The end of cheap money for games

Embrace minimum viable fidelity for fun and profit.

One of the most visible consequences of the zero interest rate era was the age of peak TV, which saw huge numbers of expensive shows financed by cheap money.

In the games industry, cheap money fueled a torrent of M&A activity (especially during the COVID years), and a proliferation of VC firms with billions to deploy into early stage game companies.

This created amazing opportunities for high profile creators, who could count on raising tens of millions of dollars to make the games of their dreams.

The age of cheap money is over

The age of cheap money is over. Public markets were the first to react, but the consequences are now working their way through the rest of the gaming ecosystem.

One quirk of gaming VC is that it’s possible for a studio to raise multiple rounds of funding before shipping. In other industries - SaaS for instance - it is expected that a startup will use its first round of funding to get an early version of their product in front of customers, and use this traction to raise the next round (also true of mobile gaming).

In gaming startups, this is not always the case. Many seed-stage studio pitches assume that there will be at least one more round of funding before they get to market. This approach is riskier than it used to be, because it’s not just founders that have to fundraise - VCs do too, and they are having a much harder time of it today. Many funds are raising less than they planned and taking longer to do it, while also dealing with the hangover of deploying too aggressively over the past couple of years.

For more on the VC vibe shift, I recommend this thread:

Investors have tightened their belts, especially at later stages where valuations are higher and check sizes are larger. VCs who previously told their founders not to worry about the next round now suggest they look to publishers or platform partners to share the risk. Seed stage investors are taking note, because when we invest we’re always thinking about who is going to write the next check.

How should founders respond?

Make product velocity a priority

Many experienced investors agree that one of the best predictors of startup success is velocity: the speed at which a company ships new features, products or services. In one sense, this is a lagging indicator: high-functioning teams are more productive than teams that have issues. So what?

But velocity is not just an output - it is a weapon. High velocity teams ship frequently, which allows them to learn, iterate and improve at low cost and high speed. This sounds great in theory, but taking it seriously means making tradeoffs that some developers, especially those from AAA and big studio backgrounds, find unnatural.

In my experience, many developers from these backgrounds carry with them a default sense of the “level” or “quality” of game they make - and with that typically comes a whole set of unquestioned assumptions around polish and visual fidelity. These assumptions usually bring with them production and staffing implications that conflict with velocity.

Embrace minimum viable fidelity

I want to argue for taking an approach I call minimum viable fidelity.

In a nutshell, this means figuring out the lowest level of visual polish you can get away with to attract your target audience. This does not mean your game should look bad - it just means setting your bar thoughtfully to hit the level you need to achieve to avoid alienating large numbers of players, but no higher.

Doing this allows you to get more done with fewer people and structure your production processes to prioritize speed and efficiency. The details of how to do this will vary massively from game to game and are outside the scope of this essay¹, but I would like to highlight a few examples of this approach in action.

Transistor

Transistor screenshots

Developed by Supergiant Games, who would later achieve widespread recognition for Hades, Transistor was developed with a two person art team and processes that emphasized efficiency and speed of iteration.

Supergiant is one of the best examples of a studio that has achieved massive success with a small coherent team iterating on the same set of ideas across multiple titles.

These kinds of teams are incredibly exciting to back, because they become extremely efficient at making games together, and learn a huge amount by exploring adjacent areas of design space across multiple titles. I think this is one of the best ways to strike gold.

Valheim

Valheim

Famously developed by a core team of five people, Valheim exemplifies the idea of doing just enough, but no more, as well as extremely proficient use of procedural generation. In screenshots, the game looks decent - but in motion, it’s clear there is just the right level of fidelity to convincingly depict the day/night cycle, weather and environment changes that really sell it.

Dwarf Fortress

The most extreme example of minimum viable fidelity I can think of, Dwarf Fortress spent the vast majority of its life with an ASCII interface. This allowed the two person team at Bay 12 games to iterate for an impractical amount of time and implement a frankly insane depth of gameplay before eventually adding a graphical interface to the game.

Conclusion

Game development is about tradeoffs, and if you make the right ones, incredible things can be accomplished by small teams of talented people.

If this sounds like you, we want to talk.

David Kaye is co-founder and General Partner at F4 Fund. If you are raising for a pre-seed or seed-stage games or technology company, please reach out. Getting an intro from a founder we know is best, but a well-written cold email works too.

1. You need an experienced and talented team to pull this off.