Decoding Success: From Operator to Venture Capitalist

Welcome to the Novik Gaming Podcast, where it is our mission to explore the business and future of video games. We bring together the industry's brightest builders, investors, and thinkers to keep a pulse on current events, dissect emerging trends in games, share lessons learned, and have a great time. Hola! This podcast is also part of Novik's growing ecosystem, which ranges from free and premium research to consulting and advisory services. For more information, visit www.navic.co. This episode is brought to you by Nefta. Nefta has created an advertising network that pays game publishers higher eCPMs on their iOS opt-out users and drives better results for advertisers. This works by delivering their campaigns to more receptive and relevant audiences using first-party data and behavioral analytics on an app-by-app basis. A simple 2-step integration enables them to drive superior results for advertisers while increasing ARPDAL for publishers in a 100% privacy-compliant way. You can learn more about how Nefta can boost your results at nefta.io. Now let's jump into the episode. Hi everyone, I'm Aaron Bush, and today I have the pleasure of chatting with Shanti Burgel. Shanti is the founding general partner and managing director of Transcend Fund, which is one of our industry's most prominent and higher-performing venture capital firms. I wanted to talk to Shanti in part because we're always trying to better understand the state of the market and what's coming next in gaming. But also, Shanti has a fascinating career in gaming that extends well before he became a professional investor. He's worked all around the world, at all sorts of prominent publishers, among other businesses. He's lived and operated through previous platform and business model changes, and I think he's seen a lot that we can all learn from. So without further ado, Shanti, welcome to the Novik Gaming Podcast.

Hi, Aaron. Thanks for having me, and thanks for that very kind introduction. Uh, really excited to talk to you today.

Yeah, it's gonna be a bunch of fun. So we're gonna chat about venture capital and gaming, what you're excited about in the future, and try to pull some lessons learned out of your various career steps. But I I think we have to start at the beginning. Shanti, can you tell us the story of how you first got into the games industry in Japan at Interplay Entertainment, I believe? What was that like in the '90s and how did that set the foundation for your career in gaming?

Yeah. So I was a Japanese major and a foreign exchange student in Japan in college. And so I was really excited to get my first job in Tokyo and I'd been something of a nerd my entire life up until that point. So I was into D&D and computers and chess and I actually I actually wrote my very first game in BASIC on a Commodore PET 3000, which was the computer even before the VIC-20 and the Commodore 64. And so I got, you know, I was saving up for my own computer, but we had one in the math department, I think. So I wrote games even when I was, you know, like in 6th grade. And so Interplay was a US kind of PC console developer, and it was starting out in Japan. I was employee number 2, and the company was at that time, you know, I think considered to be, along with Electronic Arts, one of the more premier Western kind of game developer publishers. At the time I joined, the company was making a game called Descent, which was a competitor to Doom. It was a 3D shooter set in space, and, you know, followed a similar shareware model to what Doom had become so successful pursuing. And so that was the game that released shortly after I joined. And then I left the company years later as the company was releasing— actually hadn't quite released, it was still under development— a game called Baldur's Gate, which needs no introduction these days. But at the time, it was the very first RPG from a small company called BioWare, which before that had not really done games like that. And when I was in Japan, I actually helped the founders work on their very first game, which was called Shattered Steel. It was a mech game. So this is a long, long time ago, um, but you know, it was a great introduction to the industry. It was the beginning of my personal network in the industry, and that now stretches across, as you said, decades of time, continents of space, a lot of business models, and a lot of different platforms. Um, so the PS1 era is probably the most effective way to think about the time that I entered the business. Um, so this was PlayStation 1, 3DO. So 3DO is kind of a platform forgotten to time a bit, but at the time it was a, you know, like a very up-and-coming platform. Trip Hawkins, the founder of 3DO, had left to start this kind of platform that was one of the first CD-ROM-based publishing vehicles for developers, and Interplay had put a lot of effort into creating a slate for it. And it was a very different industry. So this was, you know, CDs at retail. So selling into retail accounts, you know, in the US, that would be things like Target and Walmart, but in Japan, it was Akihabara, a bunch of other kind of local retail chains. And it was, you know, like I would say, quite a far cry from what we see today. And there's a lot of kind of white space in between, you know, that era and now. But, you know, like it was a very instructive time to kind of get to know how, you know, kind of greater frameworks work, how business works, and also to kind of learn all of the Japanese flavors of all of those things, which is what I was doing as kind of a young person living in Tokyo at the time.

Yeah, that's fascinating. I wish I could have lived through some of that myself and gotten some of that experience. So I didn't know you were employee number 2 there. And I know after that, you also spent some time as a founder at a couple non-gaming companies. And then from there, went on to work at multiple publishers like EA, Playfish, Gree, FunPlus. Um, and so maybe we can kind of hit on, on all of these and just try to pull some type of lesson learned that you gain from these unique companies at, you know, unique periods of time. And so at EA, you worked on what are now some of the largest gaming IPs in the world that are just massive, like FIFA and The Sims. Uh, you set the foundation in Asia for FIFA Online, which I think was EA's first free-to-play game, although you can correct me if that's not true. And you similarly crafted a multi-platform strategy around The Sims, which I think was also relatively novel at that time too. Um, so that's a lot of important stuff at one of our industry's most important companies. How did this time in your career influence your thinking on adapting to shifting business models and platforms worldwide? And are there any lessons from that that you think still hold up today pretty well?

