The evolution of the games industry

The global games industry is currently a $200bn market with some three billion people playing games. “The amazing thing about the industry is that it grows because of advances in technology,” said Sir Ian Livingstone. “In other entertainment media, technology tends to substitute previous revenues - in the games industry every new piece of technology or platform is additive to the experience.”

He described how touchscreens created new casual games players; esports expanded the ecosystem; and how the metaverse would create “persistent virtual worlds in which people can play, hang out, transact and earn.” There’s a lot to like about this industry, he said, but not enough of the opportunities are being talked about outside of it, especially as “there’s not many others that could generate as much revenue per employee.”

Starting and scaling a games business

The panelists discussed the challenges and opportunities for developers wanting to start a games business. They agreed that there were numerous funding sources but it could be hard to know where to start - particularly for prototype games.

The digitalisation of the industry has meant that individuals could once again make a game in their spare room, find a publisher and bring it to market, said Dominic Wheatley. Gaining the support of a publisher, he said, was not easy “but it is how most people get in.” Other sources of seed finance include angel investors and government funds such as the UK Games Fund. Noting that Robot Teddy had itself launched a new prototype fund, Ranjani Natarajan said the UK Government “has recognised that there is a genuine British games industry and games have a British identity that needs to be fostered.”

Investor readiness is an ongoing challenge, said Sir Ian: “a lot of creative people don’t know how to present to investors and a lot of investors do not understand the space and what makes a good game.”

However, the panelists agreed that there had been big changes in investor attitudes. Not long ago, private equity investors perceived the games industry as hit-driven, explained Richard Darlington. The transition to digital had significantly changed sentiment. “Early-stage and mid-market private equity investors are very keen to deploy capital into all aspects of the industry – publishing, development and services,” he said. 

Individual investors also now understand that a game is a successful marketable thing and a good investment, said Ranjani Natarajan. “The industry is like a Pokemon evolving into its next form. It has professionalised and money is flowing into it. These are heartening signs.”

The perception of games among investors had changed completely, added Sir Ian. The risk profile has changed; the move from being a boxed product to a digital one had led to a much better business model. “The Microsoft bid for Activision Blizzard is a vindication of how the industry has come of age.”

IPOs: why and when to go public?

If you want to raise significant capital and retain control, an IPO is a great way to do it, said Sir Ian. “The IPO route is now an opportunity for companies in the games industry to realise full value.”

Devolver, the world’s leading indie games publisher operating out of 22 countries, decided to list as a public company as “a way of defending our tribe and our culture and give us control of our future,” said Brian Chadwick. “An IPO is a very individual thing,” he said. “It has to make sense for the company.”

He said the company had looked at markets across the world before deciding on AIM. “It was the best place for us, with an investor base that understands the nuances of publishing.” But, he added, the listing was not a goal in itself but the beginning of Devolver’s journey.

Ranjani Natarajan observed that an IPO was “clearly the best way to bring the most diverse and international audience to your game.”

The panellists agreed about the importance of planning early for an IPO.

There is a cultural shift when moving from founder ownership into public life and it is important to recognise and plan for it early, said Richard Darlington. “If you are ready for an IPO, you are ready for anything,” he said. He emphasised the need to articulate a long-term vision. “The capital is there if you have the idea. There are people willing to fund big bets on this industry,” he said. “A management team that wants to create something big will find people to back them.”

Dominic Wheatley added that the financial support and governance disciplines of private equity investors could represent “a good next step” for ambitious management teams before listing on the public market.

“To be investor-ready at scale means having the right non-executives on the board,” added Sir Ian Livingstone.

An exciting future

The panelists discussed some of the main trends and developments in the industry. Brian Chadwick thought that the indie movement was getting stronger; “creativity, artistry and quirkiness are becoming more valued around the world.” Ranjani Natarajan pointed to the emerging variety of new monetisation models – from subscription models to new types of products. Sir Ian Livingstone was also excited by the indie games space and by the metaverse; “the bridging of the physical and digital worlds will not be at the expense of each other but will be the new future of digital,” he said.

Top tips for today’s entrepreneurs and founders

Finally, each panelist was invited to provide their advice to entrepreneurs.

“Get good corporate finance advice for every transaction you make, for any money you take,” said Dominic Wheatley.

“Embrace the concept that you have the skills you need,” said Brian Chadwick. “You may not yet have all the knowledge but you have the qualities.”

“Find your local games community and the gamers around you,” said Ranjani Natarajan. “Start doing small games and get them out. And always ask for more money when you are asking for money.”

“Don’t be afraid of failure; it’s just success as a work in progress,” said Sir Ian Livingstone, “and take investment to help you scale your business.”

“Find a mentor who has done the deals ahead of you,” concluded Richard Darlington. He also emphasised the importance of appointing non-executive directors; “the best businesses I have worked with have had good non-executives from the start.”

There’s so much going for the games industry in the UK, said Sir Ian. “It ticks all the right boxes for the post-pandemic world and the digital economy; it's high-tech, high growth, creates IP, is export-focused from day one, and it is not dependent on being in London. We need to raise its profile as a great British success story.”