Venture Capital Insights for Aspiring Gaming Founders with David Kaye of F4 Fund

February 13, 2024

Venture Capital Insights for Aspiring Gaming Founders with David Kaye of F4 Fund

David Kaye is a General Partner at F4 Fund, a pioneering venture capital firm specializing in funding early-stage technology startups. With a passion for innovation and a keen eye for disruptive ideas, David leads F4 Fund in identifying and investing in high-potential ventures poised to impact their respective industries significantly. Leveraging his extensive experience in the startup ecosystem, he provides strategic guidance and support to portfolio companies, helping them navigate the complexities of growth and scale. Before founding F4 Fund, David held vital roles in startup ventures and established technology firms, gaining invaluable insights into the dynamics of entrepreneurship and investment. Committed to fostering the next generation of tech innovators, he actively mentors aspiring entrepreneurs and shares his expertise through various speaking engagements and advisory roles.

Here’s a glimpse of what you’ll learn:

David Kaye discusses F4 Fund and how he partnered with Joakim Achrén
The inspiration for launching a VC fund
How F4 Fund differentiates itself from the competition
David explains how to get the attention of a VC funder
Advice for founders trying to survive the gaming industry
How do you prove there is demand for your product?
Lessons learned from a serial startup entrepreneur
David reflects on founding and exiting Snapshot Games
How David overcame entrepreneurial obstacles
The future of the gaming industry and advice for founders seeking funding

In this episode…

For aspiring gaming founders seeking funding, navigating the competitive landscape of venture capital can be daunting. What are valuable insights on catching the attention of VC funders in the gaming space?

With experience in both gaming and investment, venture capitalist David Kaye understands the intricacies of funding in the gaming industry. He provides invaluable recommendations for founders aiming to survive and thrive in the competitive gaming market, emphasizing the importance of demonstrating demand for your product and proving its market viability. Additionally, David discusses the future of the gaming industry, offering guidance for founders seeking funding to propel their ventures forward.

Tune in to the latest episode of the Here’s Waldo Podcast, where Lizzie Mintus sits down with David Kaye, General Partner at F4 Fund, to explore the competitive landscape of venture funding. David shares insights into his motivations behind establishing a VC fund, highlights F4 Fund’s unique approach in the industry, and offers valuable strategies for capturing the attention of potential investors.

Resources Mentioned in this episode

Sponsor for this episode...

This episode is brought to you by Here’s Waldo Recruiting, a boutique recruitment firm specializing in the video game industry that prioritizes quality over quantity and values transparency, communication, and diversity. We partner with companies, creatives, and programmers to understand the why behind their needs and provide a white-glove experience that ensures a win-win outcome.

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We understand that searching for the best and brightest talent can be overwhelming, so let our customer-first staff of professionals do the leg work for you by heading over to hereswaldorecruiting.com.

Episode Transcript

Welcome to the Here's Waldo podcast, where we sit down with top visionaries and creatives in the video game industry.

Together, we'll unravel their journeys and learn more about the path they're forging ahead. Now, let's get started with the show.

Lizzie Mintus: I'm Lizzie Mintus, founder and CEO of Here's Waldo Recruiting, a boutique video game recruitment firm. This is the Here's Waldo Podcast. In every episode, we dive deep into conversations with creatives, founders, and executives about what it takes to be successful. You can expect to hear valuable lessons from their journey and get a glimpse into the future of the industry.

This episode is brought to you by Here's Waldo Recruiting, a boutique recruitment firm for the game industry. We value quality over quantity, transparency, communication, and diversity. We partner with companies, creatives, and programmers to understand the why behind their needs. We provide a white glove experience that ensures a win outcome.

Before introducing today's guest, I want to give a big thank you for GamesBeat and Jenny Xu for introducing us. I looked back and figured it out. Today we have David Kaye on the show. David started building games in high school when he co founded Iron Realms Entertainment. One of the world's first free to play game publishers.

He has spent the past two decades building game companies. Most recently as the co-founder of Snapshot Games, which grew to 80 people, millions in revenue and an acquisition by Embracer Group today, He is co-founder and managing partner at F4 Fund, a co-founder and seed stage venture capital fund that invests in magical products.

Let's get started. Thanks for being here, David.

David Kaye: Hey, Lizzie. Thanks for having me.

Lizzie Mintus: For anyone that does not avidly read your sub stack, can you share a bit of background on your fund?

David Kaye: Yes. As you just said, we are a pre-seed stage funds. What that means in practice is, we invest either with the first money in or perhaps there's been a small round before us. We invest in both.

My partner and I have been entrepreneurs in the games industry for a long time, but the fund isn't really a gaming fund per se. Our sort of perspective is that making games teaches you how to create magical products. And I can bore you later about the definition of a magical product.

We think that particularly making games gives you a real advantage in terms of understanding how to create things that are really compelling. And those skills are just as valuable outside of games as they are inside of games. We also believe that, as people who've spent a long time making games, we are well placed to recognize, to spot measurable products early and invest in them.

Lizzie Mintus: And how did you connect with your partner, Joakim?

David Kaye: I actually first met Joakim about 13 years ago. And at the time I met him, I was in Helsinki. I flew to Helsinki for a job interview. I was contacted out of the blue by this Finnish guy, his name was Ilka, and he was telling me about his company, called Supercell.