Yeah, there's a lot to unpack there. Um, so it was a really interesting kind of inflection point in the industry from when, you know, I kind of, I got into it, you know, like, as I said, you know, in the CD-ROM phase back in Japan. Um, I actually left Japan probably because of the, the online, um, you know, kind of boom. I, I was on a business trip to the US and a friend of mine worked at Silicon Graphics. Which was a workstation manufacturer back then. And he showed me Netscape running on a Silicon Graphics machine in the very early days. And I was kind of flabbergasted what this implied and what online could do. I went back to Japan and started kind of looking at things that enabled network play. We had already been playing with some of this stuff, but it definitely informed kind of the next couple of steps for me personally. So, you know, I eventually ended up at EA, and as you said, I did actually author the business plan for something that later did become— I didn't ship it personally. I just wrote the initial plan for what I was calling at that time Soccer Online, which was the result of my spending time in Korea and China and understanding the free-to-play model back in 2005, and bringing this kind of back to the company and proposing ways that we might take advantage of it. And EA, to their credit, was very receptive, but on the other hand, I think was right not to prioritize it immediately. And the right timing for it did come a little bit after I handed the reins over from that particular initiative at EA Sports and moved over to The Sims. And on The Sims, my big, I think, contribution there was probably the very first Sims mobile game. So this was on Java and Brew, not smartphones. So this is very old-school mobile, and very different ecosystem, very broken, very hard to navigate. This is when you had to make hundreds, if not thousands, of different versions of a given game, different memory profiles. To be spread across this really complex ecosystem. And a lot of what I learned, you know, in both those cases was really a bunch of hard-earned insights about platform transitions and business models and pattern recognition. I would say that I also learned that, you know, like focus and audience and, you know, what time it is in the ecosystem and salesmanship frankly matter almost nearly as much as talent and strategy. Um, and so, you know, like a lot of that, like, I do take into, you know, like, you know, additional parts of my career that came later, but also, you know, like the venture work that I do now.

Cool. Um, so from there, uh, the next step in your career when EA acquired Playfish, I believe you played a role in helping that team grow into new markets and even set up a new advertising business with them. What did you learn about successfully growing games and games teams across new countries and regions that today's executives and entrepreneurs could, could learn from?

So I think one of the things that I learned both there and other times that I've tried to do, you know, kind of cross-border product development where you like— so for example, you know, like both at EA and at Playfish, you know, like I was involved in developing product that was going to be either deployed in Japan or someplace else. I think you really learn to respect the depth depths of the markets that you're going into and why players behave the way that they do. And I think that that learning has been reinforced to me again and again. It was reinforced to me when I went to mobile, and it was reinforced, I think, most recently when, you know, like, I took a look at the, you know, the sales charts for last year and, you know, was just reminded once again that, you know, premium is not dead, that free-to-play is still, you know, kind of not necessarily the only business model left in our business. And so I think what I learned when I tried to go take Western product to Japan, for example, you know, as you're talking about Playfish, is that, you know, like that audience in that market, you know, like has a lot of texture to it that, you know, like they're not just, you know, like kind of waiting for your product to arrive. You know, they have their own history, their own culture, and their own, you know, kind of set of criteria as to what good looks like. Understanding the depth, particularly on the audience side, is something that we as a fund spend a lot of time with now. We even describe ourselves as an audience-first fund, to the point that we view it as a primary way of viewing some of the challenges of creating something meaningful in the industry. That is something that I encourage everyone in our ecosystem, our founders, and my partners to think about. It is in some small part probably because of that history, you know, like at Playfish and also at Gree, where I also was involved in developing Western product, which despite the fact that Gree is a Japanese company, we almost never shipped our US-based games into Japan. And so a lot of that kind of interplay between myself and those teams back in the day, we explored a lot of ground on like why this content works here, why it doesn't work there, what it takes to be best in class and create things that are meaningful to people who are are going to be on the receiving end of the products that you're creating.

So I kind of want to double-click into this a little bit. Like if someone today, an entrepreneur, an executive, they were looking to take their game into Japan and they're, you know, a Western-based business, is it harder or easier than it used to be, do you think? You know, like what is that listening and understanding the audience like? What goes into that that might be a bit different today? Than in the past. Like, do you have any thoughts around, um, you know, how to best succeed in doing that today versus, uh, kind of when you were at the Playfish Gree days?

Yeah, so I think it always depends a lot about what kind of distribution environment you're, you're kind of going into. One of the most amazing times that I saw in the Japanese market was when non-Japanese games were at the top of the charts on some of the social platforms. So this was in the early days when Mixi had a social platform. I think most people these days think of Mixi as a mobile game company because of their kind of huge hit that they have on mobile. But way back before they did that, they were one of the very first kind of social gaming platforms and then followed by DeNA and Gree. And, you know, like when they first opened up their platform, uncharacteristic for Japan, a lot of foreign developers rose to the top of their charts. That moment didn't last forever. And eventually, you know, kind of the local developers, I think, came up to speed in terms of what good looked like on that new distribution vector. And so, you know, like the way that the opportunity space is often shaped by distribution and what that implies for content, I think is an underdiscussed topic in the industry. And it's pretty primary when you want to get to the root of some of the questions that you're bringing up is like, Can a game succeed in Japan? Maybe. But it also depends on like why it would have an unfair competitive advantage right now or when it comes out or whatever it might be. Because, you know, like, to be fair, you know, like, this is one of the most sophisticated gaming markets on the planet. You know, like, most of the console industry, you know, was born there, whether it's the hardware manufacturers or, you know, kind of the game developers. Deep, deep history in terms of understanding what great gameplay looks like and real attention to craft. Um, you know, some of the very best developers over time have definitely, you know, kind of come from Japan. Um, that said, you know, like a lot of the, the technical-based disruptions in the market haven't necessarily been quickly followed by that development community, and they've, you know, kind of been behind at certain moments. But when it comes down to understanding, you know, the way that anime and manga and other things like that play into the cultural kind of landscape and why something will be a hit there. Um, I think, you know, they do have some unfair advantages that Western developers don't.

