The document discusses the attractiveness and dynamics of the games sector for investment. It notes that the global games market is worth over $100 billion and growing annually at 8%. Games companies can see fast returns, with some achieving 10x growth in 3-5 years. Successful games studios are also highly cash efficient and can become long-term franchises. Europe is highlighted as a source of strong gaming talent and several major games companies.
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We ❤ games at Atomico and have a passionate team who live and breathe for the games industry
Mattias Ljungman
Partner, Atomico
@ljungman
Alexis Bonte
CEO, eRepublik Labs
Venture Partner, Atomico
@alexisbonte
Stephen Thorne
Senior Associate, Atomico
@stephen2206
3. Objectives:
Present and get feedback on games investing
How we think about
Games Investing:
Europe’s Hidden Gem
4. 4
01
Market is big but getting bigger:
Gaming market is worth $100bn+ and is growing at
8% YoY. Market expansion could be set for a further
big expansion as games turn into active social
networks like Tencent. Games companies at scale
incl Supercell (100m+ MAU) and King (300m+ MAU)
Macro attractiveness of
the games sector as a
vertical
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Global games market 2017
32%
31%
23%
10%4%
42%
27%
31%
Mobile
$46.1Bn
+19.3% YoY
Tablet Games
$10.8Bn
+11.4% YoY
(Smart)phone Games
$35.5Bn
+22.0% YoY
PC
$29.4Bn
-2.6% YoY
Browser PC Games
$4.5Bn
-9.3% YoY
Boxed/Downloaded
PC Games
$24.8Bn
-1.3% YoY
Console
$33.5Bn
+3.6% YoY
Source: Newzoo.com
5. 3,500
3,000
2,500
2,000
1,500
1,000
500
0
5
02
Platforms continue to develop:
Access to games does not remain static as new
platforms develop from consoles, mobile and PC to
messaging. Games continue to be cutting edge in
terms of platform development, due to the high
engagement levels among players
Macro attractiveness of
the games sector as a
vertical
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Messaging Apps Have Surpassed Social
Networks
Global monthly active users for the top 4 messaging
apps and social networks
Millions
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
Big 4 Messaging Apps Big 4 Social Networking Apps
Note: Most recent figured used
Source: Companies, BI Intelligence
6. 6
03
Liquid market:
Ability to exit at all levels - from $20m to $10bn
(King, Supercell, Space Ape, eRepublik Labs)
Macro attractiveness of
the games sector as a
vertical
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04
Fast returns:
Mass consumer adoption can create quick exit time
horizon of 10X in 3 - 5 years (e.g. Supercell)
Macro attractiveness of
the games sector as a
vertical
Operating status of $B+ games companies
founded since 2003
12%88%
Tech companies (ex-Games)
IPO’d or acquired Private
61%39%
Games companies
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01
Cash efficient:
Highly cash generative businesses reduce
requirements for multiple funding rounds to prove a
business and minimises dilution
Dynamics of games
companies are
extremely powerful Video Games actually index
better than the broader Internet
sector on CROCI [cash return on
capital invested]... a function of
strong FCF conversion (70% on
average) and relatively low cap ex
(3% of sales on average)
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Goldman Sachs Video Game Sector Initiating
Coverage, Sep-17
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02
Phenomenal revenue growth
The phenomenal growth of Supercell’s revenue is perhaps
the most well known example in the gaming space, but it is
far from the only one in this fast growing industry.
Dynamics of games
companies are
extremely powerful
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Supercell revenue growth
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03
Revenue longevity:
Strong games businesses become long term cash
cows and are enduring with 10 year plus franchises
Dynamics of games
companies are
extremely powerful
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Years since launch of top 10 PC games by
revenue
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04
Replicating Success:
Having created one success, a team usually
continues to create multiple successes. This hit rate
is further improved by constant testing.
Dynamics of games
companies are
extremely powerful
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Years since launch of top 10 mobile games
by revenue
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Deep European Talent:
Excellent talent across Europe from a long history of
great companies (decades of game development
from Ubisoft 1986, Jagex 2000, Gameloft in 2000
and King 2003 to Supercell 2010)
05
Dynamics of games
companies are
extremely powerful
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European Games as a
unicorn factory
Over one-quarter (new entry Paradox not shown) of
the $B+ games companies founded over the last 15
years are from Europe; better European
representation than any other sector
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Growth Acceleration Team:
Our ability and track record of helping companies
with Asian expansion, talent management and
growth initiatives means we provide something
unique to founders
01
Atomico’s infrastructure
provides real value to
founders
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Tech.eu meets Atomico’s Growth
Acceleration Team on Vimeo.
At Atomico, we’ve spent years building the most experienced team of
founders, investors and operators to help European entrepreneurs take a
product that works and make it a global success.
Source: news.atomico.com
15. 15
Network:
Our global network of relationships is extremely
important for teams that are growing quickly. We
bring experience and deep relationships across
Europe, Asia (Japan & China) and Latam.
