Seed to Exit
Welcome to Seed to Exit, the ultimate podcast all about startups, scaling, and venture capital. Your host is Riece Keck: Startup veteran and recruitment entrepreneur.
Join us as we dive into the journeys of startup founders and venture capitalists who share their insights, successes, and lessons learned from seed stage to successful exit.
Each episode, we bring you candid conversations with startup founders, executives, and investors. Whether you're looking for inspiration, actionable advice, or a deeper understanding of the startup ecosystem, Seed to Exit offers invaluable knowledge and real-world experiences to help you on your entrepreneurial journey.
Tune in to Seed to Exit and get ready to be inspired, educated, and connected with the exciting and ever-changing world of startups and venture capital.
Seed to Exit
Brian Cho, Co-Founder and General Partner at Patron | Transforming the Gaming Landscape | AI-Driven Personalization and Strategic Investment Insights
What if the way we experience gaming could be transformed by hyper-personalization through AI? Join us as we sit down with Brian Cho, co-founder and general partner at Patron, to discuss the future of the gaming industry. Brian's journey from internet cafés in Korea to influential roles at Riot Games and Andreessen Horowitz provides a fascinating backdrop as we tackle the gaming world's evolution. He shares insights into how early broadband experiences and cultural phenomena like StarCraft and Lineage shaped his perspective on gaming's potential, as well as his love for indie games and the unique dynamics of gaming cultures.
Brian recounts his pivotal investment experiences with Oculus and Riot Games, offering a glimpse into his transition from game development to venture capitalism. Our conversation shifts to the strategic approach of Patron, a firm focused on high-conviction investments, supporting innovation across various sectors through the lens of gaming. As we discuss the cultural and economic impact of platforms like Roblox, Brian emphasizes the importance of diverse team dynamics and finding niche opportunities, citing the success stories of companies like Riot Games and the growing influence of gaming culture.
As we explore the landscape of AI-driven interactions and changing monetization models, Brian offers valuable advice for aspiring founders in the gaming sector. The discussion covers the potential backlash against microtransactions, the importance of understanding player pain points, and the need for captivating products in a competitive industry. Brian's reflections on the broadening gaming demographic underscore the significance of innovative thinking and strategic team-building. Tune in for an engaging exploration of gaming's future, packed with insights from one of the industry's most forward-thinking investors.
All Links: linktr.ee/startup_recruiting
LinkedIn: www.linkedin.com/in/riecekeck/
Twitter/X: x.com/tech_headhunter
Recruitment: www.mindhire.ai
Youtube: https://www.youtube.com/@seedtoexitpod
I also think just like probably what's going to happen to movies and TV like games are going to be becoming more hyper-personalized. So I think, like there's going to be elements of games that just again like plugging back into, like what AI does best is more about personalization, understanding what you like. I think you'll probably see games that have more, even deeper personalization, and I think that's what kind of made League of Legends business model interesting. Right Was, skins was less about buying digital goods. It was more about self-expression.
Speaker 2:Welcome to Zeeb Exit. As always, I'm your host, Rhys Keck, and today we're diving into the fascinating world of gaming. My guest today is Brian Cho, co-founder and general partner at Patron. Patron is a leading early-stage venture capital firm that recently raised a $100 million fund to invest in the future of gaming. Prior to co-founding Patron, Brian was a founding member of Andreessen Horowitz's investment team in the gaming sector, playing a pivotal role in deals like Oculus, and spent nearly a decade at Riot Games, where he built their corporate and business development departments. In this episode, we explore his unique insights into how games are shaping our culture and economy and how Patreon is championing the next wave of innovation in the space. I hope you enjoy this conversation as much as I did. Thanks for listening.
Speaker 3:You're listening to the Seed to Exit podcast with your host, rhys Keck. Here you'll learn from startup executives, founders, investors and industry experts. You'll learn from the best about building amazing products, scaling companies, raising capital, hiring the right people and more. Subscribe and listen in for new episodes and enjoy the show.
Speaker 2:Well, brian, thanks for coming on, excited to talk to you.
Speaker 1:Yeah, thanks for having me. I just appreciate you having me on your show and happy to chat Absolutely Well.
Speaker 2:I'm really excited for this one, not only because of the recent raise that you guys just completed, but I'm also a gamer. I've been gaming since I was a kid, and so I'm excited to nerd out with you a little bit here.
Speaker 1:Awesome, yeah, no same for me. I definitely grew up around computer games, online games, so it's how I got introduced to the internet and technology and also it's just, it's been like a lifelong hobby of mine, yeah, even to this day.
Speaker 2:What's your favorite game from the earlier years and currently Just curious.
Speaker 1:Yeah, earlier years I spent a lot of time. So I actually was born and raised in korea, so, um, this is back in like the late 90s. So, like you know, the interesting story about korea was it was the one of the first countries in the world to get broadband speed internet. Just like, and you know, it was seoul. Like, um, something like 20 to 30 percent of the population lives there. So is it was like this interesting, like petri dish of, like, what happens if you get broadband, uh, t1 speed internet early to to population and civilization and um, so, uh, long story short, yeah, like, I think, uh, I'm sure you're familiar with the internet cafe culture there.
