If British games companies want VC, they need to ditch the consoles and get social

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This is a guest post by Nicholas Lovell, director of GAMESbrief, a blog on the business of games, and a consultant who helps companies make money from games. Together with Nic Brisbourne of DFJ Esprit, he is writing a book on 50 questions you should ask when raising venture capital. Every answer is published on either The Equity Kicker or GAMESbrief, and they are up to question 23.

Recently, the UK innovation quango NESTA hosted an event aimed at encouraging investment in games companies.

Ian Livingstone, life president of Square Enix Europe and creator of the Fighting Fantasy game books, argued that the problem lay both with investors, who "have not made an effort to understand what we do as an industry", and "innovators – who don’t understand how to access finance".

Ian is just plain wrong. The problem doesn’t lie with investors.

Here is a list of London-based investors who have invested in games companies since the start of 2010:

Before that, there was not including Index/Stardoll (Sweden), Balderton/wooga (Germany), Accel/Gameforge (Germany), GMT/Peacock/Bigpoint (Germany), Wellington/Gameduell (Germany). The list goes on.

The only British investments I can think of are Index/Mind Candy and Balderton/Codemasters.

I’m not claiming this list is exhaustive, but I am saying that anyone who says that British investors are not backing games companies is missing the point.

The point is, they are not backing British ones.

It’s not them, it’s you

Several factors play in to this. Every one of these businesses (with the notable exception of Codemasters) is a service-based business. They are entirely focused on building long-term great relationships with their gamers, leading to recurring revenue streams, great data and opportunities to mitigate hit-driven product risk by extending the longevity of a game.

In contrast, most British game developers are from a console development background. They think that browser games suck because their graphics are poor. They think that social games are not real games. They want to be allowed to forget about the business model, and customer engagement, and on-going relationships with their players so they can just put their heads down and just make great games.

They make pitches like: ìIt will be just like Farmville. But in 3D. And with guns"!î

I believe the problem goes deeper than this. The console problem means developers view games as projects. They need to find a ìfunderî to cashflow their project. In the past this used to be publishers. Now they are turning, without changing their pitching styles or presentation decks, to venture capitalists.

This doesn’t work.

How do we fix this?

We need to educate British games companies, not bleat about how hard it is for them to get funding. Games developers need to understand why investors won’t invest in games companies, despite ample evidence that they do. They need to stop building products and start building companies.

They need to get out to conferences, and meetings, and networking events. I was recently at the Virtual Goods Summit in Berlin, and the room was jampacked with entrepreneurs, both funded and unfunded, learning from each other about how to make a great company. But I’m one of the only Brits – why is this?

Above all, they need to forget about getting funding to make a game, and just go ahead and make it anyway. Somehow, anyhow.

That’s how all the best entrepreneurial businesses get started.