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VC fundraising for gaming businesses in the age of Covid-19
Novel coronavirus (Covid-19) has changed the landscape of how venture capital (VC) firms carry out their day-to-day business, and Jamco Capital is no exception. However, the challenges are not insurmountable, as illustrated by its investments in two gaming companies since the start of the pandemic, writes Christopher Kape.
OneComply is a Canadian company that provides businesses and key personnel with a secure digital storage and compliance solution for the ever-evolving regulatory environment in the global gaming space.
Splash Technology is a UK business that develops highly interactive mobile gaming apps and recently launched their proprietary, free to play platform called Swipe.
We have invested in both of these businesses at an unprecedented time.
While Covid-19 has had a significant impact on every aspect of life, it will not stop economic initiatives, and specifically not stop progress in the gaming industry. People still have business ideas and businesses still have a need to survive, grow and thrive.
Of course, the pandemic has had inevitable consequences on investments. In some areas, Jamco has enjoyed continued success, while in others there has been an adverse impact on deals struck prior to Covid-19.
Some businesses with strong online presences have fared well, while others, including bricks-and-mortar gaming operations, have not. Generally speaking, the online space, excluding sports betting, has performed remarkably well during this time and Jamco’s business investments have not seen any impairment to date - in fact, the opposite in some instances.
In addition, because we are still in the very early days of a US sports betting ‘boom’, there is further evidence that the effects of the pandemic are not having a serious impact on investment opportunities for the time being. Many companies, such as OneComply as mentioned above, are still starting up, partnering, merging, acquiring and generally expanding or beginning operations in the US emerging sports markets.
We are fortunate to have capital to deploy, made available from four successful business exits since 2017.
We must be careful, however, as nobody can predict the time horizon or full economic impact of the pandemic on the global economy and how it will play out in the months and years to come, in the gaming industry or otherwise. All we can do is take a ‘wait and see’ conservative approach to our near-term investments until we have further clarity.
When it comes to identifying and ultimately making an investment in a business, we firmly believe that a successful deal is rooted in its people, and our vetting process involves working closely with and getting to know the management team and other key stakeholders.
Given the restrictions on travel, restaurants and entertainment, and social distancing in general, this important piece of due diligence has now become relatively hard to do. In our current circumstance, we are using tools such as shared online workspaces and countless hours of video conferencing, as well as thoroughly reviewing people’s digital footprints to get to know them.
Gone are the days of entrepreneurs who are willing to fly to Vancouver or Las Vegas and pitch their businesses in our boardroom, at least for the time being. While capital-seekers initiate contact in much the same way as before Covid-19 – by networking directly through mutual contacts or through sites like LinkedIn, or perhaps by sending introductory emails and having initial telephone calls – the follow-up process is entirely different.
VC business is conducted solely over online communication, so the style of the pitch is dramatically different and the due diligence seems much more formulaic given the inability to meet in person, leading to fewer organic in person conversations, which are integral to the process. Instead, we can meet online in a video-conference, which is hard pressed to last more than 60 to 90 minutes in most cases.
Investing in people
Our firm relies heavily on face-to-face engagement and getting to know key stakeholders on a personal level. Covid-19 will not alter our core philosophy, which is that we believe truly in investing in people.
Our investments always require some sort of pivoting. I cannot recall any business that we financed for ‘seed’ or even ‘series A’ funding that did not require changes to their business model along the way. That is normal, but it is always the people / management who must be able to pull off such tweaks, making face time valuable at different stages.
Given the maturity of the gaming industry in 2020, Jamco Capital is no longer seeking concepts and ideas only. We are now looking for businesses that have management with proven track records in the industry and viable models with strong growth potential.
Unlike the early days of online gaming 20 years ago, the level of sophistication and expectation has changed on many fronts, including regulatory, finance, scale and complexity. Add in a multi-language, multi-jurisdictional and international regulatory requirements on top of it all, and you quickly realise that online gaming has come a long way in a short time.
Putting the turbulence of 2020 to one side, this new era of raising capital requires companies to have strong management, solid technologies and ideas, full funding and strong business modelling – and that is just the starting point.
Chris Kape, an igaming industry veteran of two decades, is the owner of Jamco Capital, an early-stage venture capital and business consultancy, and is the founder and ex-CEO of Don Best Sports, which was sold to Scientific Games in 2018.