Speaker 1:Basically, it's where people go to play multiplayer games, online games. So, um, I think the two games that you know obviously spent a lot of time with is starcraft, so that's something I grew up with. It became like our national sport when I was growing up, and then, um, and then the other game was a game called lineage, which is like uh, online, it's kind of like in the spirit of diablo, but it's more of a um, mmo game. That was uh, that came even. It preceded, like even uh, everquest and world. So it was, uh, one of those games that got me into the got me into the online gaming.
Speaker 2:Very cool. Never played lineage. I played a little bit of Starcraft and it's funny you say that Cause the joke was like when the Korean kids log on like you're done for um, what about? What about nowadays?
Speaker 1:Uh, you know, I spent and then. But you know, I mean I'll play a lot of single-player games these days and I actually really come to enjoy indie games. So balatro, which is like a card roguelike game, I've been playing a lot of that. It just came on on ios. I certainly recommend it. Um, I just have a lot of backlog of stuff. Like I recently I just yesterday downloaded the new dragon ball game and that's been fun to play. Yeah, nice, okay, like, uh, it's like a, uh, like a fan service love letter game to a lot of kids that grow up playing those uh, tenkaichi games. And then, um, yeah, like silent hill 2, there's like a. There's another rpg game, called like a metaphor, that came out recently. So, anyways, I just play everything, just, uh, nice, geeking out.
Speaker 2:I, I'm a pretty hardcore gamer so, um, obviously we're going to talk quite a bit about you know, patreon and your current investment thesis and what you're looking to invest in. But before we get there, I do want to rewind a little bit because you have, from when I was doing research, probably one of the most unusual paths into venture that I've seen. So you went from game development at Ubisoft and Booyah to Andreessen and being a partner. How did that happen?
Speaker 1:Yeah, I think a lot of it honestly was right place, right time. So I joined Ubisoft as they were transitioning from physical to digital. So this is, you know, 2008 ish, when iPhone had just launched. Facebook games are just getting created and you know it wash when iPhone had just launched. Uh, facebook games are just getting created and you know it was clear that, like the games business was going to shift from the box goods model which you know, historically it was kind of like the Hollywood style.
Speaker 1:You would spend a lot of money upfront to build a game like call of duty. This would be like a 60 hour game, maybe it was a multiplier component, but and then you would basically sell it, then market it like you would market like a cereal box or like a hollywood movie right, tons of marketing, sell for 60. You'd been retailers like that was like the old school games industry. And then you're beginning to see like there was this new uh thing that was emerging which is like again going back to korea, like the business model around virtual items, games as a service, online games primarily, which are free to play but they actually don't have a $60 gate for you to start playing. And, most importantly, is actually building the relationship with users and the game developer. So you're basically bypassing this old school game publishing model, which is akin to a book or music publishing model, right? Yep, long story short.
Speaker 1:At Ubisoft, I was one. Or music publishing model, right? Yep, long story short. So at Ubisoft, I was one of the first producers on their mobile games and this is like the first iPhone game. This is like even before we had in-app purchasing or the app store. So it was like we're selling our Nintendo DS games and porting it to iOS and selling it for like 40, 50 bucks, which was a terrible idea. But I happened to be the producer on those games, which got me early into mobile. And then, because I was in san francisco, like a lot of mobile gaming companies were getting funded and just by kind of, you know, share luck. But also I just was really interested in iphone and ios.
Speaker 1:And you know, back then startups, by the way, were like counterculture. There was this is like pre the social network movie, so a lot of people did not want to, so in a startup they wanted to go to Google or Microsoft or something. Back in the day there was a mobile gaming company that got funded. It was called Booyah. It was backed by the same investor that backed Facebook, jim Breyer at Excel. They raised a lot of money through Kleiner, which at the time they were one of the top VC firms. So, yeah, I basically joined and started working more on the business side of things because they basically had mostly engineers and learned a lot. So the one way to think about that company it was a competitor to Niantic. It came probably way too early but they were trying to build real-world games, basically games that use mobile GPS, and we made a competitor to Foursquare, which was a game called my Town. It's got a lot of users and all that. But you know, unfortunately we did like a acquihire to Zynga. That was like the outcome of the company. But that's the company that got me kind of my chops around like mobile and social. Uh, before it became a thing.
Speaker 1:Um, got to meet a lot of, like you know, founders, engineers, just like the early, I would say like Web2 companies back in the day. And then one thing led to another and then that got me an interview at Andreessen. So I met Ben and Mark, met the rest of the investment team. Originally they thought they were going to hire me to be more of the business development partnerships type of thing. But once I kind of pitched them on the stuff that I knew and what I was interested in, they basically said I should just join the investment team instead. So that was the second non-GP hire that they made on the consumer team. So this is back then. They had like it's a lot bigger firm now, but they've only had six GPs. Three of them were focused on consumer. The person I spent the most time with was with Chris Dixon, so helping find, you know, deals like Oculus and looking at crypto and looking at drones. That's where I spent most of my time.