I knew nothing about them, this is before they released the mobile game, actually, and I thought, fine. I'll have lunch with this guy, and then at the end of this lunch, I thought, wow, if they all interview me, I'm definitely going to go on this interview. And so a little bit later, they got in touch and they flew me over to Helsinki. I spent three days in Helsinki. It was around this time of year, it's the depths of winter. I was interviewed by more or less the whole company. It was probably 25, 30 people that I met with. This was actually for interviewing for a job that I did not get, which I was to be their first US employee.

One of the people interviewed me was was Joakim. We didn't really keep in close contact for most of the intervening years, but we were aware of each other because it's a small industry when it comes down to it. We both became aware at the start of this year that we were both raising funds, and after having a conversation, we decided we would be better off joining forces. And that's it. That's how it came together. The rest is history.

Lizzie Mintus: That's a great story and it's so important to be on good terms with everyone you interview with because you might start a fund with them 13 years later.

David Kaye: That was a very memorable time. I haven't done that many job interviews in my time. I've been an entrepreneur most of my career.

They had a bunch of prototypes basically. And at the end of the process, there was no doubt in my mind, I said, if this is an incredibly special team, easy to say that in hindsight, but I know that's how I felt at the time. I would have dropped everything to work for them, but there you go. Different path.

Lizzie Mintus: Yeah, it all worked out in the end. What made you decide to launch your fund before you joined forces?

David Kaye: I think there's a few reasons, some negative and some positive, but I'll start with the negative ones. I didn't want to start another game studio again, mostly because I've done it repeatedly. At some point it's good to try something different.

Also, frankly, I wasn't really sure if, psychologically, I could handle doing another startup again. I definitely had some moments over the years of getting very close to breakdowns of various kinds. So to be honest with you, I really wasn't sure I had it in me. And I think, unless you have an idea that is where you really feel like you have no option but to do this, then you shouldn't do it to be frank.

Then I think on a more positive note, I think it was also a feeling that I have finally gotten to a stage in my career where I've made enough mistakes. I've been through enough things, good and bad, to feel as if I could really be valuable to founders who are in that zero to one phase of building their company.

The other thing that made me think I might be good at it, or that I might enjoy it anyway, is the only other thing I've done in my career aside from building game companies was, I also built a community called Gaming Insiders. It was at the time I was building social games for in the early days of making games on Facebook.

I started this email list for founders just because I wanted to talk to other people who were doing similar things, and that grew over the course of a few years to this membership community of several thousand people. We ended up hosting dinners all over the world.

We had an annual conference in San Francisco that ran for several years. And I realized fairly quickly that I hated the events business. But the piece that I really enjoyed was spending time with other founders and learning about what they were doing and finding ways to help them.

And really, this is a way to do that professionally, with a real stake in their success. Yeah, I feel like it's a huge privilege to be completely honest with you. It's a great job. I'm having a great time.

Lizzie Mintus: Good. That's what you need after the brutalness of having your own game company for years.

David Kaye: We're still a startup in another way. I will say it very plainly. It's very hard to be a good VC in terms of achieving top quartile, top decile returns. It's difficult.

As a sort of way to live your life, being a VC is much easier than being a startup founder. And anyone that says different is, I'll leave the rest of the sentence unsaid.

Lizzie Mintus: This is a safe space. It's okay.

David Kaye: It's not going to be a safe space for a lot of VCs if I start running my mouth.

Lizzie Mintus: Yeah. What makes your fund, would you say, different than other funds? I know you have a unique background with your partner.

David Kaye: What makes us different? I think it is actually relatively, I wouldn't say it's unusual because there are certainly other funds that are led by existing founders. It's certainly one of the paths, but if I look at our peers in gaming, for example, there's a lot of funds with some really small people. Not that many of them though are people who've built companies or at least not people who've built game studios. So I think that is one way that we set ourselves apart.

I think the other thing that is, again, certainly this is not unique, but I think both Joakim and I are unusually prolific as far as writing publicly about what we think about the industry and various other things. That's been pretty valuable for us, in terms of meeting the kinds of people who are in tune with the way that we think about the world and what we look for.

But I don't know. I don't think we're that unusual. We're just another VC, really. At the end of the day, it's going to come down to the chemistry that you have with the founders that you work with.

And that's a very individual thing. That is a thing I really encourage founders to think very carefully about. There's a lot of funds, some have really big brands. But especially if you are very early stage, the biggest fund is not necessarily, I'm talking in my book here a little bit, I do believe that the big fund isn't necessarily going to be the best fund for you because you will be a very small little investment for them. It might be more of an option than a focus especially if you're very early.

Having someone for whom you're actually meaningful, that you're a big deal, can really make a big difference.

Lizzie Mintus: Maybe it's like getting a job when you're first out of college, right? And if you work at a big company, that's fine. You might want the famous name, but you might be a cog. You might not, right? Not all big companies, but you're certainly going to have more individual attention from the CEO at a startup or the founders or executives, depending on the level.

David Kaye: Yeah, look, different people need different things. It certainly is true. Even in our portfolio, we have one or two founders that I'm talking to them very regularly. We're doing a call every week. And one of them, I'm working on that deck at the moment. It's very hands on. There are other founders. We invested in Jussi Laakkonen company, Noice.

USC is incredibly experienced founder, absolute force of nature. What he needs for me is very different from what some of these pre seed, first time founders need for me. And that's totally fine. That's great.

Lizzie Mintus: I have a question that I think a lot of our listeners will want to know the answer to. What makes you say, yes, this company is magical. I want to invest in them.

