Starting your first fund at the beginning of the pandemic might seem ill-advised. But that’s not the case if you’re funding something that benefited from more people staying home: video games.
Eitan Reisel knows he hit the market at the right time, even if it was an accident. He founded Israeli-based vgames in March 2020 as a way to fund video game content companies from pre-seed to Series A rounds. Games give people a way to connect and play no matter where they are in the world. And with 40% of the world’s population gaming, that’s a huge market to tap.
“Games are one of the largest dating apps in the world now because you get to meet so many people in so many regions. COVID only enhanced it … Today, gaming is the largest source of entertainment, but it's also the largest source of socializing,” Eitan says.
As a first-time VC manager, he wanted to be a fund founder who helped gaming founders.
“We're not looking to dictate to the companies that we invest in, nor do we have any notion of knowing better than our founders. We invest in them because we believe that they know what they're doing,” Eitan explains of his mission.
On an episode of the How I Raised It podcast, Eitan joins me to share his perspective on the gaming market, his eight-point plan to start your own fund, and advice for funds and startups alike.
Gaming the market
The market for video games is drastically different today than it was a decade ago. Now, it’s easier than ever to make a game and release it on the App Store. That’s both a blessing and a curse. While it’s easier to create, marketing is more important — and more expensive — than ever to ensure a game stands apart from the competition.
Eitan looks at three factors to determine whether a company has what it takes to outshine the others:
- Product: Is it able to draw in initial users?
- Retention: Do users keep coming back for more?
- Marketing: How does the company plan to tell its story to potential players?
He uses the example of a show on Netflix: “You're going to start watching content; the content has great value, and you enjoy it. Now you've finished episode one. You want to attract people to watch Episode Two. There's a variety of content options. You have to surface in a more interesting way.”
8 steps to raising your first fund
Raising a VC fund went quickly for Eitan, spanning just over six months. Vgames’ first fund was set to be $30 million, but he doubled that expectation and amassed $60 million. The traction he’d created was so strong that vgames was oversubscribed on its first attempt.
Eitan notes that such a high level of fundraising doesn’t come without its own costs. He spent around $1 million in legal, consulting, and accounting fees.
How did he swiftly close an oversubscribed round as an emerging VC manager? He breaks down the process of how to become a VC.
1. Get acquainted with the space
Before Eitan launched vgames, he was an angel investor in the video game industry. He built his network and reputation as an expert in the space.
“You're not selling an industry, you're selling yourself at the beginning. People are relying on you to make decisions on their capital to invest in the right companies,” he says.
2. Understand which investors can invest in a fund
This is a matter of getting familiar with other VCs and LPs in the space. What does Eitan advise against? Taking money from friends, even if they’re qualified investors.
“I had a lot of friends who had a lot of capital and offered to help. Commercial relationships are separate from the folks that you meet for beer in the evening,” he explains. That’s why he draws a line between friendships and business associates.
3. Land an anchor
An anchor investor is a person or entity that can cover 25% of the fund. Eitan’s anchor was an existing VC firm that wanted to get into the gaming arena.
4. Favor your anchor
It might feel strange to give better terms to one investor over another. But anchors deserve some special treatment. You need their enthusiasm, so make the terms worth their while. Because…
5. Let your anchor work for you
The anchor investor acts as a “whip” to garner excitement from other investors and help close the round. The anchor is your ally and biggest believer. Use them!
6. Have some skin in the game
Investors need to see that you’re serious about your fund. So you should put your money where your mouth is.
Eitan admits that at first, he may have bluffed and promised more money than he could actually give. A good rule of thumb: Fund founders should be willing to provide five to 10% of the fund.
7. Nurture your investor relationships
Once you’ve received your checks, don’t think your relationships with funders are over. Eitan was able to raise a second fund of $141 million with many of the same investors who contributed to the first fund. These are people who believe in you and want you to succeed. Give reports in a timely manner and keep in touch.
8. Have strong infrastructure
It’s important to approach potential investors with a solid plan in place. What do you want to do with the money? How will you allocate it? Who will handle the legal paperwork? The more prepared you are, the more ready investors will be to write checks.
Fund seeking fit
Vgames has not yet used all of its second fund, and Eitan says he’s gotten good closure rates from companies who heard about it via podcasts.
Here’s what vgames looks for in new investments:
- Diversity: Including cultural and gender diversity and team role diversity. If a team is heavy on content creators but light on marketing, it’s not necessarily a good fit.
- Reach of audience: vgames doesn’t deal with much niche gaming, preferring products with a wider audience.
Game not fully built yet? Not a problem — necessarily. Even if the game isn’t done and dusted, it could be a match for vgames. The fund is willing to work with idea-stage concepts if creators meet the other requirements (marketing/product/retention and diversity/reach).
Closing the round
With two successful funding rounds under his belt, Eitan has some advice to share.
“Don't listen to the no’s. Learn from them. I got so many no’s at the beginning. It takes time to understand the LPS that you should target,” he explains.
As for your pitch deck, keep it short and sweet. Five to eight slides are more than enough space to make your point and for investors to decide whether to meet further with you.
“In two seconds, I need to understand what you’re about. We have zero time for attention,” Eitan says. … Tell the story with no more than eight slides: who you are as founders, what you're building, and what the vision is.”
This article is based on an episode of Foundersuite’s How I Raised It podcast, a behind-the-scenes look at how startup founders raise money.