Speaker 2:What was that transition like? Going from development and product to an investment role?
Speaker 1:It's different. You know, I think the thing about being a VC is you have to go pretty broad. So when you work for a startup or even like a, let's say, like a specific industry, you tend to go very deep into like an idea and you get to understand like all the nuances of like how that business is run. I think what was generally applicable was, like how do you go from like an early stage startup to like a series B startup, like what kind of founders you know are good, what are, like the attributes that makes these things successful?
Speaker 1:I think some of that is is pretty applicable broadly, but generally, I think with VC, you have to have more of an open mind and be able to absorb just a lot of information that goes just across different, all types of categories, right, so I went from mostly focused on gaming to looking at things like education and marketplaces, consumer finance and on the things especially a lot of the most interesting startups. There isn't actually an established market, right, so you actually have to start learning about brand new technologies like things like AR and VR. And then there's obviously things like, you know, crypto, which back then was basically just Bitcoin. So I think a lot of it is just the ability to absorb new information and then synthesize that into whether that's going to be a good investment or not as a as an investor.
Speaker 2:You briefly mentioned Oculus, which you you did source and you know A16Z invested in. Of course that became a huge success. We actually had Greg Castle on the show a little while back, who was also an early investor in Oculus, but you were the one who sourced it for A16Z. So I'm just curious could you give us a little bit of an inside look into what it was like to source them, what the investment process was like and then the general lifecycle of that, what it was like to source them, what the investment process was like and then the general life cycle of that.
Speaker 1:Yeah. So the way that that deal kind of went through just high level, was, you know, we saw the deal like super early this is back when it was like right out of the Kickstarter right. So I kind of like learned about Oculus because it was a very successful Kickstarter project. So I think it was like one of the first projects to raise like $2 million and I just thought it was like super cool because I grew up, uh, playing a lot of fps games and the if you remember the palmer lucky's original um kickstarter video, he actually it's, it's funny, he's like he's such a great founder and visionary. But back then he actually um talks about doom, doom three as like the launch title, and then he had like gabe from valve like on the interview and he had all these like industry plot leaders like talking about why oculus is like a really interesting device. So, um, for me, that like immediately kind of piqued my interest. Um just again as like more of a consumer right, less so as like a bc. So I pre-ordered um and then, you know, we met the founders and got to learn and and I think at the time it was a bit early for us meaning like it was. It. Just there was a lot of kind of issues around latency and motion sickness and the product was really raw and so a lot of open questions and I think it's we.
Speaker 1:There's actually a book that kind of talks about this specific deal. I forget which book, but it does mention kind of um, like how was, how was I, how I was involved and how we looked at the deal, and all that. But long story short. Uh, we saw the deal a little bit later on. Again, I was at a.
Speaker 1:It was like some game developer conference, um, like some sort of like a panel where, uh, you know, the ceo of oculus, uh, brendan aribe, happened to be on a panel and he actually talked about he solved a lot of the technical challenges and then he hired john carmack, which you know john carmack is, um, if you read, like the master, the masters of, uh, masters of doom, and like he basically invented fps, like when back then there was no 3d engine, which is insane to think about um, he, he basically joined on as cto and so, yeah, I mean it really piqued my interest and, uh, we got them back into our firm and that's when we decided to invest was, um, you know, we actually all flew down to orange county to to meet them and, uh, tried on the latest demo and all of us were kind of blown away. And it was one of these things where it was like, yeah, like we kind of have to invest and this is a really cool, really cool deal that's awesome.
Speaker 2:So, um, obviously a great run at a16z, and then eventually you did go back to riot. I was just curious what. What made you decide to go back to industry of sorts, albeit in a very different role from from when you were more in development?
Speaker 1:so. So you know, I think, just transparently, when I left booyah and ubisoft, I actually thought I would never go back into gaming because I was just like man, this is a one, a really tough business, um. Two, it's. It's incredibly hard to understand early what makes a great gaming company, especially for a startup. Yep and and three, um, like it just also wasn't very clear, like how big gaming was going to get at that time for me.
Speaker 1:But I think what opened my eyes about riot was I met the founder, um, as he was just like, really as just as league of legends was taking off, and going back to how I grew up in Korea, I also saw the numbers for a game that was dethroning StarCraft in Korea, which is just an insane thing, right, it's just like imagine if there was a new sport that got created that dethroned the NFL. That was kind of the analogy. So I started digging in and learned that, hey, this was a super special company, the founder Brandon Beck, the CEO at the time, which was a super special company. That the founder brandon beck, um, the ceo at the time, which is a very special founder, and he just had this like a singular vision or star and the north star for riot was like how do we be the most player focused company in the world? Like?