David Kaye: Okay. Yeah. That's a big question. And I've been thinking about this a lot recently, as I reflect on who we've backed so far, and I'll stop rambling and give you an answer. I think the first thing to say is that 80 percent of the decision is the founder. That's the case in some ways at the very early stage, because that is the stage at which things are most likely to change.

I don't know if I have a great answer for what differentiates when you just know and when it's not clear, and I'm also very conscious that this is an area where there's a lot of subjectivity. There's a lot of potential space for bias to enter into it.

We have been doing a lot of thinking about how do we actually systematize this and we're studying this at the moment. I'll just maybe, rather than give you a good definitive answer, I'll give you I'll call them biases or a couple things I think things that I've seen.

I'll start with actually something. I was reading the other day about a venture, Focal Hummingbird, who are not incredibly well known which is funny because they're one of the most successful investors in venture as far as gaming goes. Among other things, they were the first money into Peak Games, which I believe is probably one of the most successful investments in the history of venture capital and gaming. It was like a thousand x return.

I think they've also the first money into Gram Games And first money into crack the crypto exchange. Just a phenomenally successful firm. And I was reading an interview with one of the founders there. He said, after a long time, they were looking at patents and commonalities. The conclusion that he came to was, the thing that really joined all of the really successful founders was, they were people who were neurodivergent with some history of trauma. And then I started thinking about some of the really successful founders that I know, and I think more or less all of them are certainly neurodivergent. I know that some of them also have a history of trauma.

I realize this is not about getting funded advice; be neurodivergent and have a history of trauma. I'm just giving you my perspective. And this is not the only way, obviously. But you got to understand that being a startup founder is fundamentally a really stupid thing to do. It's a highly irrational decision.

There's probably some startup out there where it was just up and to the right and happily ever after and nobody ever had a hard time. No, you are more or less guaranteed to eat a lot of shit. You're going to have to do some really terrible things. I've had to lay off people that I loved and considered friends that were phenomenally talented people, but we didn't have the money to pay them anymore.

I'm not trying to valorize. I'm very culturous. I'm a white man who's come from a privileged background and the things I've gone through do not compare to some of the things that other people from other circumstances have gone through. This is not to say, abhor me or anything.

I'm just trying to be as transparent as I can about my own experience in that lens. I had periods where I was having panic attacks in the shower and just literally held up on the floor, couldn't move. It's not an easy gig.

And so I think to do it, you have to be a little bit weird. I think also, the people that end up succeeding are the ones that survive. If I was going to guess where this whole sort of neurodivergent history problem I think comes from. Is another way of thinking about it is, I know this is certainly true of me. It's definitely true of most of the founders that I know. I've always had a bit of a chip on my shoulder. I know a founder right now, he's phenomenally successful. He's already worth hundreds of millions of dollars. He still has a massive chip on his shoulder. He still feels like he's got so much to prove, which is insane. Fucking insane. That's how he feels. And that's why he's doing it again.

I started writing a piece today , and the title of that piece is, Why I Want to Invest in Cockroaches, Not Thoroughbreds. And I'll tell you what I mean. I'm still formulating my thoughts on this. I probably shouldn't be like holding forth on a podcast about it, but maybe it'll help me think. I think I've been somewhat unconsciously, mentally dividing people into them when I like interview them.

A thoroughbred is highly pedigreed. They're handsome and charismatic. They are certainly capable of incredible performance under the right circumstances with the right support, but they're also expensive and high maintenance. I think that they tend to be actually pretty good at raising money from a lot of VCs because they look the part, they know how to tell the right story, and then maybe they know the right people. Again, that doesn't mean that they're full of shit. They can end up doing great things. So that's the thoroughbreds.

Cockroaches, they're not particularly well put together. They I think in some cases, personally sometimes can feel a little bit objectionable. But you know what they also are? They are fucking hard to kill. And if there's one characteristic that is ultimately gonna be the determinant of your success or failure, it's that. Being unkillable. And I think to bring this back to gaming companies and gaming founders, if I think about the kinds of investments that I'm most attracted to now, I found a show the other day. He's definitely a cockroach. He's not amazingly personable. And by the way, this doesn't mean you should invest in people who are who are assholes, because they're not gonna be able to build a team, but you can be low agreeability and not an asshole.

I think as a personality trait, you don't have to be highly agreeable necessarily. But the thing that was interesting about him is with basically no money, he's built a more or less fully working multiplayer game that is doing something different and interesting and it's extremely impressive. He's got a small team as well. I think he got an epic mega grant of 30 grand and I believe like someone else gave him a hundred grand but apart from that he spent no money. Then you compare that against, I talked to a lot of teams, these are highly experienced people with great backgrounds, but they have a pitch deck and they need six million dollars and three years to get to market.

And we as a firm or me as an environment, I don't think those are the kinds of deals that we are best placed to do. There are other firms that are and will. Good luck to them. For me personally, I'll take the cockroach.

Lizzie Mintus: I have a founder friend who talks about going into cockroach mode when he starts a new company.

David Kaye: There's a lot of that going around at the moment for good reason.

Lizzie Mintus: Yeah. Can you talk a bit about how companies can not die right now?

David Kaye: Yeah, man. It's very context dependent, right? It depends on where are you in the life cycle?

Lizzie Mintus: Maybe trying to launch, trying to get seed, trying to get series A bit more advanced.

