London Venture Partners (LVP) has announce a new early stage seed fund focused primarily on the European games sector. The eponymously named ‘LVP Seed Fund I’ is LVP’s first fund raised from third party investors. Backers of the new fund include Asian freemium gaming giant Nexon, long-time strategy game developer Wargaming, and social gaming company Zynga’s CEO Don Mattrick.
The LVP team has been investing in the sector since 2010 as a private fund. Past investments include Supercell, NaturalMotion, Playfish, Applifier and Unity — with the firm claiming some $4 billion in value being created over the past five years of its investments, via full or partial exits. It’s now drawing on that game sector investment cachet to bring third party backers on board for a larger fund.
The total size of the fund is not being announced, however LVP general partner Paul Heydon told TechCrunch the plan is to make between 20 and 25 investments of up to half a million dollars each over the lifetime of the fund.
The lower end of the investment range is pegged at $50,000 — so the fund’s total size has a considerable margin of between $1M and $12.5M, depending on how its investments play out (no pun intended).
“We believe the greatest amount of value is created at the seed stage. It’s highly risky but we’re willing to make those bets because between the three of us [Heydon, and LVP's two other general partners, David Gardner and David Lau-Kee] we’ve got 60 years working in the game sector,” added Heydon.
The fund will be invested “primarily” in Europe, according to Heydon. “To date all of [LVP's] investments have been in either Finland, UK, Denmark and Spain. We haven’t been specifically looking in any geography, it’s just that’s where the deals have come that we really liked, and we decided to invest in,” he said.
“Going forward [with the new fund], we think the Nordic area there’s a huge amount of things happening there. One of the reasons that we’ve been excited about Finland — we’ve done multiple investments there — is not only is there a lot of talent there, the Finnish government is incredibly supportive financially.
“They’ve got the Tekes program there where they’re putting 30 to 40 million euros a year into tech companies in Finland. In a mix of subsidies and soft loans. And literally, for every euro we put into a company they can raise at least another euro from Tekes. So it’s amazing leverage — and it’s by far the best government financing available in the world as far as I know.”
Access to government financing aside, Heydon said the Nordic regional draw — and indeed the draw to Europe in general — is talent.
“We think the Nordic area in particular there’s just an amazing amount of talent,” he said. “We’re starting to see some more things coming out of Spain… And we’re starting to see more in the UK. But that said we see deal flow from all over Europe and we keep our eyes open. We’re not going to make a decision saying we’re going to invest just in the Nordic area, or just here. We’re focused on where the best founders are.”
“There’s a huge amount of creative talent that’s coming out of Europe — there always has been — but historically they haven’t had the ability to raise anywhere as much capital as in the US because there just hasn’t been the capital,” he added.
Heydon said another regional reality fueling the rise of European gaming success stories is startup economics: simply put, starting a business here in the Old World doesn’t require as much capital to get going vs the cost of doing a startup in Silicon Valley.
“It’s like night and day in terms of cost,” he said. “If you have the ability to start with less money and get going I think you’ve got more of an opportunity. We’re very interested in really humble entrepreneurs who just want to make something happen and they’ve got the right talent.”
What will LVP be looking for as it spends the new fund? “It’s really a bet on the team,” said Heydon. “Do they have the right creative vision. Do they have the right ability to execute. Do they have the ability to attract great people to come work for them?
“It’s passion about making games. Vision to make potentially great games. And ideally the founders have worked together in another form or fashion before. If you’ve got those things, you’ve got the basics of something potentially great… You have to be making games that have the potential to be appealing to millions and millions of users in order to have the potential to build something big.”
That said, originality is also more interesting to the firm than a dev who’s trying to differentiate within an existing games type, such — for instance — trying to stand out in a crowded category like casino games.
“It’s really hard to differentiate vs others and therefore you have to spend a lot of money on customer acquisition to get those users — and then strategically it’s just a lot better to make a new game which is just a lot of fun and you’re going to get the attention of the platform owners,” added Heydon. “They’re going to feature it and it gets you off to a good running start to start turning in revenues.”
In terms of game categories of primary interest to LVP for its new early stage fund, it’s mostly mobile games — owing to just how fast these games can go from fledgling release to ‘Flappy Bird-sized’ global phenomenon.
“Mobile is continuing to be the fastest growing category by far. Obviously the best example is Supercell which we invested in — they did almost $900 million in revenue last year… Accel Partners who led their Series A round has said this is the fastest growing company they’ve ever invested in. And Accel was also in Facebook,” he added.
“The ability to scale really really fast in mobile is better than any other platform has ever been before — ever. You can have literally two guys in a garage, make a game, they upload it to the various app stores, push a few buttons and boom, it’s available globally. And that ability to scale globally before has never been available, to this extent, so that’s really why we’re most excited about mobile.”
Also of interest, what the firm terms “mid core games” — which means games that the potential to reach users who might have been playing similar types of games elsewhere and are already invested in spending time and money on the genre to ensure the game has a lifespan that’s more Angry Birds than Flappy Bird.
“You don’t want to make a game that does well for a few weeks and then that’s it. So it’s a combination of mass market appeal, good monetization, and long lifetime. That’s why we’re most interested in that mid core area,” Heydon added.