Speaker 1:I still remember that that north star right and that actually spoke to me a lot as a consumer because historically gaming industry was about value extraction, like especially game companies at that time was about like how do we milk every cent and dollar from every one of our users and basically like create this, like addiction around, like getting people to pay, and I didn't want to have anything to do with that. But when it came for riot, it was more about how do we like do right by our players. That's why it's called Riot Games. The founders imagined gamers rioting against the gaming corporations that have been very abusive to gamers in general. I just voted with my feet. It was a little bit too late for us to invest at Andreessen, but I was able to invest with my feet, as you would say. I joined, helped them build out business and corporate development, became one of their execs and just basically helped build out the business and scale it.
Speaker 2:Love that. So I'm going to skip a little bit ahead through that, although I'm sure there's plenty we could talk about during that time. But I do want to fast forward now. A little bit to Patron. So if you could give little bit to Patron. So if you could give an overview of Patron, a little bit about what you invest in and the inspiration for starting it.
Speaker 1:So we're an early stage firm. We invest primarily at the seed round. What that means is like two to $4 million checks, and the strategy is also pretty unique. We only pick 20 to 21 companies. So what that means is, like you know, we only lead deals. It's very high conviction investing. So we're not doing the spray and pray where we're just investing in a lot of companies. Um, and then, uh yeah, we just spend a lot of time like getting to understand the business and the founder and spending a lot of time with them in terms of like how we view the world.
Speaker 1:So for us, it's less about let's go invest in games. In fact, in Fund 1, we're only 20% games in terms of actual exposure. The 80% is pretty broad. It can be in consumer applications, it could even be in B2B, deep tech, education, fintech, what have you? We use gaming as a lens to underwrite.
Speaker 1:For us, everything is a game or everything is becoming a game, and what we mean by that is, um, you think about the today, like the kids that are growing up on Roblox. I think you know they they put out a stat more recently that half of us teens are growing up on Roblox today, and that's. That's pretty insane. Like they log onto Roblox every week like half of America. Right, that's crazy Teenagers. And you also look at, like, what are the top 10 brands, consumer brands for Gen Z? A lot of them are like gaming brands like Xbox, playstation, twitch, discord Discord is another great example right, like that's how teenagers spend their time. It's not on Instagram or Facebook.
Speaker 1:So I think, similar to like how a lot of great companies of the last generation were born from products like you know, like Facebook and Instagram and Snapchat, where, like in the beginning it looks like a toy, in the beginning it looks like something that little kids, future versions of companies, are going to have gaming elements, gaming components, gaming DNA, gaming segment of a business. And I think, lastly, you can actually look at some of the most valuable companies today that got created in the last 10 years. Look at companies like NVIDIA, where it started off serving gamers and GPUs or hardcore gamers and 3D graphics, and now there's something a lot greater. Look at Tencent, where that's the company that bought Riot. That certainly started off as a messaging company that had gaming as the underlying business model. Now it's one of the most valuable companies in the world. We think the most interesting companies will have some element of gaming DNA baked into it. So that's how we underwrite opportunities, and that's been the inspiration for starting.
Speaker 2:Patreon. So it's almost like the gamification of society or life is kind of the underlying investment thesis.
Speaker 1:Yeah, and I think it's like we actually don't even like the word gamification because it implies like surface level stuff, like leaderboards and badges and stuff. But I think you're right. Like spiritually it's more about you can argue a lot of our day-to-day. You're gonna argue like life is like a one kind of giant game. Right, and a game is kind of like a loaded term too, because if you look at the actual metrics, there's over three billion gamers now and these are even like mother-in-law is playing like Candy Crush and there's like all the kids today. So it's more about if you believe that games what makes games interesting is already baked into consumer products. Like we think it's just going to evolve more into that direction where the line between what is a game and what's a great consumer product is going to be blurred in the next 10 years.
Speaker 2:Well, it's interesting that you said that too. It's because when I was doing research on some of your portfolio companies, I was like, huh, this isn't. This isn't really a game, but but that makes a lot more sense now. So, when it comes to trends in gaming that you're most bullish on, what do you think the dominant type of game is going to be in the future, whether that be mobile, you know, vr, esports, cloud gaming, et cetera?
Speaker 1:you know, vr, esports, cloud gaming, etc. Yeah, I think it just goes back to our original thesis, like we're trying to think more out into the future, like 10 years out, and I think one trend that we've been fascinated by is how people interact with agents. Um, these are like basically ai powered chatbots, um, but I think you're kind of seeing the, the, the very like underlying um formation of like this consumer behavior. So character ai, as you know, got bought up by google. They have a product that is around role play and a lot of people spend time talking to these bots and they're building relationships and like they're kind of having fun basically doing that.
Speaker 1:Um discord role play server is like one of the biggest things and if you look at china, that's actually like a huge industry and um, I think this is there's like games that are flying under the radar over in china. I think one is called love and deep space. It recently was like the most trending game over there in terms of like gross revenues generated, like it beat out a lot of the most popular chinese mobile games and um, love and deep space fundamentally it's not a ai game, but it's a game about um interacting with uh ai avatars and npcs, like building relationships with them and like falling in love with them, right, which again sounds pretty crazy today. But I don't think that future is that far off where, um, we already have emotional attachments with video game characters and NPCs and lore, even without this element of like memory state, and you know character development and all that.