David Kaye: Look, if you're trying to raise money now, and you haven't before, I would say first of all, I've talked in, not to pimp my sub stack... gamestuff. substack. com. There you go. I've pimped it. There's a term I quite like, if I do say so myself, called minimum viable fidelity. Actually a great example of a game that's blowing up right now that I would say 100 percent is an exemplar of a minimum viable fidelity in action, Lethal Company.

Absolutely blowing up. That game looks only as good as it needs to look in order to satisfy the audience that they are going after. And I think one of the things that you see quite often from people who are coming particularly out of a triple A background, especially if they've been at like a Raya or a Blizzard or a, name your big...

Lizzie Mintus: They've been at Riot. They've been at Riot Games. That's where they've been.

David Kaye: Right? In many cases, they just bring a bunch of production expectations along with them unconsciously. It's almost part of their identity that they make a game that had, looks a certain way and then it's like the market keeps telling us again and again, the games don't need to look that good. It's great when they do and I like those games obviously have a place but I would say the first thing is be smart about picking a thing that you are going to be able to build with a small team and as quickly and as cheaply as possible.

If you're a founder, you're going to have better luck in this environment if you're not like the ideas guys, if you're actually capable of doing the work, if you're part of the production team. And I'd say this as someone who's never been part of the production team. But, I always try to make myself useful in other ways in terms of people I like to back. There are incredible things that can be done by a team of one to five people. That's a real advantage in this environment.

Lizzie Mintus: Go cockroach and present what you have, quickly.

David Kaye: Yes, so there's that. I'd say the other thing is, I wrote a piece called, How to Deal with Content Risk. Content risk is a fancy term investors use to talk about the fact that they don't know if people are going to like your game.

And so many pitches. Don't really address that question. Like, how can you prove that there's demand for this particular thing that you're building? And there are actually ways to do that even ahead of actually launching the game. People always think you have to launch the game in order de risk the go to market, but you don't. If you're creative, there's a lot of ways to do it.

Lizzie Mintus: How might you be able to do that? Can you give an example?

David Kaye: Yeah, I'll give an example. I can talk from my own experience with the last game that I shipped, which was this game Phoenix Point which we did at Snapshot. We started out, we couldn't raise money. We talked to a few publishers, they gave us really shitty deal terms. So we told them, fuck off basically. So we were running out of money. I would not recommend this by the way and there are other routes, I'm just going to give you the kind of what we did. So we did a crowdfunding campaign because we thought that's one way to A, make some money and B, prove that some people at least are interested in this. That worked out pretty well. We raised $750,000 or give or take on a platform called Fig, which no longer exists. It's like an equity crowdfunding platform. But I think the more interesting thing that we did was what happened afterwards. I think we were one of the first customers for Xsolda to do it for Xsolda's web stores.

I live next door, my next door neighborhood actually works for Xsolda, so I'll go around and demand a beer from him after this for the free advertising. But, we set up our own website, then we set up a web store, and started selling pre order keys. And then what I spent the next six months to a year doing was thinking of every possible way under the sun to drive cheap or free traffic to one or both of those destinations in order to sell pre orders of the game. And over the course of that period of time, we did probably about 2 million worth of pre order sales for that game.

The techniques are probably less relevant now because some of them wouldn't work anymore. So for example, one thing that I spent a lot of time doing, people always ask me, what was my game of the year that year? And the answer was, it was the Facebook ads manager, because it was unusual for a premium game to just do Facebook ads at that point. What I did was I went and got some training from someone who was a coach on e commerce. I thought actually what we're doing here is not really a game, it's more like an e commerce kind of play. So I borrowed slash stole a lot of techniques for like D to C e commerce, like how you would sell a pair of shoes or something. Prospecting campaigns, retargeting campaigns. I was making our creative, I was running tests all the time. And we just got really good at reaching ultimately millions of people for not very much money, retargeting mercilessly, which I suspect is much harder to do now. And then we did, we did other things.

We stole another technique from B2B SaaS, like a lead magnet is. You have an e book on cyber security, download, give us your email address, we'll send you an e book on cyber security. So we had our writers write a series of short stories that were gonna set in the world of Phoenix Point. And if you came to our website, you got this big obnoxious full screen pop up that was like, give us your email address and we'll give you this free e book series. We'll send you a new one every day for a week. And that popup converted for a while at 30 plus percent. So we had hundreds of thousands of email addresses. And guess what, once you have been on our email list for a while, and you were getting your eBooks, we also gave you a discount codes for our pre-order store.

What that meant was we did eventually up raising money from Tencent. But when we came to talk to them, we were able to pitch our long-term vision. Here's all the pre orders we've already done, and then here's the vertical slice. They wanted to see how the game actually played. And that got us over the line. So I have little sympathy for people who just say, oh, why is no one funding my great idea? It's your responsibility to prove that people want this. And if you can't think about how to do it now, you're probably not going to be very good at thinking about it when you actually come to sell the game.

Lizzie Mintus: Yeah, very true. So you've had multiple startups. Can you talk a little bit about your very first startup, how you got started, came up with the idea, maybe some ups and downs from that time?

David Kaye: Yeah, the first time I was a kid. I was still in my family of high school. In my teens, I played a lot of, there was a text MUD called Avalon. For anyone who's listening and doesn't know what a MUD is, because you're not ancient, a MUD stands for multi user dungeon or multi user domain. It's a text based MMO. These games were the predecessors to Ultima Online and eventually games like World of Warcraft. So I was playing a lot of this game called Avalon, which actually started by another Bay area entrepreneur, who I still am friends with called Daniel James, who ultimately started Three Rings and made Puzzle Pirates and a bunch of other stuff. But anyway, I played this game a bunch and then in my final year of high school, I realized, oh my god, I'm gonna fail all my exams if I don't quit this game.