Gotcha. So, uh, you also, you know, you worked at Gree for 5 years where in that time you acquired Funzio, which I, I think got Gree into free-to-play mobile at the time. That was 2012. Again, you can correct me if I'm wrong. Um, you also set up Gree's publishing framework Um, I don't actually know that much about the Gree of 10+ years ago, so maybe you'll need to paint the picture a little bit for myself and the audience. But, um, you know, what are you most proud of from your time at Gree? What were some notable lessons learned there, whether about M&A, publishing, or something else?

Gree at the time was a really exciting company, and, um, one of the reasons was they were a real innovator in, um, mobile social gaming. Um, so at the time, uh, that I joined, Gree still had, um, a feature phone business in Japan that was really profitable. So they, you know, like before smartphones kind of took over the market, um, the i-mode was, you know, kind of this dominant force in Japan. And, you know, Gree had a really great, you know, kind of portal and gaming combination product that was really dominant. So it was them and one or two other companies that really had, you know, kind of a lock on the Japanese mobile market at the time and had developed some of the biggest hits in the entire space. And I think it was contemporary with the rise of companies like Zynga. So I think there was a lot of analysis by analysts done back then as to like pound for pound, I think like employee for employee, like how much more profitable Ring and DNA were than, you know, some of the local companies like Zynga. And, you know, like they were as a company trying to move into Western business, but also the smartphone business. And so my role coming in as the head of corp dev there was, you know, to, you know, basically analyze the space and to help build, you know, the Western studio system. So the acquisition of Funzio was something I was actually quite proud of because Funzio at the time This was the very early days of free-to-play mobile smartphone. They had, I would say, you know, 3 of the top 10 grossing games on iOS and Android. And, you know, they were a venture-backed startup. I think they were raising their Series B when we went out and made a pitch to acquire them. And it wasn't an easy thing to do, actually. They were a very odd company. They had a lot going for them. Their revenue was growing month on month. Made it a very tricky transaction to kind of corral. But we did manage it, and it put together the, the, the, the beachhead for a Japanese company in the West that was running profitable games. The thing that I think most of the industry didn't see that we were actually planning on and later became true was that live operations in the West was pretty nascent. You know, like, there was no deep understanding of a live operations playbook. Some people didn't even know what the word meant. And free-to-play was really young. But I had spent a couple of years in a free-to-play game developer prior to that. It was part of the reason that I was so excited for this particular transaction to go through is we were very confident that we would be able to increase the longer-term revenue of these franchises that we were buying, and then the ones that would be produced by that studio. Because we already knew, you know, the power of the free-to-play playbook from, you know, Gree's business in Japan and my own personal history other— other places. And so, um, we then— I think by the end of that year, we 5x'd the run rate of, you know, the Fundzio portfolio within pretty short order. Um, and so it definitely worked.

Yeah, that's really, uh, exciting. Um, so we're nearing present day, um, in your career. But, uh, between Gree and Transcend, you also spent a couple years as an executive at FunPlus. Um, I don't know much about your time there, so maybe you could just kind of fill in the timeline, uh, for us. What did you do? What was your largest takeaway or two from your, your time at FunPlus?

There's fewer big things to point to at FunPlus. Um, I would say the biggest thing I did, frankly, was, was, was help recruit Chris Petrovic. Current Chief Business Officer, um, away from Zynga and eventually to, uh, to FunPlus. Um, Chris, I think, is a spectacularly talented executive, um, and, you know, doesn't get enough credit for his contributions to the amazing turnaround that Frank Gibeau and team pulled off at Zynga. Um, and so to, to help bring him into FunPlus was actually, uh, quite a coup. Um, but in terms of other things, there wasn't a ton I was focused at that point on investing and the investments done by FundPlus. Not too much I can share with the audience, unfortunately.

Yeah, no, that's fair. But we can go ahead and shift the conversation over to just some bigger picture lessons learned, try to tie some threads across all of these experiences. So, I mean, for one, you were clearly successful in much of what you did, but obviously the industry is dynamic. Things don't always go as planned. Were there any failures across any of your experiences that kind of formed the way that you operate or invest today that are worth calling out?