Speaker 1:So that's a trend that I've been personally pretty interested in is like from this emergent AI agent behavior, what kind of games can you get? Can get built? So we've been spending time looking into that.
Speaker 3:But that's one example.
Speaker 1:And I think there's a lot of consumer products that's going to be falling into that category where, like now you actually have someone that you can speak to. It's hyper-personalized. It's no longer about, like the business model of like let's get 2 billion people to use it and we'll advertise. It's like how do we actually get you to interact one-on-one with a consumer product that's going to build way deeper relationship but also give you content that is highly customized to what you need versus what everyone else on earth might be interested in?
Speaker 2:And then, how are those models monetized? Is it a monthly subscription?
Speaker 1:I think subs is more of the natural order of things. Um, I think that's the beauty of gaming and why we're interested in games. Business model, too, is with consumer sub. As you know, it tends to cap out. But with gaming, when you have virtual items and virtual assets, personalization like that can go a lot higher. So I think that's why you're seeing even tiktok, like they have the ability now to like gift roses and galaxies and do all these crazy things right, like send items. Um, I think that's just like where business model is going to be headed. It's not going to be this like advertising, spamming with feeds, but of course that will continue to exist. But I do think it's going to be much more built around like personalization and having virtual items and, yeah, like more of the gaming type of business model.
Speaker 2:That gets interesting it made me, um, when you were talking about your time at ubisoft and you referred to it as the old model of games which made me a little sad to say which is you spend a bunch of money developing something and then you sell it for 60 bucks or what have you? Those happen to be the types of games that I play the most. Um, do you think that those can will continue to have a future, or do you think those are going to be phased out in terms of the more modern, you know, monetization structure?
Speaker 1:I think they will always have a future and in fact, I hope that they stay that way. I think, for me, the worst type of games are like games that should be like 50 or 20 or whatever, right, but then they try to force like microtransaction and like advertising and all this like unnatural business model to it. So, philosophically, I think the business model needs to match what that product is and what that game is, and my opinion is like there's always going to be. I mean, just look at like nintendo right, like most of the games are not these like live service stuff and they're crushing it and I'm assuming like valve. And you look at steam. And then you look at like playstation. A lot of those are single player games too, so they will persist.
Speaker 1:But, um, I do think the appetite of what gamers look for will change a lot and you're already beginning to see it. Or, like diablo 4, when it came out, a lot of gen z, like they don't even know what that is right, like for me, I was like super excited because I played a lot of diablo, obviously. But I think, um and I think that's fine too I think you go, you go to like a blizzcon and it's mostly like people in their 40s and now probably in their 50s, but I think that's fine. You can age up, up with your gamers. That market will continue to want to be part of your business and be loyal subs, hopefully. So it's not to say you always have to go younger and look for the hottest and the next greatest thing. But as venture investors, obviously we're trying to not short the future and look for interesting companies.
Speaker 2:Absolutely, and this also is the first time we're starting to get to an age where people have been growing up and playing video games their entire lives. So now there is a market for, you know, the 40s, 50s, 60s gamers, whereas 30 years ago it just didn't exist. I also find it interesting that you mentioned the microtransactions and the other less than palatable you and the other less than palatable methods that sometimes gaming companies use to monetize things, and I think probably two of the things that drive me the nuts the most are microtransactions, and then also these day one DLCs where it's, you know, you bought three quarters of the game, now pay 30 bucks to unlock the rest. Yeah, that's as the yeah as things can, and the frustrating thing is that it works. I mean, do you think that there will be a time where the consumer just says nope, no more of this and those die out, or do you think it's here to stay?
Speaker 1:I think gamers are extremely smart and I think there's a reason why you're also seeing, like AA games, do well right, like Helldivers, palworld, like some of these things that are not made by triple a game studios that are trying to force like a microtransaction and all these things into into the consumer. So I think also in a world of ai, where we're going to get like infinite, infinitely larger volume of content, yep, and people only have finite number of minutes per day that they can spend on time, like it's always, it always bubbles up to the the best type of user experience, the product. So I have no doubt in my mind that this is like, uh, it might. I mean again, it just depends on what it is like. Of course, if you're building like the next gta, like people are going to want to spend a lot of time playing that. But it is a balance and I think game game developers will probably have to wake up to the fact that, like gamers are extremely smart and they can kind of smell a lot of this BS stuff mile away.
Speaker 2:Mention the AI and gaming. So let's, let's talk about that. What do you see as the future involvement of AI and gaming? Do you think that we'll just use it to speed up development and we'll have more games? Will there be entirely dynamically generated AI games? What are your thoughts?
