Decoding Success: From Operator to Venture Capitalist — Naavik Gaming Podcast

Hola.

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 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 wrote my very first first game in BASIC on a Commodore PET 3000, which was the computer even before the, the VIC-20 and the Commodore 64. Um, and so I got— I was saving up for my own computer. 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, 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 making a game called Descent, which was a competitor to Doom. It was a 3D shooter set in space and 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. This is a long time ago. 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. Platforms. So the PS1 era is probably the most effective for the business. So this was PlayStation 1, 3DO. Um, so 3DO is a platform forgotten to time a bit, but at the time it was a, like, a very up-and-coming platform. Trip Hawkins, the founder of 3DO, had left to start this platform. It was one of the first CD-ROM-based, um, 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 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 that era and now. But, you know, like it was a very instructive time to get to know how greater frameworks work, how business works. And also to 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. 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 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. 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. 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. 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 online boom. I was on a business trip to the US and a friend of mine worked at Silicon Graphics, and 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 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. I eventually ended up at EA. Um, and as you said, I did actually author the business plan for what 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. See, like, the right timing for it, you know, like, did come a little bit after I handed the reins over from that particular, you know, kind of initiative at EA Sports and moved over to The Sims. And on The Sims, you know, like, 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. Um, and a lot of what I learned in both those cases was really a bunch of hard-won insights about platform transitions and business models and pattern recognition. I would say that I also learned that 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, you know, like I do take into, you know, you know, additional parts of my career that came later, but also, you know, the venture work that I do now.

Cool. So from there, 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 learn from?

One of the things that I learned both there and other times that I've tried to do cross-border product development where you like— so for example, both at EA and at Playfish, 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 depths of the markets, um, 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, like, I, I took a look at the, the sales charts for last year and was just reminded once again that premium is not dead, that free-to-play is still, you know, kind of not necessarily the only business model left in our, in our business. Um, and so I think What I learned when I tried to go take Western product to Japan, for example, as you're talking about Playfish, um, is that like that audience and that market has a lot of texture to it. That like they're not just like waiting for your product to arrive. They have their own history, their own culture, and their own, you know, kind of set of criteria as to what good looks like. Um, and 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, we view it as a primary way of viewing some of the challenges of creating something meaningful in the industry. And so, you know, like, that is something that I encourage, you know, like everyone in our ecosystem, our founders and my partners, to think about. And it is in some small part probably because of that history at Playfish and also at Gree, where I also was involved in developing Western product, which Despite the fact that Greez is a Japanese company, we almost never shipped our US-based games into Japan. And a lot of that kind of interplay between myself and those teams back in the day, you know, like 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 going to be on the receiving end of the products that you're creating.

I kind of want to double-click into this a little bit. If someone today, an entrepreneur, an executive, they were looking to take their game into Japan and their Western-based business. Is it harder or easier than it used to be, do you think? 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? Do you have any thoughts around how to best succeed in doing that today versus when you were at the Playfish Gree days?

Yeah, so I think it, it always depends a lot about what kind of distribution environment you're going into. One of the most amazing times that I saw in 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, as a mobile game company because of their 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. Um, 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 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 is 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 to be fair, this is one of the most sophisticated gaming markets on the planet.

Yeah.

Most of the console industry was born there, whether it's the hardware manufacturers or, you know, kind of the game developers. Um, deep, deep history in terms of, um, 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 technical-based disruptions in the market haven't necessarily been quickly followed by that development community, and they've been behind at certain moments. But when it comes down to understanding 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, unfair advantages that Western developers now.

Gotcha. You also, you worked at Gree for 5 years, where in that time you acquired Funzio, which I think got Gree into free-to-play mobile at the time. That was 2012. Again, you can correct me if I'm wrong. You also set up Gree's publishing framework. 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 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 one of the reasons was, is they were a real innovator in, um, in mobile social gaming. So at the time that I joined, Gree still had a feature phone business in Japan that was really profitable. So they, like, before smartphones took over the market, the i-mode was 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 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 Gree and DeNA were than some of the local companies like Zynga. Um, and like they were as a company trying to move into Western business but also the smartphone business. Um, and so my role coming in as the head of corp dev there, um, was to basically analyze the space and to help build 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 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 hot 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 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. 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, you know, kind of transaction to go through, um, is we were very confident that we would be able to, you know, like increase the longer-term revenue of these, these franchises that we were buying. And then the ones that would be produced by that studio, because we already knew the power of the free-to-play playbook from Greece Business in Japan and my own personal history, other places. and we then, I think by the end of that year, we 5x the run rate of, you know, the Fundzio portfolio within pretty short order. Um, and so it definitely worked.