Oh yeah, no, there were. Unfortunately, there's lots, of course. I think games are a business that keeps you humble. And so one thing that's interesting to talk about is probably— so in 2008, I want to say, free-to-play was kind of a dark art still. And I was at a company called Three Rings, which made a game called Puzzle Pirates. I'd intentionally gone there from EA because it was the only, literally the only free-to-play developer in the area that I could find. And I was very interested in understanding how free-to-play games were actually made and operated. You know, there was a couple companies that were importing them from South Korea at the time. That was kind of interesting, but to get close to the metal and understand kind of the ebb and flow of actually how this new model really worked was what was on my mind. And so that's why I joined the company. And then one of the projects that was under development, it was coming out in 2008, was this really ambitious UGC virtual world kind of platform play. It was contemporary with things like Roblox and Neopets and Habbo Hotel, InView, Second Life. A lot of these companies probably don't ring out anymore except for Roblox, of course. But it was a time when, you know, like that type of big idea around virtual worlds was definitely being explored. And we made a bid to kind of lead the market with this project called WHIRD, W-H-I-R-D. It was also the year that Mob Wars came out, which is not as well known as a game that followed it later called Mafia Wars. But it was a big deal in the developer community in San Francisco where I was at the time, because all of a sudden it became rumored to be doing like a million a month, which no one could really believe. You know, like, how is this little game, you know, kind of developed by I think one guy, you know, like doing so well? On a new platform like Facebook. That's where it was being done at the time was he had, I think he deployed it on maybe MySpace and Facebook, but in any case, you know, there's these rumors going around that, you know, like Dave is making a million a month basically. And so, you know, like as we are doing this big platform play, Zynga, which was still a startup and very small at the time, they fast followed And after kind of some legal elbows, they ended up locking a very cash-generative beachhead in this fast-moving Facebook platform that was giving away free traffic to developers. And the Facebook ecosystem became the place for free-to-play until mobile. So oxygen for other things like World, for example, became kind of in short supply. And from that early virtual world cohort, Only Roblox has really broken through to deliver on the big grand vision. And, you know, of course, it's a juggernaut today. I forget the exact numbers, like 70 million DAU, a couple billion in revenue. And as amazing as that all is, you know, like the thing that really impresses me to this day is, was their ability to not die from 2005 to about 2013, which is a very long time. Because, you know, like we asked about mistakes, you know, like I was, you know, like at a company that was pursuing, you know, like this arguably a very similar strategy. And we missed not only the Roblox outcome, but we also missed the Zynga outcome. And so, you know, like why, you know, we were really well positioned. We were one of the very few, you know, kind of developers in the Western world that understood free-to-play at all. And yet, you know, like, you know, not necessarily, you know, in, you know, kind of the sweet spot when it came down to, you know, kind of these, these, these hard turns that made the difference for, you know, both of these in retrospect. Um, so that was definitely, you know, like one that, you know, kind of leaves a lot of lessons for me personally. And it has a lot to do with, um, how platforms work. Um, cause of course there's a lot of controversy and debate about how, you know, like that growth pattern that Zynga, you know, was able to sustain on Facebook really worked. Um, and then the transition to mobile. Which really was the thing that in about 2011, 2013, you know, gave real rise to Roblox, in my opinion. And so, you know, like their ability to stick around and catch that mobile wave, you know, like is really amazing to me because it was so long that they were kind of building basically, you know, like in a very humbling ecosystem that didn't give them a lot of great feedback signals. And so, you know, like, as a VC now, you know, like, I think a lot about, you know, like, the time frames that we look for return on, um, and, you know, kind of the nature of different platforms and what good looks like against those opportunities.

Yeah, that's a fascinating answer. Um, is there anything else, you know, tactics-wise or strategy-wise that sort of made the difference between some of what you were talking about versus becoming, uh, you know, succeeding as Roblox and surviving kind of throughout business model transitions and just, you know, just making it work in various ways until something, something clicks. Is there any more in there that's worth unpacking?

The thing about Zynga in particular, in retrospect, that, you know, like I've grown to admire, um, despite, you know, kind of the, the company's, I think, in the San Francisco ecosystem, I think they took a lot of slings and arrows, some of it probably rightly so, for kind of fast following other people's game design. But they were absolutely ruthless in their application of data analytics and their pursuit of a better player journey. And so I think one of the things that I learned to kind of adopt, and I think it's good advice, is to try and learn from your competitors and try and learn from everyone around the ecosystem and not dismiss them as, you know, like, whatever, um, you know, like doing the wrong thing if you don't understand why they're doing it. Um, and so I think, you know, every time I see a successful company, I, I'm immediately interested in why they're able to pull that off. It was one of the reasons that I, I was interested in FunPlus. On paper, I disagreed with almost every decision that they had made to get to the point that they were monstrously successful. And then they did it again and again. And it just, it was amazing to me. And I was like, well, I clearly don't know anything about this. I need to go learn from the masters.

What did you learn at FunPlus that changed your mind on that?

I think the founding CEO is an exceptional entrepreneur. And he has an uncanny ability, I think, to push forward and pull back. In exactly these moments where I was basically commending Dave, the founding CEO of Roblox, for his ability to not die. And I think there's some of that in what Andy, the founding CEO of FunPlus, has been able to do. He just very consistently rides the waves with just a really uncanny ability. And the flexibility that he shows mentally to situations was kind of breathtaking from time to time. Coming from a big company where, you know, like I was basically, you know, like frequently arguing with the board about, you know, from my perspective, things that didn't matter to working with, you know, like a private company and an entrepreneur who's willing to throw away everything at a moment's notice to, you know, kind of grab the next big thing. It was just an incredible form of mental plasticity that I'd never really seen before. And I think it really does, you know, kind of sit at the very center of why companies like that are able to, you know, kind of, um, pivot in an industry that sometimes requires it.