Speaker 1:Yeah, I think, as it relates, it's kind of two things. On the development side I think you're already seeing it happening which is like the efficiency gains and this is even not even including games Like this is software development in general, right, you're seeing a lot better efficiencies with even things like Microsoft Copilot and these productivity things that are coming online. I think with games, like one of the biggest some cost is around, like things like animation, art pipelines, like things like that. I do think it will help create a lot of efficiencies. I don't think it takes away the creative element of the job, but it will definitely impact more the day-to-day like how these things get created. So it's kind of like a world where, like pre-photoshop and photoshop and how that kind of changed a lot of like that industry, right, like even the photography industry um, maybe that's one way to think about it like photo editing industry. So I think, on the like more of the enterprise productivity side, like absolutely that's going to change the industry and I hate to say it, but it probably means like even more cuts and layoffs, right, because game studios now don't need as many people to be able to build these games and then you basically have to fight for margins and like probably big studios eventually will turn to that. I just generally think like they're going to take a longer time to do it because they already have a great workforce and ai is not there yet. It's going to take some time. Like it's not, like the asset is as good as a hand-drawn thing right and Sure. I think it's going to take some time. It's getting there fast but it's going to take some time. So that's on the B2B side, I think. On the player side, that, I think is also still pretty early. But maybe there is where you see more things speeding up.
Speaker 1:So we most recently put out a term sheet to a company that is building, like a, simple games that have kind of a. It allows, like the basically the game engine, using AI and ML, to create like permutations of these games and puzzles that actually is solvable. So it doesn't matter if you can actually create, let's say, like a bunch of puzzles or things. Right If it can't be solved, which I think is pre-AI but now if you can create these things that actually has an endpoint, maybe you can create better roguelites. You can create better types of games where it's hyper-personalized, that has Proc Gen and UGC, where it's a lot easier to do it.
Speaker 1:I also think, just like probably what's going to happen to movies and tv, like games are going to be coming more hyper personalized, so, um, I think like there's going to be elements of games that just again like plugging back into, like what ai does best is more about personalization, understanding what you like.
Speaker 1:Um, I think you'll probably see games that have more, even deeper personalization, and I think that's what kind of made league of legends business model interesting.
Speaker 1:Right was skins was less about buying digital goods, it was more about self-expression, like I want to be this type of champion in this kind of fantasy, so I'm going to pay for the skin. Like, I think you'll see maybe more of that kind of behavior where people want more experiences that are accustomed to them. But honestly, I think with these type of things, like it's really hard to guess and just like a lot of the consumer stuff that usually takes off, I think as VCs we can kind of guess what we want, but we kind of want to know what we see like an immersion behavior and it probably will look nothing like what's worked in the last generation of games. So I suspect the games that do well, this generation that have some AI component are going to look very different than like a League of Legends or, you know, like a $60 AAA game. It's probably going to look closer to like a character AI, if I had to guess.
Speaker 2:Do you think there is a world where, like, let's say, I create an RPG and instead of the NPCs just having dialogue trees, they're dynamically generated using LLMs? Do you think that's possible, or would that just create too many openings for stories and things that just wouldn't make sense?
Speaker 1:I think it's possible, you're kind of seeing that with even sim games Like again, they don't have it in there, but imagine things like I don't know like Stardew Valley or like RimWorld right, where you actually have these AI bots already running around NPCs and they have personalities and they say stuff. But I think where it gets interesting is if those things just feel more alive and they can make their own decisions. It's kind of like, I think maybe like one AAA version of this is like Baldur's Gate 3.
Speaker 1:I don't know if you played that, but it has like infinite amount of dialogue trees, where it's just insane, right, it's incredible, yeah, yeah, it's like the most insane thing that they built. I love it because you know you can play that game forever, but I just think that's like maybe a glimpse of what these ai powered games can feel like, which is just like you have infinite variability, and it's not like it's not just like this one thing that you play and I think that's a nice thing.
Speaker 1:I think again, like people kind of bash on ai talking about how it's bad for creatives and developers, I actually think it's great for indie game devs because now you can actually build these like maybe now you can actually. The reason why a lot of indie games are 2d, by the way, is people can't do like 3d animation and rigging and can't pay for like 3d assets. But maybe that gets equalized right. So maybe you're going to have like a billion dollar game studio that is like 20 people in the future. Like someone talked about a billion dollar, one person company. Like yeah, that's not, that's not out of scope.
Speaker 2:So yeah, yeah, I think that's what it's going to. A lot of is going to be, is going to be the the democratization of being able to create media, yeah, whether that be gaming or movies, tv shows, etc. Yeah, um, so, to switch gears from, you know, talking about the the future of things to talking a little bit more about things on the investment side, um, how are you assessing product market fit for early stage gaming companies and what metrics do you track? Because I personally know a lot more about SaaS and I obviously know a lot about games as a consumer, much less so as an investor. So what are you looking at?