So I quit the game and then I came back in my final year of high school and I met a guy called Matt Mahaley, who was at the time was sort of dominating this game in a very uncompromising fashion. We got to know each other and we were chatting and he's I'm going to make a game. It was a real naive thing. He was a few years older than me. He was like 25 maybe at the time I was 16, 17. He's I'm gonna make a game, do you want to help? And I was like, sure. And eventually he's great. I'll pay you 5,000, which sounded like a lot of money at the time, which it was if you're a high school kid.

Eventually I was like, no. I realized pretty quickly, this is a lot of work to just have a fixed fee. I ended up with a small percentage of the company and then I did it in secret basically because I was in my final year of high school. The way that it worked then in the UK was you would apply to your universities at the start of the year and you would apply basically with predictions. You would say your teachers would say what grades they thought you would. Then the universities that you applied to would give you an offer. I'm probably giving you too much detail about the English educational system here, but whatever.

Anyway, one of the schools I applied to was Oxford University and the thing that was different about them was they had an exam. If you took their exam and you passed their interview, you only need to get two E's in your final exams in order to have your place at university. And because I'm the kind of person I am, I got that offer. I was like, I don't need to do any academic work anymore, so I'm going to just work on this game.

And so I worked on this game all through high school and eventually, I can't remember at what point I told my parents. Because my dad's a lawyer, I had this contract. I don't know any lawyers. My dad's a lawyer. So I was like, Dad, I have to tell you.

Lizzie Mintus: Yeah, I haven't been going to school at all.

David Kaye: No, I was going to school. I was definitely half assing it. I started this company with a guy in California, and I have this contract and I need you. It's a very weird conversation.

Lizzie Mintus: What did he say? What was his reaction?

David Kaye: He was looking in stride if I remember. He was just okay. Give me the contract and we'll take a look at it.

That was so early and what I really learned there was two very simple things. One is you can just do a thing. This is like 1996. You can do a thing and you can put it on the internet and people will give you money sometimes. That fundamentally shaped my worldview. And then it also taught me, equity is really valuable because that company, believe it or not, you can go to ironrealms. com, that company is still around today.

I just got a dividend check last week for something I did, I'm 45 now, I did as a 16 year old kid. I think those two things were burned indelibly into me and set me on the checkered path that I've taken since then.

Lizzie Mintus: Okay, and then walk me through the next company you founded for your career path. Would love to hear a little bit about how you got to where you are today.

David Kaye: Oh, man. Okay. How long do we have? Not that long. So I'll just try and give you some highlights. The next one was actually, I was a solo founder. I was living in London at the time. I worked after college, I went to work for a company called Lycos that was basically a portal slash search engine, pre Google. I was on their mobile team. Anyway, I wasn't a good fit, but I got fired like I happened from every job I'd ever been, or laid off technically, I was fired from there, so I was like, okay, I guess I'll try and start again.

And then, and I had an idea. And to be fair, it was actually a really good idea. This was in the age of mobile phones, this is obviously way pre smartphones, we're talking about early 2000s here. Everyone had Nokia phones, right? Nokia phones had apps. They were good, but they were Java apps, JQME.

And the idea that I had, the company was called Mobileaster, and I've never told anyone about this company. The company was called Mobileaster. At the time, the mobile content business was like very heavily oriented around ringtones and wallpapers, mostly ringtones. I'm fucking old. So was mobile was with ringtones and wallpapers and to a lesser extent games, like really crappy games cause you know, you have these like mobile phone keyboard. The problem that I saw was you could buy in like the way that you bought ringtones, it's like you would be an ad in like a paper and it would say like Getty Hills cop theme or whatever. You'd like text this number to another number, and it would text it to you and that was how it worked, right? And I thought, it'd be really good if you could listen to these ringtones before you buy them, right?

And I thought, okay, the way you could do that is if you bought an app that sat on your phone and it would be a gateway to other kinds of apps and other kinds of content. We built this thing where you would go to a webpage, type in your phone number. It would text you a link. You would hit that link. You would download an app, and the other thing with the advantage of having an app is you had a much better user experience, because at the time, mobile internet was on a thing called WAP, like Wireless Access Protocol, which was this incredibly slow loading webpages, basically very text heavy webpages. If you had an app, you could download the app, and once you downloaded it, you could patch all of the content, and give people a really snappy user experience. You could do things like preview ringtones and stuff before you, you bought them.

It was a really cool product actually , but it failed and I'll tell you why. Two reasons. One is, I did not know this term at the time, but our unit economics that related to the way we went to market. I just left Lycos, right? And we decided, it was quite a thing at the time, to be a white label service. We didn't go to market directly, which we should have. We went to market in partnership with with these various other internet companies that would promote service and we'd brand it for them. The problem was, they sucked at marketing and we were highly dependent on them for traffic.

And the other thing was, it really messed with our unit economics. Particularly if we were selling a ringtone, we're splitting revenue with the record label, the partner, and then you hadn't had a tiny bit left afterwards. That was the first lesson.

The other one, this is going to be not a very politically correct one but we had a search function in the app, right? We would log what were people searching for. And Lizzie, I'm going to ask you to guess what people were searching for.

Lizzie Mintus: Yeah. So I got it. Yeah.