Interesting. Um, so I think you've had some mental plasticity too over the years, to use the term, as you've, you know, navigated the, the changing, the changing waters of, of the games industry. Um, really probably more in various business development roles, um, that, you know, kept you on the cutting edge of all sorts of trends, deals, corners of the world. Um, we certainly have listeners who are in and around business development and have aspirations for, for their futures, their careers. Um, what did you learn about being good at that type of role that other aspiring biz dev people can absorb and put into action?

So I think the things that I learned, um, so one thing that I learned was I was only going to be good at it if I could do it the way that my way, essentially. So like, I am not a predatory transactional person, so I couldn't be good at predatory transactional business development. So I like to find, you know, like win-win situations. I love strategy. And so it was very important to me to only be in business development roles where that was going to be helpful to the success of the company. And so I think part of it is, you know, like Understanding what you're good at and being able to like make that an important building block for the company's plan. And so, you know, like both are critical. And I said, you know, I like strategy. Salesmanship is really important if you're going to be in BD and nobody, you know, I used to have this debate with people who didn't want to be called salespeople and I was like, why not? You know, I agree with you, by the way, but why not? You know, it is, I think, a dirty word to a lot of people who want to be a little bit more glamorous and a little bit more perhaps respected in the industry, but it's really key. And so, you know, like I think embracing, you know, like the reality that, you know, like I was saying before, you know, like success comes from a number of different factors and strategy is definitely one of them. I think orienting yourself correctly is, you know, like a good piece of the battle, but being compelling and being able to deliver the message and being able to sell it through, absolutely. Is a key bit. And it's not just to the outside. I mean, half the time I was arguing to sell the deal to the inside, you know, like convincing my own company, particularly the larger ones, of the wisdom of something, for example, as crazy as free-to-play back when no one was doing it. Like, that's going to take some, some real salesmanship. And, you know, like, it is, I think, a critical part of that role. And I would encourage people to, you know, like, find that superpower and then put it to use only, you know, like, for the good. Um, you know, I think it was Warren Buffett, who said you can't make a good deal with a bad person. So you're like, don't be that person. But again, you're like, this kind of betrays my, my personal orientation. Yeah.

What else did you learn about, uh, becoming better at, at sales?

So I think once you— like, for me personally, you know, like, kind of having grown up, you know, like, kind of loving the strategy side and cringing at the sales side, um, letting go the mental, you know, kind of, um, you know, tax of, you know, like not wanting to really study, you know, this thing that clearly is very important. Once I was past that hurdle, it was actually quite fun. You know, I think understanding, you know, like why Steve Jobs had such a, you know, like a reality distortion field, why certain people are able to raise money on the exact same pitch that other people can't, you know, these are all really important things that matter. And so, you know, I think it's quite a lot of fun to understand the, the inside of why those things work. There's a lot of books written about it, um, and you're like, I'm sure, you know, like, people don't need me to recommend them. They could go look at Amazon.

So also, you know, throughout much of this time, for several years in your career, you mentioned how you did investing at FundPlus. You took part in deal making previously. You also were an angel investor for several years, and, um, you invested in some notable companies like Coinbase, Shippo, Super Evil Megacorp. Um, how did you operate as an angel investor and, you know, improve as an investor throughout all of these different types of experiences? Um, and then after this, we'll, we'll get to what you're doing with Transcend today.

Sure. Yeah, so being an angel in San Francisco is, is kind of, um, a common thing. A lot of people do this. Um, and so I was doing it, you know, like on the side when I had a, a day job. And I did it, you know, kind of because I, A, wanted to learn more about that world, but also I had friends who were starting companies and, you know, like I was interested in helping them. You know, they would sometimes approach me and say like, hey, can you be an advisor? Can you kind of participate with us in some way? And, you know, like investing was the next logical piece of that. And so I would frequently angel invest in, you know, kind of companies like Super Evil Megacorp, which is started by, you know, some former coworkers of mine from Playfish. Um, and, you know, like, I would say it's, it's very different from being a VC. There are some common elements, of course, um, but being a fund manager and being an angel are definitely, you know, kind of very different roles.

Gotcha. And did you ever have in the back of your mind as you were doing this, um, that you wanted to start your own venture firm? Or, or how did Transcend come about? What was the, the origin story there?

Yeah, Transcend is definitely kind of the, the logical conclusion of a bunch of different threads, you know, like in my personal career And then my partners and I read on, on, on the ecosystem. Um, I, I actually wrote a post at the very beginning about what, you know, kind of drove me to start Transcend at the firm's launch in 2020. Um, it mostly underlined the fact that, you know, like games are no longer a nerdy subculture and they've kind of gone mainstream and now drive socialization and culture and, you know, particularly for Gen X and younger. Um, but, you know, like I think that's almost you know, like kind of of course and, you know, like accepted by most people at this point. I don't think it was quite as obvious, you know, like just, you know, was it 4 years ago?

Yeah.

Um, and, you know, but, you know, to answer your question, you know, one of the reasons that we were— I was interested in, in starting a fund, um, was that I really enjoyed working with, um, you know, with entrepreneurs and founders. Um, and I recognized that my ability to make use of all the knowledge that I've accreted over 30 years of working in the industry, you know, like kind of required, you know, like some kind of breadth of surface area in order to really be effective. And so a fund is a really nice vehicle for that. And so eventually in the beginning of 2020, I was able to put that together.