Speaker 1:Yeah. So, again, we generally don't like investing into pure games because it is extremely hard to guess as investors and again, I think most gaming content stuff should be backed by game publishers, not by vcs, just by the nature of that business. But I think like less quantitative stuff we look for is is there potential for market creation? Meaning, are you building in a space that truly is blue ocean, that like a game publisher or strategic, or like a ten cent, that like a game publisher or strategic or like a 10 cent, or like a net ease or riot or epics, not going to go after and build a way better version of it using their distribution and resources and dollars? Right, so that's like one fundamental thing we think about is like why, in this moment in time, that there's going to be like a new creation of a new type of business built around games, um, the obvious question we ask is like are you building a game? Are you building a game studio, slash business, or are you building a game so like I think fundamentally, a lot of game developers are doing the latter, where they just want to build a great game, um, that could turn into a game, big game business, game studio, sure, but it's also like super high risk to just put everything into one eggs and again going back to like most of these things don't turn out to be a billion dollar thing, so like that's fine, but that doesn't meet the venture criteria, so that's. Those are kind of two macro stuff that we think about. Um, more tactical stuff we look for early stage, seed stage, is we definitely focus a lot on the team, like have they actually? They don't have to been. We actually kind of prefer game makers that actually don't come from games. I know this sounds kind of weird, but it's kind of like the PayPal story, right, like if the PayPal founders came from FinTech, I think it would have not turned into PayPal. We kind of like this idea of you you come in from like a different angle and see things from like first principles and how, like we imagine, using everything that is available today, what like a new type of game or game experience could look like.
Speaker 1:So some of our best founders actually don't even come from games, you know, but they're kind of building around the gaming space, which is interesting and, more importantly, is like can they recruit the right talent? And like going back to the riot story, which is like 2012, 2008, 2009 actually that's when that thing started but, um, brandon and mark were like one or two years out of usc, like well you know. Like brandon had like one year at bain consulting, then mark was like he worked at some random bank, like out of undergrad um. But what they did have was they spent thousands of hours playing dota and they were very deep with the dota community, especially the modders and developers. So they were actually they were able to convince those guys to leave, like kind of drop what they were doing and turn that mod into a business. And then they started like using that hiring people from blizzard, which again sounds insane, but like they were able to do that.
Speaker 1:So I think like those are kind of things that we look for at the c stage is like kind of founder, actually convert talent, build the right team to be able to execute um. Then we spend. Lastly, because, uh, you know, a lot of us both my co-founder and I like understand what a good product, especially on the gaming side, looks like. Um, we spend time a lot with the product and that's when we typically invest, is usually when there's like it doesn't have to have a lot of users or metrics, but we have to feel like this is a well-crafted thing, like it's not like uh, it doesn't have to have all the polish, but it should feel like a good product and we're betting on that, right Along with like, if they have like a passionate user base of like 100 people, like we'd love that too, like we'd rather have that, versus like 10,000 people that churn after one day. So these are some of the elements that we try to poke out and understand.
Speaker 2:Yeah, so the Riot founders they had a bit of a competitive advantage when it came to attracting talent because they had invested thousands of hours into the Dota community. So that's how they made their first hires. And oftentimes founders are making their first call it five hires from their network. But for founders that don't have that advantage of the thousands of hours invested, what are some of the best techniques that you would advise?
Speaker 1:founders to use to attract talent. I think build a great product that people talk about, that they love and have, are getting traction right. I think you need like something to show for your lack of like experience or what have you um, and I think it's incredibly easy to create, like you know, steam games now lightweight games, things like that. I think that's ultimately helpful um. But yeah, I don't think there there's necessarily like. I don't know if I would give any kind of blanket advice. I think it's a lot of. It is like, if you don't have game development talent, then you should be able to bring other elements right. Maybe you're like really good around creating um like npcs or like ai bonds you understand that space really well, so it's less about like from like.
Speaker 1:No founder and ceo on day one has everything figured out. They're usually like, very good at something. So if you're a highly technical founder and you know one of our investments like they're like the x mit research labs team where they were trying to build like a human brain using software. They shut that thing down and started a new company, but they actually hired good games. Talent like these are the things that we would probably recommend is make sure you fill the gaps and I think that's what great founders do anyways.
Speaker 2:Um, and then when you said you're looking at a great product, obviously you know at seed stage you've, you've built your MVP, you have some decent traction, you said maybe you have a user base of 100 engaged users. How do you delineate these as good bones? But need some polish versus. This has some fundamental flaw. That doesn't make sense for us.
Speaker 1:Yeah, I think it's probably. I think one of the things that we've tried to look for is like is this a product that I'd want to use every day? Like, is there some sort of magic in it that really like hooks me? And it's not just something that's like novel, because there's plenty of consumer products that's like really fun to play for the first like few days, and then you just end up kind of being like a toy or like a nice to have. So I think that's kind of the crux of it. And then you know, maybe it's more of like the Riot ethos.