David Kaye: Okay. They were searching for adult content. That's just, let's not put too fine a point on it, right? It would have been very easy to do a thing where it's, hey, pay two pounds and for 24 hours we'll give you access to this library of content, right? And I agonized over this for a long time. Oh my God, what about my reputation? No one knows who you are.

Lizzie Mintus: You didn't tell your family.

David Kaye: No one, yeah. No one knows who you are. Had we done that, and had we gone to market directly, we'd have made a fortune. Do I regret it? Maybe. I think if I'd made that much money that early, I might have turned into a complete arsehole, so it's probably a good thing. Maybe. I didn't become a mobile porn king at the age of 23.

Lizzie Mintus: That's probably a good thing. Yeah.

David Kaye: But it would have worked. I'm pretty sure it would have worked. But anyway, the business lesson was unit economics and listen to your customers. Do customer development.

Lizzie Mintus: And then I wanna talk a little bit about the company that you sold to Embracer. Can you share about what led you to start that? And I'm very interested to hear what you're allowed to say about what you learned throughout the sales process, because that's not something that's always talked about.

What do you wish you knew? What were your lessons? What would you tell someone who's selling their company?

David Kaye: Yeah, that I can talk about. There are some other things I can't. It was a labor of love in some ways. So my co-founder was a guy called Julian Gollop. He's best known for either designing, been designing games since the 80s, best known for making the game XCOM. I had always been a huge fan of his work, and as I went through my career, I was observing him from afar, and thought, this guy has not had the commercial success that I think is commensurate with the talent that he has. And so I just heard something somewhere about him leaving Ubisoft where he'd been for several years, and he was going to go and start a new company. I reached out to Megan who used to run GDC, now runs Dice. And she was the one person who seemed to be our mutual connection. He was not easy to find. He was like living in Bulgaria. She connected us and then we spent GDC together and decided to start this company together. It was really driven by that. It was just driven by, I thought he was a very special talent. That was how we started working together.

Lizzie Mintus: Did you have the idea? Did he have the idea? Did you come up with it together?

David Kaye: The company, was pretty straightforward. He's I'm gonna start making games again. And I was like you should probably have me to help you. I reached out to him. I guess it was me that was the instigator in that sense.

Lizzie Mintus: But how did you come up with the idea for your game after that? So you're at GDC, you agree you're going to start a company.

David Kaye: Yeah. So the first game, so Fiend's Point was our second game. The first game was a game called Chaos Reborn. Julian was responsible for design and product and I was responsible for the business side of things. Both of the games, though, were really us revisiting designs of games he previously made. So our first game is called Chaos Reborn. It was essentially a remake of a game called Chaos. And then the second game, Phoenix Point, was really a spiritual success at XCOM.

The studio had gone to a point where we actually could do a game of that scale, or at least we had the beginnings of a team that could do a game of that scale, whereas we couldn't at the beginning. I can't remember who said to who, maybe we should have another go at this whole XCOM thing. Originally, we had a plan that was a little bit more ambitious, what if this was not just a single player game. We called it a shared world strategy game, so it's like what Destiny was to shooters. What if Phoenix Point was like a shared world strategy game? We never actually got as far as making it, but it definitely was part of what we pitched in the beginning.

Lizzie Mintus: And then at what point did you decide to sell or did the sale walk through the door and how did you decide the time was right?

David Kaye: Companies are bought, not sold. We were approached by the folks at Saber Interactive. I think that sort of came about because we were one of the first Epic game store exclusives. We had a good relationship with Epic and I think Sabre at one point had turned to Epic and said, we want to buy some companies. Who should we look at? And so that was, I think, how the conversation started.

I think it was pretty clear to us, being an independent game developer is hard. We had some real near death moments. There was a point going into the Phoenix Point crowdfunding campaign where I basically had to take out a big loan against my, all of my investment, basically my retirement savings so that we could make payroll. if that crowdfunding campaign had not succeeded, that would have been very bad for me.

That would have been very bad for me personally.

Lizzie Mintus: Fully invested and going cockroach mode.

David Kaye: Yeah. I remember my parents had said to me when I started this other company. They're like, just promise me you won't endanger your life savings into this company or something. And I was like, okay. Then I proceeded to basically do something like that. Yeah, it worked out thankfully. I believed that I had sold what the team had put together for the campaign and stuff. So I was pretty confident, but I was definitely a nervous couple of weeks.

Lizzie Mintus: Yeah. I have that. Did you stay on after the integration for X time or no?

David Kaye: I did for a couple of years. I think it was increasingly clear that my work that was coming to a close, really. It was time.

Lizzie Mintus: Yeah, that's a good way of putting it. There are some stats, maybe you know them, on how long a founder can stay after acquisition, but it's generally not all that long.

David Kaye: I think it all depends, right? It depends on what the job looks like afterwards and what the opportunity is and things like that. For us, it was a really good outcome but we were ultimately a pretty small studio in a very large organization, right? I just found myself doing things that the things that didn't align, when you're doing what you love doing and when you're doing something that you just need to do. And no one was getting a ton of value out of it at that stage, probably.

Lizzie Mintus: Will you share your biggest career obstacle? You alluded to tough times taking out loans against your house, but there's so many ups and downs and I always want to highlight on the podcast that the lows are low and that success comes at a price because it does.

David Kaye: Yeah, it really does.

Lizzie Mintus: Maybe obstacles or lessons that you've learned.