Yeah, that's really exciting. So we're nearing present day in your career, but 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 fill in the timeline. For us? What did you do? What was your largest takeaway or two from 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 help recruit Chris Petrovic, the current Chief Business Officer, away from Zynga and eventually to, uh, to FunPlus. Um, Chris, I think, is a spectacularly talented executive and 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 help bring him into FunPlus was actually quite a coup. But in terms of other things, it wasn't a ton. Um, I was focused at that point on investing and like the investments done by FunPlus, you know, like not too much I can share with the audience, unfortunately.

Yeah, no, that's fair. But we can go ahead and kind of shift the conversation over to just some like bigger picture lessons learned, try to tie some threads across all of these experiences. 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. Like, I think games are a business that keeps you humble. Um, And so one thing that's interesting to talk about is probably, so in 2008, I want to say, free-to-play was 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. There was a couple of companies that were importing them from South Korea at the time. That was interesting, but to get close to the metal and understand 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 that type of big idea around virtual worlds was definitely being explored. And we made a bid to lead the market with this project called World, W-H-I-R-L-E-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. Like, how is this little game developed by, I think, one guy 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, 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 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 that early virtual world cohort, only Roblox has really broken through to deliver on the big grand vision. And of course it's a juggernaut today. And I forget the exact numbers, like 70 million DAU, a couple billion in revenue. And as amazing as that all is, 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 like we asked about mistakes. Like I was at a company that was pursuing like this, arguably a very similar strategy. And we missed not only the Roblox outcome, but we also missed the Zynga outcome. Um, and like why we were really well positioned. We were one of the very few kind of developers in the Western world that understood free-to-play at all. And yet not necessarily in the sweet spot when it came down to these hard turns that made the difference for both of these in retrospect. Um, so that was definitely, you know, like one that, you know, like leaves a lot of lessons for me personally. And it has a lot to do with how platforms work. Because of course there's a lot of controversy and debate about how like that growth pattern that Zynga, you know, was able to sustain on Facebook really worked. And then the transition to mobile, which really was the thing that in about 2011, 2013 gave real rise to Roblox, in my opinion. And like their ability to stick around and catch that, that mobile wave is really amazing to me because it was so long that they were building basically, you know, like in a, in a very, you know, humbling, you know, ecosystem that didn't give them a lot of great feedback signals. And as a VC now, I think a lot about like the time frames that we look for return on and kind of the nature of different platforms and what good looks like against those opportunities.

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

The thing about Zynga in particular, in retrospect, that like I've grown to admire despite the kind of the, the companies, I think in the San Francisco ecosystem, I think they took a lot of slings and arrows, some of it probably rightly so for 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. Things that I learned to, you know, 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 whatever, doing the wrong thing if you don't understand why they're doing it. And so I think, you know, every time I see a successful company, I'm immediately interested in why they're able to pull that off. It was one of the reasons that 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, it was, 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, to push forward and pull back. In exactly these moments where, you know, I was basically commending Dave, the founding CEO of Roblox, for his ability to not die. And I think there's some of that, like, in what Andy, the founding CEO of FunPlus, has been able to do. Like, he just very consistently rides the waves with just a really uncanny ability. And like, the flexibility that he shows mentally to situations was breathtaking from time to time, coming from a big company. Where, you know, like I was basically like frequently arguing with the board about my perspective, things that didn't matter to working with like a private company and an entrepreneur who's willing to throw away everything at a moment's notice to 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 sit at the very center of why companies like that are able to pivot in an industry that sometimes requires it.

Interesting. I think you've had some mental plasticity too over the years, to use the term, as you've navigated the changing waters of the games industry, really probably more in various business development roles that kept you on the cutting edge of all sorts of trends, deals, corners of the world. We certainly have listeners who are in and around business development and have aspirations for their futures, their careers. Um, what did you learn about 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— 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 I am not a predatory transactional person, so I couldn't be good at predatory transactional business development. So I like to find 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. Um, 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, you know, plan. Um, and so, you know, like both are critical. And I said I like strategy. Salesmanship is really important if you're going to be in BD. Um, and Nobody, I used to have this debate with people who didn't want to be called salespeople. And I was like, why not? I agree with you, by the way, but why not? 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 I think embracing like the reality that 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. It's half the time I was arguing to sell the deal to the inside, 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. That's going to take some real salesmanship and is, I think, a critical part of that role. And I would encourage people to find that superpower and then put it to use only for the good. I think it was Warren Buffett who said, you can't make a good deal with a bad person. So don't be that person. But again, this kind of betrays my personal orientation.

Yeah. What else did you learn about becoming better at sales?

