments: from builders or bankers – people who gave money. Most of these stories didn’t end well for the companies.
According to Eremeev, the peculiarity of a strategic investor is that the intangible value is much higher than the material investment. There are transactions that can even be called not an investment, but a merger: when the target company does not even receive direct cash investments, but gains access to technologies, the market (China, for example). And another important feature of a strategic investor is that he is with you for a long time. At the same time, strategic partnership happens on both sides – it can be beneficial both for one company and for another.
Strategic investors see the deal as very long term and may never plan to part ways with the company. Different types of investors come to companies for different purposes. Venture capital investments are temporary investments. When you conclude such a deal, the investor has plans to exit: at some point, he will sell his share at an increased price.
Venture capital investment is when an investor comes to a company while it has little value, but it has potential for growth. An investor sells his stake when the company is either completely absorbed by a strategic player, or the value of the company at some point rises, and the investor’s stake also rises.
Eremeev added that if you attract a venture investor, then your company is put up for sale, because his goal is to get his share when the company is sold. Therefore, you must understand in advance what the investor is striving for.
The point of venture capital investment is to buy when it’s cheap and sell when it’s expensive. Alex added that another reason for selling his stake is when the company goes public.
If you raise money with the help of a venture fund, then you must have a lawyer – you must be completely sure of what is written in the contract. If you think that some of the conditions do not suit you, it may be worth abandoning the deal. Everything should be fixed in the contract, and everything should be absolutely clear.
Eremeev advised all founders to read the book Venture Deals – this is necessary for a better understanding of the entire investment area.
MY.GAMES Venture Capital functions
Eremeev said that MY.GAMES Venture Capital positions itself precisely as a strategic investor. The company has a strategic goal – to increase capitalization. MGVC has no plans at all to leave the companies with which it makes deals.
In addition to money, MGVC provides companies with marketing assistance – in the development (especially of mobile games), the marketing budget can be several times higher than the development budget. If the development of a game costs 1.5-2 million dollars, then you need to invest 5-10 million a month in marketing in order to reach significant turnover. Usually the company does not have a very wide choice of how to get this money. Banks do not give loans for this, and marketing agencies take a very large percentage.