David Kaye: Lessons. I will say that the times where I've been unhappiest have been when I was doing things for the wrong reasons. It starts really hard, right? For all, we've talked about all the terrible things that can happen. We're doing right now with this fund. Raising money, we're raising money in a venture, in an environment that is arguably the worst time to raise money in the history in the last 15 years, right? But I'm having a great time. And the reason is I know that I'm doing what I'm supposed to do. Like I'm what I'm meant to do. It aligns with how I want to spend my time. And that's why I think I will just keep pushing and keep pushing and keep pushing and you will just not stop me.

But there were times in my career where I found myself doing something because I felt like it was the thing that I was supposed to be doing, but it was not the thing that I actually wanted to be doing or loved doing or was energized by doing. And that's where burnout comes from. And all of these things that we're talking about are manifestations of burnout fundamentally, if there's one lesson that one thing that unifies all of the worst times, it was that.

Lizzie Mintus: How did you figure out what it is that you really wanted to do though? Because that's such a hard thing to figure out.

David Kaye: It is. I think part of it is just like you get older and you know yourself better.

To be honest with you, you just gained more self knowledge. Therapy probably helped. I also had some friends, like this thing that I'm doing, I needed a bit of a nudge actually to start this fund. I had several entrepreneur friends who are like, you should do this. And they were like, you should do this. And by the way, if you do this, I will write a check. That helps.

Talking to if you're lucky, there'll be a handful of people that you'll encounter in your work life, where the relationship will go deeper than work, and they'll have the context of the industry and all of that stuff, but they will also know you quite deeply. Keep those people close because they will have great advice. Most advice is not worth listening to, but people who know you really well and have real experience of the milieu in which you operate, they're going to listen to those people.

Lizzie Mintus: Yeah, in which you operate, but I learned lots of things from people that have, like my friend has a landscaping business. We have the same problems. We have a lot of problems, right? Like we're maybe curled up on the floor in our own separate houses, but at least we could talk about it and have an understanding.

David Kaye: 100%. 100%. I don't mean they have to know your industry backwards. But I think there has to be some commonality of experience of some kind.

Lizzie Mintus: Industry is even better, but it's rare. Yeah, I think about that a lot. All the people that help me all the time 'cause everyone needs help. And you don't know whether you'll find them.

I know you're really into live video with viewer gameplay. Can you talk about why you love this theme?

David Kaye: I've certainly been very interested in it and we certainly have made investments recently in it. I think as a venture capitalist, if you think about the history of the games industry, where growth has come from, generally speaking, this is how the industry has grown. Something happens to reduce friction of one sort or another, and that expands the market.

Mobile's a good example of this, right? What did that do? It put a gaming device in everyone's pocket and that combined with the business model of free to play, which also reduced the friction of having to invest money in a game before you play it, led to a massive expansion of the market.

Another form of friction reduction is new distribution, right? When there's new distribution opportunities and new platforms, that's where opportunity tends to come from. And often, it's opportunity that incumbents are not really well placed to address, like the advantages that they have, being really big on mobile or being really big on console or whatever, those advantages don't really carry over because the content is different. The form factor is different. The distribution is different. That's where investors, early stage investors should be because like in some cases, those platforms and those opportunities are dead ends, TikTok could easily be. I realize there's other things too.

David Kaye: So as far as like live video and the intersection of live video and games, there's another thing on my list of things to write about. I haven't really formulated my thoughts, but I have this sort of innate gut sense that there is opportunity at the intersection of live performance and gameplay that's not been fully mined and explored.

I think the final form of live video and games is Twitch. I'm following my nose, but I think it's the most new platformy opportunity I see at the moment.

Lizzie Mintus: Yeah. Shiny. And maybe magical. Is it magical?

David Kaye: Noise is magical. If you get Jussi to give you a demo, it's pretty magical what he's building over there, I think.

Lizzie Mintus: Can you share a little bit more for anyone that's not familiar?

David Kaye: Sure, we're on a podcast and I don't have the time to check, so I don't want to get in trouble with Jussi in case it's not public yet, but it's a really cool demo and it'll be live to everybody I'm sure quite soon.

Lizzie Mintus: Good. Can you share a little bit of advice for people who are trying to get funding and I think it's obviously important to stay true to yourself, but so many people want to also stay on trend and weave certain current trends into their pitch. What advice do you have for founders?

David Kaye: Yeah. This is going to be really hard to squeeze into two minutes, to be honest with you. First of all, I should say this. There are lots of sources of funding for games and game companies. And actually venture capital is not a good fit for most you're talking about again, if you're like an indie developer listening to this, you probably are wasting your time pitching to a VC.

And the reason for that is our business model is we have 10 years to return ideally three times the capital or more that we were given by the people who invested in our fund. And so what that mean is we require extremely rapid growth. Especially if you're talking about sort of PC games that are more core, is often antithetical to how you build a really great game company to be completely frank with you.

There was an intersection in the past decade between adventure and gaming because of mobile, because it was the perfect manifestation of games for venture capital. You could build a product for relatively little money. And then if it worked, you could pour vast amounts of money into it to scale really quickly. That was because it was a blue ocean and UA was not broken.

David Kaye: Now the market is mature and the UA situation pretty dire from most accounts anyway. What's happened as a consequence, you've seen VCs go into funding other things, these big PC games and so forth. If you step back and you think about the games that everyone absolutely loves and that have become enormously successful with this past year, like Baldur's Gate 3, Hades, Elden Ring- the thing that all those games have in common is that they were all made by studios that had been iterating for a very long time on the same set of ideas across multiple titles. For Baldur's Gate 3, there was Divinity Original Sin, there was Divinity Original Sin 2, and with, by the way, a very long period of early access. Elden Ring, you had Dark Souls. I don't need to rehearse the whole thing, but it's true of all of those things. What I would say is, I don't know why, maybe you can answer this question for me, I think publishers have a role to play here.