02
Atomico’s infrastructure
provides real value to
founders
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Track-record:
Our investments in Supercell and Rovio give us
credibility but so does our roll up our sleeves
attitude. Now: Bossa & Teatime
03
Atomico’s infrastructure
provides real value to
founders
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Audience reach:
Incredible range of audiences within reach with
huge mass-market appeal. There are 2.2bn active
gamers, of which 1bn spend money while playing*
01
The powerful
characteristics of
gaming
● Newzoo’s 2017 Global Games Market Report
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Scalability:
Launch at Seed, scale at Series A. Ability to scale
globally (East and West), bridging core and casual
across multiple platforms
02
The powerful
characteristics of
gaming
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Rollout speed:
Games roll out fast globally with limited (non-Asia)
localisation and no local presence required
03
The powerful
characteristics of
gaming
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Engagement potential:
24/7, multiple play patterns, with hours spent on
games increasing
04
The powerful
characteristics of games
sector
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Exhibit 19: Time spent by US online
gamers (Hours per week)
Source: Nielsen, Entertainment Software Association.,
Goldman Sachs Global Investment Research.
8
7
6
5
4
3
2
1
0
Hoursperweek
5.1
6.5
2011 2016
CAGR: 5%
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Monetisation:
includes in app purchases, advertising, pre-pay,
virtual goods, brand merchandising. The alternatives
for monetisation continues to expand
05
The powerful
characteristics of
gaming
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Margin:
30%+, Small teams can support big audiences (At
Supercell 244 people support $2.1bn revenue).
Remain powerful across platforms and monetisation
form.
06
The powerful
characteristics of games
sector
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Highly data driven:
A/B testing with constant of testing and monitoring
of performance
07
The powerful
characteristics of games
sector
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Development
Test
Beta
Dev
Test
LAUNCH
Dev
Test
Update
Dev
Test
Update
Dev
Test
Update
Dev
Update
..
.
“Soft”
Launch Launch
01
Split
population
02
Show
variations
03
Measure
response
04
Choose
winner
05
Deploy
winner
25. 25
Competition:
tough on established platforms as quickly use power
of capital as a moat but new distribution methods
continually created. It’s estimated that around 3000
mobile games are launched weekly on iOS/Google
Play.
08
The powerful
characteristics of games
sector
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Metrics rule but it's a
wide spread
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Even in the same game type,
metrics can vary greatly: CASUAL
*In the casual genre metrics are very different for
super casual games (voodoo: paper.io), which are
driven by ads, and standard casual games which
are driven by a mix of predominantly ads and in-app
purchases (Ohbibi: SUP).
There are also games that appeal to casual
audiences, but with mid core design loops that
monetize more via in-app purchases (King: Candy
Crush).
Predominantly ad based revenue with
low ARPDAU but also low CAC
Strong ad based revenue and in app
revenue mix. ARPDAU is average but
have a lower CAC
Predominantly revenue derived by in
app purchases with high ARPDAU but
also high CAC
*This is on downloadable Apps. Retention figures are much lower (but so are
CPI’s on HtML5 messenger games that are starting to emerge
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Metrics rule but it's a
wide spread
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Even in the same game type,
metrics can vary greatly: Mid-core
Mid-core also has several sub genres, from PVP
(Clash royale) to RPG (Star Wars: Galaxy of
Heroes) to Trivia (Trivia Crack) and several other,
old like builders (Farm, City) or emerging genres
(narrative, FPS, sports like Golf Clash...).
Usually have strong synchronous or
asynchronous multiplayer component.
Monetize predominantly with in-app purchases
except for games in the Trivia Crack genre that
monetize with ads
Predominantly ad based revenue with
low ARPDAU but low CAC due to
virality
Predominantly revenue from in app
purchases with high ARPDAU but high
CAC
Predominantly revenue from in app
purchases with higher ARPDAU but
high CAC
Predominantly revenue from in app
purchases with lower ARPDAU and
low CAC
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Gaming DNA
● Passionate about games and not tourists
● Telepathic connection between people - art,
dev, QA, community, design, analytics
● Lots of mistakes and scars but hunger to win
● Ideally long history of working together
Teams are critical and
evaluating them is as
important as the metrics
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Founder Attributes
Talent Magnet and Culture Builder
Open an honest with deficiencies in self and others, proactively filling
these gaps with DIVERSE and exceptional talent. Able to attract and keep
A players by hiring Coat Trailers. Seeks to build an execution machine,
and an inclusive culture that others will break through walls for.
1: How did you hire your founding team? Walk me through your
management team and how they work together? Who do you think will
scale and who will hit a wall? What would happen if you lost X?
2: Describe your culture? How did you build that (by design) and then ask
the same question to all you meet - look for calibration and repetition.
Flat structure. People can take care of themselves and
everybody is part of the team. But also autonomous.
Aim high but accept pain if not there
Game creators but believe can have broader impact
Aim to make a great business out of game. Not just about the
fun experience but also the business
3: Tell me about the exec turnover - last 12 months… Who… Why… What
did you learn?... Then speak with them.
30. 30
Technical talent
● In depth understanding of latest game design
principles
● Great at gathering and understanding metrics
● Make the right tech choices to enable scaling
● Fast design and QA cycles
Teams are critical and
evaluating them is as
important as the metrics
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Creative risk takers
● Focused on creating new
experiences for consumers
● Not afraid of making creative
leaps
● Its half art and half science
Teams are critical and evaluating them
is as important as the metrics
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In Conclusion
Winning big in Gaming
creates powerful defensive
moats
A combination of creative differentiation and
a data-driven approach is required to win in
a tough market
If able to reach size however, games
companies have huge economies of scale
01Leading studios are able to control the talent
Gaming as much as any business is built around the
importance of the people
02Strong brands and IP + Superior KPi’(s)
Once established, brands and IP (e.g. the Clash brand, or
Crush brand) allow consumer recognition and lower CPAs -
critical advantage
03Riding this success sucks the oxygen out of the
room for others
Leads to an unfair market share and outsized returns