Nice. And maybe you can catch us up to the present day a bit. Maybe you can tell us a bit about the core investing thesis behind the firm today, whether anything has changed. Um, and then, you know, just where are you? Like, how big is your team? What, what funds have you, uh, raised and deployed so far? Just any, any details that would kind of shape up people's understanding of Transcend right now.

Yes, we've raised 2 funds. We have an investment team of 6 in key geographies around the globe. Um, we're focused on pre-seed and seed in interactive entertainment. Our first fund was in the top decile of its venture cohort. We have high hopes for the second one, which we closed and announced last year. Both were targeted against a thesis in, as I said, interactive entertainment and kind of the— I mean, we named the firm Transcend because of what we see as the changes in the industry and the ecosystem and the opportunity space. I mean, we've seen Since then, since the foundation of the fund, in addition to multiple $10 billion gaming franchises, we've seen the Mario movie, Disney and LEGO both invest billions in Epic. Last of Us is a top-rated series on HBO, and all these other proof points that underline the audience dynamics that inform our thesis construction and the reason that we're so excited about games, even in the wake of, you know, kind of last year's kind of rough waters, like we remain pretty dedicated and enthusiastic about games and interactive entertainment as an opportunity space because, you know, like we kind of take our cues primarily from audience and the audience expansion and the technical underpinnings of their access to things like games are pretty inexorable. They're pretty inevitable. I mean, even if you just hold things constant, which is not going to happen, the demographic washing through of Gen Z and Gen Alpha is going to grow the games business pretty easily. And so we are very excited to this day about the opportunity to continue to invest in interactive entertainment.

Nice. And is there anything unique you would say about Transcend Fund, either in the way that you invest, view the market, work with founders, anything else?

Yeah, so I mean, like I said, we've always described ourselves as an audience-first fund. And so, you know, while our research and our calibration work surfaces new areas and opportunities over time, you know, our core orientation kind of remains rooted in the decades of experience reading the audience companies in digital entertainment. Our work with founders is also rooted in that. Because we have built game companies and because we have been through the buy-sell process, we've been in the boardroom and the shop floor. You know, like we're familiar with, you know, kind of the full arc. And it's definitely something that, you know, like in the zero to one phase, which is where we work with a lot of our founders, we help them scaffold what we think will be a company that is not just capable of delivering on the thing they pitched us, but hopefully a better version of that, one that is almost inevitable in terms of its success pattern.

Mm-hmm. And you mentioned, uh, the first fund returned in the top decile of, of, of the, the space, which is phenomenal. Um, is there anything that you would credit to, to why you were able to pull that off in your process and a unique way of viewing the market or identifying founders?

So having spent, you know, like 30 years, you know, like basically being on and evaluating development teams, I think helps a lot. So, I mean, part of our mantra has always been, you know, working with ambitious people who are making things that matter and the credibility to achieve them. So the credibility piece, I, you know, I personally am spending a lot of time with, just because it is a very hard business to succeed at. So the, you know, the power law revenue distribution of video games is the same as it is for movies and books and any other form of content, really. Um, and so it definitely matters if you're going to invest in content, and we do have studio investments, that you understand the difference between, you know, like this team going after that market segment and another team. Um, and so, you know, I would say that is something that we, you know, kind of have a different view on just because of our personal histories. You know, like you've heard a lot about mine, but, um, my partner Andrew Shepard, who was the president of Kabam and sits in Southern California, He's one of the best free-to-play operators I know. And so he has a long career in history that is kind of additive to mine. And so as a group, we definitely have a lot of domain expertise in history and relationships that we unpack in service of our founders. But to answer your question about like why it works, there's really only 3 things I guess a venture fund is doing. I mean, we are trying to see all the kind of the surface area of the market. So all the, all the deals, essentially, we are picking the right ones and then we're helping the ones that we pick become worth, you know, more over time. Um, and I think across all three of those vectors, we're pretty uniquely formulated to push hard on, you know, each one of those levers. Um, so we're, you know, very purpose-built for the job.

Very cool. Um, so on, uh, this podcast, we've discussed venture cycles a few times. Um, but do you have a unique perspective on what we should expect in gaming VC at large over the next couple years? Like, where, where do you see the most opportunity? Are there zones that you're still a bit hesitant about? How do you view the, the space over the next couple years, big picture?