I've been another piece that's in my drafts folder, it has the title Rise of the Neo Publishers. What I'm seeing is actually there's a kind of a resurgence of publishers who are all doing interesting and slightly different things, who in some ways are probably a better fit for you if your goal is to make a game on an existing platform and go to market in a relatively normal way. That's probably not a venture thing and there are exceptions, but that probably isn't because your outcome is going to be in a certain range. You're not going to necessarily grow fast enough. Actually venture could really hurt you.

But what Kepler is doing is very interesting. Annapurna is doing phenomenally well with the specific kind of game they make. Blumhouse just got into publishing. There are other forms of money that require different things that don't have the stringent growth or costs requirement that the venture business model demands.

So I would say first of all, the right thing might be really ask yourself, should I be taking venture? That would be the first thing. There's a lot of other ways to get money these days.

Lizzie Mintus: That's good advice. I can see how people would think that might be the only option. It's funny to have investors on and have you talk about why people should not take your money.

David Kaye: No, because Venture should be for weird stuff. It should be for weird stuff because that has an asymmetric return profile, right? It shouldn't be for a good game,

Lizzie Mintus: Which it was for so long. So COVID were interesting times, but times are changing.

David Kaye: I've been knocking around long enough to remember the days when I first tried to raise venture capital for a game company in like 2006. You could count on one hand number of firms that did it. One of the most famous investors in games of all time, Mitch Lasky, has made fewer than a dozen game investments in his entire career, at least his career as a VC. He may have done some other stuff as an angel. What does that tell you?

Lizzie Mintus: That you're investing in things that aren't necessarily games. That's what that's telling me. I have one last question. Before I ask it, I want to point people to your website, f4. fund, and your sub stack, which is-

David Kaye: gamestuff. substack. com.

Lizzie Mintus: Thank you so much. The last question, where do you see the future of the industry in the next couple of years- 2024, 2025. What are your big predictions?

David Kaye: Oh god, there's going to be a lot more games because it's going to get easier and easier to make games. I know this because AI is going to have a role in this. I don't know if that's a net positive, honestly. I don't think we need more games. I think we need fewer and better games. But I think we're gonna see a lot more, even more. That's an uncontroversial prediction because everyone's seen that chart of Steam releases.

Oh man, I don't know. I should have come into this with predictions. I'm not a predictions guy. I feel like I'm better at looking back and looking at what's going on right now, which is bad. I guess my job is to figure out what the future looks like.

Lizzie Mintus: You can talk about the past. The past is always an indication. COVID boom was really interesting. Like, why are we here right now? Why are there so many layoffs? That's an interesting topic. What does that mean for the future?

David Kaye: Yeah. Too much money went in. The problem is that people do not have an infinite amount of time and the U. S. population is not growing fast enough. We're hitting some ceilings so that's part of it. I'm still very bullish because games are the sort of prime mover in culture now in the way that they really weren't before. I think that actually, if I'm looking at the future, I'm very bullish on, not so much on user generated content per se, again, I wrote a thing about that fairly recently, but on the next MCU. I don't think that will necessarily be developed in a wholly top down way. It will not be like a handful of an elite coterie of writers mapping out the entire future of the universe from some Hollywood backlot somewhere.

You look at the success of Five Nights at Freddy's, just became the highest grossing movie that Blumhouse has ever released. This is the studio that made Us, that made Get Out. I think one reason for that is, and I can't prove this to be fair, but the unusual thing about that game, about that whole IP, is they embraced the, they called it fickle with the fanverse. This massive universe of user generated fan games, stories, videos, you name it.

If there's one thing I think we're going to see more and more of in the future, it is creators working hand in hand with existing communities. Another way I like to frame this is we've always told to go back into history. It's like thousands of years we've gathered around the campfire to tell stories, right? Today, the campfire is the internet. And it spreads all kinds of stories and some of those are quite malign stories like conspiracy theories and stuff. But then others are these really interesting, collaborative fiction communities on places like Reddit. It's become the medium through which we tell these stories.

You think about the advantages from a user acquisition perspective, but if you've got all these different on ramps into your universe, instead of just hoping that they see your billboard or your internet ad, that's a very robust position to be in as a creator. So I think that's something we'll see more and more of.

There we go. I got your prediction.

Lizzie Mintus: Nailed it. We've been talking to David Kaye, who's general partner of the F4 Fund. David, where can people go to follow you? Are you on X?

Obviously shout out to your sub stack. People maybe want to get to you with their game. Yeah.

David Kaye: We have a pitch form at f4. fund slash pitch. Get an intro if you can. We do look at everything and we respond to every single pitch that we receive. Warm intro is better. It shows that you're resourceful enough. But equally, some people just don't have the network, so it's totally fine to pitch. We've invested off of cold pitches. I'm at David Kaye on most platforms. I'm not really active on X anymore because I don't really want to be on an anti Semitic hellscape of a website. Maybe I'll spread some more. I'm at David K. D A V I D K A Y E pretty much everywhere.

Lizzie Mintus: Thanks so much.

Thanks so much for listening to the show this week. To catch all the latest from His Waldo, you can follow us on LinkedIn. Be sure to click subscribe to get future episodes. We'll see you next time.

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