Speaker 1:But even when we created in game development, you call it vertical slice, which is like a 15 minute representation of a game. Some people will create kind of like really like bare bones, like wireframe prototypes for the vertical slice. But at least at Riot we try to create the full game as close as possible, meaning like there was music, there was art, there was like a full experience. Um, so that's kind of like what I mean by craft when it comes to games is like thing about. Games is like a lot of it is not science at all. It's where art meets science, right, and I think you need to be able to really demonstrate the art side, and that's the hard part about being a gaming ceo is you need to be able to really demonstrate the art side, and that's the hard part about being a gaming ceo is you have to be like as much of a creative and like a game maker. It's like you're like a clock maker, but it has to be not just working, it has to be beautiful and needs to have like a lot of these like bells and whistles that makes that thing tick, um, so I think these are the things that we try to dig in for. And then, more importantly, is like, do you understand your audience?
Speaker 1:And I think that was actually the secret sauce that riot had was they were like one of the few people in the world that really understood the player pain point, like that, like league of legends was actually solving a player point pain point around dota. I don't know if you ever played dota I didn't, so, yeah, please educate me. It was like an incredibly fun game if you played with like 10 of your friends, um, but incredibly frustrating if you just try to play online because they didn't have matchmaking. So like you just sometimes play with people that are like infinitely better and you just just just basically your butt kicked right. Um, they had these mechanics in there, like in legal legends.
Speaker 1:It's called laning, where, like there's a element called last sitting again, I'm getting like really technical but there's a part of a game that is in dota like uh creep deny, which is basically an element of like make like it just basically like think of we used to call it like the unfun mechanic, where that mechanic didn't need to be in there but it just made it like really frustrating for players. And then and then ride also added like new, new features to a product called uh bushes, which is like it's literally like a brush and you can like hide your character in the shrub. I did, I, I played a little bit of league when I was here, yeah you can pop out right and do like gangsta stuff, but that was actually a fun element.
Speaker 1:so, like, I think the point is like what made ride successful and league of legends successful and actually what made valorant their new game successful is they took a game that was like pretty niche, super hardcore, with a lot of things that could have been addressed, that had clear pain point around the players, and then they converted that into something that is mass market and I think the last number that Riot put out was over like 500 people 500 million players around the world have interacted with a league IP in some game form, which is insane to think about. That's a one in 13 people or something, right?
Speaker 2:So yeah, that's incredible. Yeah. Last question, just when it comes to advice that you might give to founders who are looking to raise capital from top tier VCs and people who are looking for that very high level of conviction, what would be the best advice you can give?
Speaker 1:I think a lot of founders. I think you have to realize one startup is something that you want to do, like it's incredibly hard. I think most people should probably be better off working for a big gaming company or like a big tech company than being a founder, cause it is very unnatural thing to go start something. You need an insane amount of courage because everything's going to go wrong. By the way, like in the history of startups, there's never been a startup that is like you.
Speaker 1:You launch something and it was easy yeah yeah, I mean it's like the social network movie, right. Like you know you're coding one day and then the next day, like you're on the beach, like sipping on cocktails, like that does not happen, like it's um. It's a very hard journey but I think, despite that, if you're willing to go build something, I think then it's about building just a lot of conviction in the early product that you have. And I actually recommend to a lot of founders too, if you can bootstrap it, you should Don't raise a lot of money up front especially. That's probably the other advice I give. It's interesting advice coming from a VC. It's interesting advice coming from a VC.
Speaker 1:No, like, I think it's way better when a founder like knows they need to raise capital because it is kind of working, or they need to hire and they need to like actually need that capital to go do something, versus like I'm just automatically going to raise $2 million and I don't really know what I'm going to do with it, type of thing.
Speaker 1:Right. But I think the most actually is this even tied to this one is like don't start a company because you want to be a founder or ceo. Like there's a lot of entrepreneurs in the last 10 years. I think I've done that because that is not like you should want to be a founder to solve a problem, or because you're deeply passionate about something and this thing needs to exist and this is your life mission and you're going to be all in, like I think again, it's not, it's not to generalize, but like there's a lot of because startups have become so mainstream culture. Like it's almost like hey, like I, I have this great resume. I went to great school. Like I got this great, great job at this amazing tech company or startup. Now the natural thing for me is to be like a tech founder.
Speaker 1:Right, yeah, it's almost like a notch on your resume, or like it's for ego or for whatever else yeah, I, I just think, like that's just the recipe for disaster and you're better off, you're gonna save a lot of people, a lot of money and headache to not do that and, um, counterintuitively, like if you have that itch to go start something and you're really passionate and like this is something you are going to do, whether or not anyone funds you, like this is what you would do on nights and weekends and and something that's like your passion project that you just like are obsessing over, like then you should probably start something right and and I think it just kind of that's if there's any advice I would give any startup people is probably that is, as a founder especially, you kind of need that element because it's really hard. Like that's the thing about startups it's definitely not easy and it's not a walk in the park.
Speaker 2:Well, I think that's a fantastic perspective. So, brian, this has been super fun. I really appreciate you coming on.
Speaker 1:Thank you, thanks, reese, this was a lot of fun as well, and, uh, thanks for having me on board.
Speaker 3:Thanks for listening to see to exit. If you enjoyed the episode, don't forget to subscribe and we'll see you next time.