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

So also 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 you invested in some notable companies like Coinbase, Shippo, Super Evil Megacorp. Um, how did you operate as an angel investor and improve as an investor throughout all of these different types of experiences. And after this, we'll get to what you're doing with Transcend today.

Sure. Yeah. So being an angel in San Francisco is a common thing. A lot of people do this. And so I was doing it like on the side when I had a day job. And I did it because I, A, wanted to learn more about that world, but also I had friends who were starting companies and like I was interested in helping them. They would sometimes approach me. And say, hey, can you be an advisor? Can you participate with us in some way? And 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 some former coworkers of mine from Playfish. Um, and like, I would say it's very different from being a VC. There are some common elements, of course, 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 that you wanted to start your own venture firm? Or how did Transcend come about? What was the origin story there?

Yeah, Transcend is definitely the logical conclusion of a bunch of different threads, like in my personal career, and then my partners and I read on, on the ecosystem. I actually wrote a post at the very beginning about what drove me to start Transcend at the firm's launch in 2020, it mostly underlined the fact that games are no longer a nerdy subculture and that they've gone mainstream and now drive socialization and culture, and particularly for Gen X and younger. I think that's almost, you know, like kind of of course and like accepted by most people at this point. I don't think it was quite as obvious like just— was it 4 years ago? Yeah. And To answer your question, one of the reasons that I was interested in starting a fund was that I really enjoyed working with entrepreneurs and founders. 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 required some kind of breadth of surface area in order to really be effective. And so a fund is, 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, and then just where are you? Like, how big is your team? What funds have you 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. 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. Um, both were targeted against a thesis in, as I said, interactive entertainment and, you know, kind of the— I mean, we named the firm Transcend. You know, because of, you know, like what we see as the, the changes in the industry and the ecosystem and the opportunity space. 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, you know, Disney and Lego both invest billions in Epic. Last of Us is, you know, a top-rated series on HBO and all these other, you know, kind of proof points that kind of underlying the audience dynamics that inform our thesis construction, the reason that we're so excited about games, even in the wake 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 we, we 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, you know, like pretty easily. And so we are like 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?

We've always described ourselves as an audience-first fund, and while our research and our calibration work surfaces new areas and opportunities over time, you know, our core orientation 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 in through the buy-sell process, we've been in the boardroom and the shop floor. We're familiar with, you know, kind of the full arc. And it's definitely something that, 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 success pattern.

And you mentioned the first fund returned in the top decile of the space, which is phenomenal. Is there anything that you would credit 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, like basically being on and evaluating development teams, I think helps a lot. So part of our mantra has always been working with ambitious people who are making things that matter and the credibility to achieve them. So the credibility piece, I, I personally am spending a lot of time just because it is a very hard business to succeed at. So the, 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. 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 this team going after that market segment and another team. I would say that is something that we have have a different view on just because of our personal histories. You've heard a lot about mine, but 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. Um, and so he has a long career in history that is 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. We're trying to see all the surface area of the market. So all the deals, essentially, we are picking the right ones. And then we're helping the ones that we pick become worth more over time. And I think across all 3 of those vectors, we're pretty uniquely formulated to push hard on each one of those levers. Um, so we're, you know, very purpose-built for the job.

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

We're bullish long-term. I think short-term, definitely 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 kind of prognosticate like how fast something might happen, but you can definitely see the bones of, you know, like AI and UGC of course are very relevant and very topical, but they have been for a long time. And so like we, we have several companies in our, in our portfolio that of course make use of these building blocks. Like I made use of UGC as a building block back in Sims many years ago. These are not kind of new concepts. They're just kind of reformulated in new and powerful ways. And so we try to respect the history of some of these ideas and how they've been done before, and then alchemize them against the actual market that we see coming and try and understand what is most likely to produce outside results. And I think the most difficult aspect of that tends to be on the distribution side. Trying to understand how you will, you know, kind of create replicable unfair advantage for the entity that you're building, creating a platform that then is able to, you know, kind of leverage what you're doing again and again is, I think, 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 true business. And we're comfortable with that. We're happy for those people not to invest in the video games industry, because we as kind of experts in that space are very comfortable making the call between good and not. It's like, we're happy for them not to be kind of muddying the waters with, you know, kind of ideas that we think are, probably shouldn't be there. But when it comes then to the next stage of, oh, and now this becomes a platform play, I think one of the things that, you know, like 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. Green was very much like that. Gree had a hit fishing game. That was its start, was they had a highly cash-generative fishing game, built the platform that the company then leveraged into the next phase of its growth, which was dramatic. You could say that Zynga experienced some of those dynamics as well, though it's a little bit different. Anyway, we definitely, as a team, try to read the historical tea leaves into the future distribution patterns. And 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, 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 iPhone was like that and mobile in general and social, of course. I think one of the things that doesn't get enough discussion is the hundreds of ways that developers and kind of fandom holders can reach their audience directly now. This was not a thing. 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. There are hundreds of ways that you could federate together your fandom and craft an interesting business around it. And so that toolkit, like we're always very interested in the evolution of that. Yes, we're interested in VR and XR and 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 very additive to the overall surface area of the space. 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 great answer. Are there— could you maybe give a couple examples maybe of your portfolio companies that fit into that distribution innovation in some kind of way that you're excited about?