We're bullish long term. I think short term, definitely, you know, like the, the fact that there are some, there's some chop, it needs no introduction. People are very aware of that. In terms of specific spaces, it's always a little difficult in games to, you know, kind of prognosticate, you know, like how fast something might happen. But you can definitely see the bones of, you know, like AI and UGC, of course, are, you know, kind of very relevant and very topical, but they have been for a long time. And so like we have several companies in our portfolio that, you know, of course make use of these building blocks. You know, like I made use of UGC as a building block back in Sims many years ago. These are not, you know, kind of new concepts. They're just kind of reformulated in new and powerful ways. And so we try to respect, you know, kind of the history of some of these ideas and how they've been done before and then alchemize them against, you know, like the actual market that we see coming and try and understand like what is most likely to produce outside, you know, results. And, you know, I think the, the most difficult aspect of that tends to be on the distribution side, um, trying to understand, um, how you will, you know, kind of create replicable unfair advantage for the entity that you're building. Um, you know, creating a platform that then is able to, you know, kind of leverage what you're doing again and again is, I think, the the highest form of that. I think one of the things that we have seen is that the path to that is often through content, ironically. So a lot of people don't want to invest in content because it's whatever, it's a hit or miss business. And we're comfortable with that. We're happy for those people not to invest in the video games industry because we, as experts in that space, are very comfortable making the call between good and not. And so we're happy for them not to be kind of muddying the waters with the kind of ideas that we think probably shouldn't be there. But when it comes then to the next stage of like, oh, and now this becomes a platform play, I think one of the things that is hard to bridge sometimes is platform play out of the gate is very expensive. And content out of the gate can often generate cash that produces platforms over time. Gree was very much like that. You know, Gree had a hit fishing game. That was its— that start was they had a highly cash-generative fishing game that built the platform that the company then leveraged into the next phase of its growth, which was dramatic. You could say that, you know, kind of Zynga experienced some of those dynamics as well, though it's a little bit different. Anyway, you know, like, we definitely as a team, you know, like, kind of try to read the historical tea leaves into, you know, kind of the future distribution patterns. And like, that's where we tend to get the most excited. I think there are technical pieces that come up from time to time. Of course, you know, like we as an industry, I think we get very attracted to the idea that technical dislocation will create opportunity. And sometimes it's very true. And so like iPhone was like that and mobile in general. And, you know, social, of course. But, you know, like, I think one of the things that doesn't get enough discussion is the hundreds of ways that, you know, developers and kind of fandom holders can reach their audience directly now. This was not a thing. Like, we go all the way back to PlayStation 1 era when I was in Japan. It was not possible. You had to talk to your audience through magazines. You sold your discs at retail. There was no interaction with your audience. Now you can speak to them on Reddit, you can speak to them on Discord. You know, there are hundreds of ways that you could federate together your fandom and craft an interesting business around it. And so that toolkit, you know, like we're always very interested in like the evolution of that. Yes, we're interested in VR and XR and, you know, kind of mobile and all of the technical pieces that might unlock something. But even without that, there's all kinds of demographic and community-oriented change that we find, you know, like very additive to the overall surface area of the space. Um, and occasionally you see things pop through the surface area as big hits and you wonder why they happen. And in my opinion, some of those elements are why.

That's fascinating. That's a, that's a great answer. Um, are there, could you maybe give a couple examples maybe of your portfolio companies that like fit into that distribution innovation in some kind of way that you're excited about?

Um, so you remember what I said about content sometimes leading to distribution? Um, I, I can't necessarily comment on, you know, like which one of our portfolio companies are necessarily pushing that particular part of the equation just yet. Um, so it's a little early for us, like in most of our companies, What I can point to, probably the oldest and most successful, like our first unicorn is a company called Thatgamecompany. And you can already see their work with Sky, which is their big hit. So Thatgamecompany, for people who aren't familiar with it, was originally a console developer and eventually released a very successful mobile game called Sky. It was the reason that they were able to raise about $160 million from Sequoia and TPG about a year and a half ago. They— oh, and then one of the co-founders of Pixar joined as an advisor, and I think that was a bit of a hat tip to anybody who was watching as to what was coming next. They announced an animation project based on Sky, of course. And, you know, so this is— I think you can see the elements of, you know, their ability to, like, take their audience into additional additive businesses and additional touchpoints that reinforce the audience's engagement with the franchise. Um, you know, it's not necessarily an answer to your question, um, but it is, I think, a little bit of a, um, a view into, you know, like how an early-stage company is developing along that path.

Gotcha. Now that's all, that's all totally fair. Um, and, and related, one industry-wide discussion topic lately has been around like what investors consider investable? For instance, uh, many investors have soured on mobile or Web3, or, you know, are debating whether outsized raises for teams who haven't shipped and validated a product yet in their startup, whether those, you know, are truly viable or the best, uh, source of investment dollars. How does your team draw the lines around what it considers to be investable? You mentioned a few big picture ideas that you look for. Are there any other factors at play that kind of help shape the lines of that box, so to speak?

Yeah, I mean, I think all venture funds work with the basic framework of every investment they do, they're trying to return the fund and we're no different on that front. But the rubber hits the road when you get into the mechanics of how evaluation of any particular, you know, opportunity works. Um, and so, you know, like the ability to see through, you know, kind of a, um, a pitch about right now versus, you know, like kind of the, the, the grand vanishing point. Um, I, I think we're all familiar with, at least some of your audience will probably be familiar with, um, how companies like Uber, for example, you know, like were misperceived, um, you know, like in the early days, not understanding the transportation revolution that they represented versus as just being a front end for, you know, kind of, you know, black cab companies. And so the, you know, like the opportunity to see, you know, like a company's true potential, you know, like I think that is one of the things that we attempt to, you know, kind of put on ourselves as we go through that process every time. You've had the founders of Gardens on your podcast there. We were a seed lead for them. I'm on their board and we, I think, saw potential in their vision at the seed stage, which was perhaps a little bit harder to see. You know, like, I think a lot of investors have come back to me now that the company has been so grandly validated by the rest of the market. They raised a monster Series A. They brought in kind of a who's who of investors after that. And so I think our ability to kind of like perceive that in the early days and kind of to get underneath what founders are really trying to build may or may not be a superpower of ours, but like, I'd like to think so.

