Simon πŸ’ͺπŸΌπŸ»πŸ•Ή - WE'RE HIRING!

Simon πŸ’ͺπŸΌπŸ»πŸ•Ή - WE'RE HIRING!

23-10-2022

14:18

Watching the funding announcements in Web3 gaming over the past year or so, it’s obvious that the bulk games in this space have raised not enough money to succeed but just enough money to fail (<$5M). We saw this in mobile in the 2010s, thread on why and what’s next 🧡 1/22

The perceived wisdom in F2P mobile back in the day was that a team needed ~$3M Pre-Series A to demonstrate they could ship and get early traction. Most new teams are bad at shipping (more on this below), for those that could ship the plan was as follows: 2/22

Primary objective: Get a version with seven days worth of content out of the door - Spend 50-66% of the funds raised on development. Most teams take 18-24 months. - Assuming good funding scenario ($3M) divide 66% of that ($2M) across 24 months with a team of 12 developers. 3/22

- Gives you <$7K p/m per employee. This has to cover everything: salaries, taxes, software licenses, rent, etc. It's brutal. - Developer releases the game using Google Play Early Access. That could easily rack up 100,000s (or even millions) of free installs back then. 4/22

- Test D1, D3, D7 retention and prove the title has a shot at being best in class. - Early performance marketing tests (R.I.P. IDFA) using remaining budget to get UA benchmarks. If you could jump through all of these hoops you went back to investors and raised more cash. 5/22

Needless to say, this was very difficult (I use the past tense because VC backing for independent studios doing mobile F2P is uncommon today thanks to IDFA changes). Most teams failed, some survived. Web3 games are even more challenging than the old F2P model. 6/22

Before we get into the Web3-specific stuff there are the usual challenges common to all new studios: - Most fail to raise at all. - The fundraising process is incredibly time and energy intensive. Even studios that succeed will lose many months (up to 12) of time and focus. 7/22

- This is in part why we've favoured larger raises. It leaves more time for the most senior people at the studio to focus on building and adding value rather than raising. - The founders will also have their time sucked up by things like admin, IT, bookkeeping, legal, etc. 8/22

- These G&A items will take more time and energy than anticipated and reduce the team's ability to ship (too few studios get a Chief of Staff/COO early enough) - Lack of pre-existing codebase means everything will take longer to build than expected. Estimates will be off. 9/22

Now let's add on to these the challenges that Web3 studios face: - Hiring is always hard but it's especially hard in Web3. - The talent pool with relevant experience is tiny and commands a premium. In some instances you may not be able to find the people you need at all. 10/22

- Web3 has a unique culture. The folks you find may not be a strong cultural fit for a "structured" environment or aligned with your company's values. - Due to the hysteria around Web3 there is still a stigma in places like the EU and US making hiring more difficult. 11/22

- Web3 development takes longer and is much more complex - Premium games are about 30-40% as hard as building F2P games. Web3 games are probably 100% harder than F2P to build. - Much more can go wrong. Infosec, wallet security, contract audits, penetration testing... 12/22

- Plus all the risks to the in-game economy side once people have a stake and a financial incentive to exploit your reward systems. - Teams will need to partner up with other projects. Partnerships bring technical and reputational risks as well as their own overheads. 13/22

- Massive learning curve. Devs will need to learn new skills fast and expand their area of focus. - Most premium games just worry about the game client. F2P games have to worry about client + backend. Web3 games client + backend + web dev + smart contracts. 14/22

- No-one has built a successful sustainable game in the space yet. You will be bringing in people with mixed experience in Web3. Even those you bring in with some relevant experience will only be able to help you with what *didn't* work out. 15/22

- F2P mobile games have a clear UA playbook (even if it is broken for smaller studios at the moment). There is no UA playbook in Web3. Teams will invest time and money into things that will not move the needle at all in an effort to build their community. 16/22

Taking into account the additional complexity and costs, it follows that teams in Web3 should be raising *at least* 50-100% more than an equivalent Web2 studio. A directly comparable game in Web3 requires a larger team, more time, and has additional costs and dependencies. 17/22

The current fundraising environment complicates things further. With valuations depressing and founders unwilling to take larger dilution I expect we'll see more and more studios raising just enough to fail in the short to medium term. 18/22

We saw play out in mobile F2P in the early 2010s and lots of people got burned. The outcome was that over time it got harder to raise *but* valuations crept up. Investors became more discerning and focused on teams with clearer prospects and gave them better backing. 19/22

Founders also got smart to making sure they raised enough money to not require absolutely everything go 100% perfectly in order for them to avoid disaster. Raising 12+ months of runway and having to start raising again almost immediately became a thing of the past. 20/22

I think we're seeing a repeat of that cycle because so many investing and building today were not there to see it. Eventually it'll shake out just like it did then with teams and investors getting smart and ensuring there's enough money available to succeed. 21/22

I hope you've found this thread helpful. Follow me @skilllevel7 for more. Like/Retweet the first tweet below if you can: 22/22


Follow us on Twitter

to be informed of the latest developments and updates!


You can easily use to @tivitikothread bot for create more readable thread!
Donate πŸ’²

You can keep this app free of charge by supporting 😊

for server charges...