So you remember what I said about content sometimes leading to distribution? Yeah. I can't necessarily comment on which one of our portfolio companies are necessarily pushing that particular part of the equation just yet. 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. Um, so Thatgamecompany, for people who aren't familiar with it, um, 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 so this is, I think, you can see the elements of their ability to like take their audience into additional additive businesses and additional touchpoints that reinforce the audience's engagement with the franchise. Certainly answers your question, um, but it is, I think, a little bit of a, um, a view into like how an early-stage company is developing along that path.

Gotcha. That's all totally fair. And related, one industry-wide discussion topic lately has been around like what investors consider investible. For instance, many investors have soured on mobile or Web3 or are debating whether outsized raises for teams who haven't shipped and validated a product yet in their startup, whether those are truly viable or the best source of investment dollars. How does your team draw the lines around what it considers to be investible? 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 think all venture funds work with the basic framework of every investment they do, they're trying to return the fund. We're no different on that front. Like, it really, the rubber hits the road when you get into the mechanics of how evaluation of any particular opportunity works. And so, you know, like the ability to see through a pitch about right now versus kind of the grand vanishing point. I think we're all familiar with, at least some of your audience will probably be familiar with how companies like Uber, for example, like were misperceived like in the early days, not understanding the transportation revolution that they represented versus just being a front end for, you know, kind of, you know, black cab companies. Uh, and so. So the, you know, like the opportunity to see like a company's true potential, I think that is one of the things that we attempt to put on ourselves as we go through that process every time. You've had the founders of Gardens on your podcast there. We were 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. 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 who's who of investors after that. And so I think our ability to perceive that in the early days and 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 it is to at least some extent. 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. 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, like, you'll probably have a much more rewarding conversation with one. If you understand that they're looking at you as a potential kind of 10x return, and that literally they view it as your responsibility to deliver back that kind of return profile, you know, like, that is a better place to start, um, than if you come in, like, in the case of video games, if you come in saying, 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 uncles. 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, we try to be gentle on this point. Like it is definitely a big difference. So I think that helps if you understand 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 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 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. Like they don't understand, you know, like all the hip gamer lingo. And so, you know, I would say it's a good practice to start at the beginning, to start assuming that, you know, like the people that you're speaking to don't understand, and then you can go faster if you run into somebody who does. I know in Europe, 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 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 folks who, you know, have like very different backgrounds. And so they don't understand, 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 like a concern, like who is the right team for you overall? You know, you get your Series A lead set, you meet your Series C lead set, and then like who you fill it up with. All of this stuff matters. But in terms of making a successful pitch, there's a lot that's been written mechanically about this. You know, like do a 5-slide deck, do a 3-slide deck, no, do a 10-slide deck. I don't think any of that matters. I think what matters is that you are able to demonstrate mastery of your subject matter and that you have credibility against it. Invest it. Everything else will sort itself out.

That's fair. Last investing question for you. Do you have any atypical investment views or views on the industry? Do you— is there anything where you look out at what everyone is saying and believing and think that's crazy? Or maybe the opposite of that, where no one's talking about things and you don't understand why because you're really excited about 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, so my partners and I, we have deep history in free-to-play. As I was mentioning, it goes back to like probably the earliest days of free-to-play in the Western markets anyway. The— we looked up the only companies that I could learn from at that point were all in South Korea, like companies like Nexon, who were basically inventing the category. But in the West, 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, 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 charts from last year, I think you'll discover that premium is not dead. And so one of the controversial things I think that we've been saying for a while is that, is that like, we are not, 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 your 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. But that's so long ago now that I think people have forgotten that other business models can fit certain play patterns and certain audience types. And as long as that's a big enough market segment, that can also be investible. 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's 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 LinkedIn. Awesome. Awesome.

Uh, let's go ahead and close here then. Shanti, thank you so much for joining me today and best wishes to you and everyone at Transcend Fund. 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 Novik has to offer, make sure to check out our website, www.novik.co. There you can sign up for the number one games industry newsletter, Novik Digest, or contact us to learn about our wide-ranging consulting and advisory services. Again, that is www.novik.co. Thanks for listening, and we'll catch you in the next episode.