While game sales are remaining positive during these strange times, developers who are pre-revenue are struggling. As shown by the recent EGDF survey, 17% of European studios may be forced to close in the next three months. These studios are primarily micro-companies and startups, in particular those who are currently trying to raise funding.
Cancellation of events, and understandable caution on the part of equity investors, means that developers are finding it harder to meet financiers and, when they do, the investment may take longer, and will likely be more competitive. With less funding available, developers need to do everything they can to stand out from the competition.
So how do developers make sure that they not only stand out from the competition, but also ensure they are communicating their proposition effectively without any face to face meetings?
Pitch decks are always an important part of the process, but having a great pitch deck that really communicates your vision and goals has likely become even more critical.
So, what makes a good pitch deck? What are the common pitfalls? We’ve put together our top five tips on creating effective pitch decks for equity investment.
1. Set the scene… and then take them on a journey
When someone is going to look at your pitch deck, they will probably want to do a quick initial pass to get a feel for the proposition, and to see if it simply fits within their remit.
Therefore, it needs to be possible to grasp the basic proposition very quickly. Don’t make investors trawl through all the pages of your deck in detail before they can understand:
- what your company does
- why you exist
- what your goals are
- why you are the right people to do this
- where you are now
- what you need and what you will do with the money
- why it’s an interesting proposition for them
Your goal with a pitch deck should be to leave the reader excited and wanting to know more. What you don’t want is for it to leave the reader with questions about the core proposition.
Once you’re set the scene, take the reader on a journey, by which I mean that the flow of information in the pitch deck should build the picture of your company and its goals in the mind of the reader.
Thinking about the order in which you present the information is as important as the information itself.
2. ‘Why’ is more important than ‘What’
Building a company isn’t about your first game, nor is it about the details of your production processes. Yes, investors need to know that you can deliver, but what is more important is why this business now.
What market are you in? Why is that market attractive? What is the gap that you’ve found in it? Yes, many investors will already know your market, but if you don’t explain it then how will they know that you know?
Showing an understanding of the market, where it is now and where it’s going, is critical. You need to demonstrate that you are making games for a market, and that your business is relevant now.
Who are your audience? And please don’t put ‘male 18-35.’ Audiences are only useful if they are targetable. Define your audience by groups of people you can reach.
We find personas are a great way to do this, but there are other methods too. And most games don’t have a single audience, so perhaps consider your primary, secondary and tertiary audiences. And how are your games going to build on each other to build your audience over time?
3. Show you understand the risks
Every business has risks and the best way to help investors get comfortable with these is to show that you know what those risks are and that you have mitigations in place for them.
This also helps build a critical aspect of your pitch — trust in the team. Above all, the team is what matters to investors. They need to know that when (not if!) things go wrong, you are a team who will rise to the challenge, and that you’re committed to this for the long term, that you aren’t just going to walk away if your first game fails. Most investors know that first games usually don’t go to plan, but they want to know that you recognise that too.
I always suggest putting a risk analysis into your pitch deck. Keep it to the key risks, perhaps three to five points, and ensure you have identified mitigation strategies, as well as the probability and severity of each risk.
4. Define key progress indicators
I’m a believer in being as clear and specific as possible. And this relates to your goals. It’s obviously important to have a forecast that shows your expectations of revenues and profits. But how are you actually going to measure success on a regular basis? How will you know after three months how the company is doing?
I also hate long business plans, and I believe that if you know your business, you should be able to define it pretty quickly. However, what I do think is critical is being able to iterate on your business plan. And to iterate, you need data on which to assess progress. So defining Key Progress Indicators (KPIs) is critical.
If you’re a startup, what are you KPIs for the first six or nine months of your business? You probably won’t have released your game by then, so what else can you measure? Can you gather data of some kind from a testing phase? Can you define what you will have achieved in the game by then?
I would suggest that having quarterly KPIs, particularly as a startup, is useful, where you review your progress against these and update future KPIs as needed.
This also helps you to provide transparent reporting to investors — something which is critical to the ongoing relationship.
5. The importance of valuation
A key part of a clear pitch is to say what you are looking for, and what you will give in return — yet most pitch decks I see don’t say what they are offering in return.
Yes, it will always be a negotiation between yourselves and the investor, however it is important to add this because:
- It’s likely one of the first questions the investor will ask anyway so it will speed up the process and in particular will identify early if you are within the same ballpark of thinking as the investor. And if you’re not, you can both move on!
- It demonstrates that you understand valuations and market norms (assuming that your valuation is reasonable), which puts you in a stronger position during negotiations
So how do you decide what percentage of your business to offer? For companies that are pre-revenue, the reality is that the company is worth what someone will pay for it. Therefore, it presents an opportunity for you to make the case for the value of your business.
- Using your forecast as a basis for a valuation is a reasonable starting point, and a key part of the valuation is likely to be negotiated around whether the investor thinks your forecast is reasonable
- What are the market norms? There are various ways to gather this from doing valuations (such as the venture capital method) using industry P/E (price-to-earnings) ratios, to asking other developers what they did
- The key is your assumptions. There is no correct or incorrect valuation, there is only interpretation of assumptions (including your forecast). And the more evidence-based your assumptions, the stronger your argument
In summary, building your pitch deck is something that you should take time over. Think about the picture you are building in an investors mind, ask for feedback on your deck from investors that you meet (even if they aren’t a good fit), and be prepared to iterate on it.
If you would like more help with some of the points in this article, we have some free resources on our website, including a marketing plan template to help you define audiences, a business plan template and a financer list.