Delivered at Casual Connect Europe 2016 This presentation will walk the audience through some strategies that can be used to optimize user acquisition spend across a portfolio. In addition, this presentation will highlight the specific things that user acquisition teams should be mindful of when they oversee a broad portfolio of products.

1. Why & which game companies
get invested or acquired
Eric Goldberg
Managing Director, Crossover Technologies
17 February 2016

2. Investment & acquisition triggers
• Need
 Business
 FOMO (Fear Of Missing Out)
 Put money to work
• “Don’t call us, we’ll call you”
• Opportunity aligned with timing
• Invitation to a fire sale
• A champion (from a founder with a controlling stake on down)

3. Great Expectations->Reality
• Investments and sales happen as a result of great initial optimism for
both investor / buyer and game company
• Once the investor / buyer decides their interest is serious, the
analysis shifts to a ‘downside risk’ scenario
• A disconnect occurs when only the investor / buyer recognizes this
180-degree shift in perspective
• Supporting this shift by directly and pragmatically addressing the
‘glass half empty’ can win or lose a deal for the game company
• Standard compromises include valuation for investment and earnout
for acquisition

4. Investment Realities (macro)
• The games sector is out of fashion with the institutional venture
firms investing at >$3MM-$5MM (not to mention Series B)
• The upside is capped: game companies with enterprise values
>$500MM command in the 1.5-2x vicinity for trade sales
• The Western institutional VCs with games investment
experience are almost all on the sidelines for 2016
• The strategics have stepped up to replace institutional venture
backing of game companies and, with the Asian wave cresting
2015-16, have exceeded peak institutional venture investment

5. Investment Realities (micro)
• Europe has a cadre of first-round venture investors that have
games experience and are making multiple game investments
• Tens of exits in the 8- to low 9-figure range are possible for
game studios, which fully supports <$5MM growth investments
• Once a game studio delivers a Top-Grossing title, a next round
is sufficiently “de-risked” to open up financing options
• In the eight-figure range, back-end, service, tools, and analytics
plays reward <$5MM investments (but with fewer total exits)

6. Ingredients
• Great team
• Greenfield opportunity
• Blue-ish ocean
• Unfair competitive advantage
For extra bonus points: sustainable unfair competitive advantage
• Great game (great game line)
• Sector, game genre or territory
• Infrequently technology

7. M&A large…
• Buy vs. build
• Acquire a studio or back-end capacity
• Enter a new line of game business, more often as a defensive
move
• Buy an established product line that’s achieved a sustainable
revenue plateau or with material prospects to increase
• To excite or placate Mr. Market (i.e., move the stock price, either
upwards or in hopes of arresting a momentum-driven decline)

8. …and M&A small
• Buy vs. build – especially in a more favorable geography
(whether cheaper or with talent not readily available to HQ)
• Acquire a studio or back-end capacity
• Enter a new line of game business, often complementary and
usually as a growth strategy
• Stay competitive in a rapidly consolidating market – or, to a
lesser extent, “punch above weight”

9. “That deal”
As in, “I want one of those deals!”
Investments
• Usually $5MM-$7MM, perhaps with only a PowerPoint
• Team coming together, often with excellent provenances – but
have not worked together as an independent unit
Acquisition
• The stars align: buyer is new entrant into field, pay up front for
success in Next Big (Game) Thing, conviction play
“It’s better to be lucky and to be good”

10. Valuation (investment)
• In most cases, should allow for company insiders (not just
founders) to retain 50% after next financing (e.g., Series B)
• Greater variable is whether to invest in first place
• Driven by exit prospects
 Later stage: low multiples relative to other sectors at big numbers
 Earlier stage: sky may not be the limit, but cirrus clouds can be
• [For strategics] Price sensitivity drops with ‘first look’ or
distribution rights

11. Valuation (buy)
• Buyers emphasize lower base price in return for earnout
• Venture investors a minus for most buyers, as price disconnect
(and possibility of misalignment between VCs and company)
• Buy vs. build vs. rent
• Greatest value for great team at lower end, sustained
performance across multiple titles at higher end
• Sharp divide in re games at or approaching a revenue peak

12. Big Game Hunting
The good news
• [For M&A] The games industry is in a consolidation phase
• Europe has a game superangel and first-round VC ecosystem
that’s superior to both the NA and Asian counterparts
The not-so-good news
• [For investment] The games industry is in a consolidation phase
• It’s long odds against except when:
• you’ve carved out a successful niche; but chiefly when
• buyers or investors come looking for you

13. Thank you!
Eric Goldberg
Crossover Technologies
egoldberg@crossover.com
europe.casualconnect.org/content.html?speaker=ericgoldberg