Yeah, I'm sure, I'm sure it is to at least some extent. Um, uh, obviously many founders in the games industry, they might not have experience as being a founder before having fundraised, having been on the investor side of the table. Um, Do you have any recommendations for those that are looking to raise money that maybe they want to come pitch to you their company on how they can set themselves up for better success and pitching themselves or making their case for why they're deserving of venture money?

Venture investors, if you understand their job well, you'll probably have a much more rewarding conversation with one. If you understand that they're looking at you as a potential, you know, kind of 10x, you know, return, and that literally they view it as your responsibility to like deliver back that kind of return profile, you know, like that is a better place to start than if you come in, like in the case of video games, if you come in saying like, I really want to make this game, I'm pitching to you, I'm also pitching to publishers, I'm also trying to raise money from my mom and my uncle. I'm like, okay, I don't think your mom and your uncles are going to have the same expectations of you that I am. Neither is your publisher. And so you should probably figure that out before coming to talk to a VC. I think we try to be gentle on this point, but, you know, like, it is definitely a big difference, you know, like, so I think that helps if you understand, like, who you're talking to and how they make their money. And why they are in the room. And so I think that is a good place to kind of begin. To the degree that you're working on something that is in that category, being able to articulate it in a way quickly and cleanly that is digestible by the audience sometimes is important. I think when you're talking to people who focus on zero-to-one in video games like we do, you can go a little more inside baseball. You can make references that are kind of very gamer-y and we're all going to get it. But what I coach some of our founders on as they go up the ladder and they raise Series A and B and beyond is that you're no longer dealing with those people anymore. People don't get those references. They don't understand all the hip gamer lingo. And so, you know, I would say it's a good practice to start at the beginning, to start, you know, kind of assuming that, you know, like the people that you're speaking to don't understand. And then you can, you know, kind of go faster if you run into somebody who does. I know in Europe, the, you know, where I'm based now, you know, like the venture ecosystem isn't as, it doesn't have as long a history. And so I find, you know, kind of companies with cap tables that include non-endemic investors sometimes, and they've had to, you know, kind of, they tell me horror stories about board meetings with kind of folks who have very different backgrounds. And so they don't understand how games work, they don't understand what free-to-play is. And I think that is a very hard place to bring in a professional venture capitalist from the games industry. I'm not necessarily going to see eye-to-eye with some of those folks. And so round construction then becomes kind of a concern, like who is the right team for you overall? You get your Series A lead set, your Series C lead set, and then who you fill it up with. All of this stuff matters. Um, but in terms of like making a successful pitch, there's a lot that's been written mechanically about this. You know, like do a 5-slide deck, no, do a 3-slide deck, no, do a 10-slide deck. I don't think any of that matters. Um, I think what matters is that you are able to demonstrate mastery of your subject matter and that you have credibility against it. Everything else will sort itself out.

That's fair. Last investing question for you. Do you have any atypical investment views or, or views on the industry? Like, do you— is there anything where you look out at what everyone is saying and believing and think that's crazy? Or, you know, maybe the opposite of that, where no one's talking about things and you don't understand why because you're really excited about, you know, what aspect of that technology or trend will define the future of the industry in some way? Any atypical views you want to call out?

So, one, um, so my, my partners and I, we have deep history in free-to-play. And as I was mentioning, you know, it goes back to like, you know, like probably the earliest days of free-to-play in the Western markets anyway. Um, the, you know, we looked up the only companies that I could learn from at that point were all in South Korea, you know, like companies like Nexon, um, you know, we're basically inventing the category. But in the West, you know, like my partners and I were among the earliest in the ecosystem. So we have a real deep familiarity with the toolkit and the history of the space. Despite that, you know, like we are among the few funds, I think, that will tell you that your pitch to us does not have to be free-to-play. I think if you look at the, you know, the charts from last year, I think you'll discover that premium is not dead. And so like one of the controversial things I think that we've been saying for a while is that. Is that we are agnostic about your business model. We want to see a return profile, but how you get there is much more of a function of how well you are at crafting something that lands well with your audience and how you can structure a relationship with them to make it profitable for yourself. So we do not basically tattoo free-to-play across anything at the door. And I guess that's a little controversial these days, given that, you know, like everyone has become such a fan, which is ironic to me because I remember when nobody wanted to talk about it. Um, but that's so long ago now that I think people have forgotten that, you know, like other business models, um, can fit, you know, certain play patterns and certain audience types. Um, and as long as that's a big enough market segment, that can also be investable. Um, so perhaps that's controversial. I don't know.

I like it. Final question for you. If anyone wishes to reach out to you or Transcend Fund, where is the best place for them to do that?

So we have an email address you can send any materials to or a pitch to. It's called pitch@transcend.fund. You can also reach out to the team members on, on LinkedIn. Awesome.

Well, let's go ahead and close here then. Shanti, thank you so much for joining me today and best wishes Cheers to you and everyone at TranscendFund. If you enjoyed today's episode, whether on YouTube or your favorite podcast app, make sure to like, subscribe, comment, or give a 5-star review. And if you want to reach out or provide feedback, shoot us a note at podcast@nauvik.co or find us on Twitter and LinkedIn. Plus, if you want to learn more about what Nauvik has to offer, make sure to check out our website, www.navic.co. There you can sign up for the number one games industry newsletter, Navic Digest, or contact us to learn about our wide-ranging consulting and advisory services. Again, that is www.navic.co. Thanks for listening, and we'll catch you in the next episode.