Today’s guest is Shanti Bergel, Founding General Partner and Managing Director of Transcend Fund, which has been a top decile performer since the firm was founded in 2020.
Shanti is not just on the cutting edge of where the games industry is headed, but he’s also a veteran operator across much of the industry’s decades-long dynamism. In this episode, Shanti and host, Aaron Bush, chat through Shanti’s career at companies like EA, Gree, and FunPlus, pull out evergreen lessons learned, and then discuss his views on gaming VC. His insights about navigating platform shifts, succeeding in global expansions, becoming better at sales, and the power of startups focusing on distribution innovations are all worth learning from.
We’d also like to thank Nefta for making this episode possible. Nefta has created an advertising network that pays game publishers higher eCPMs on their iOS opt-out users and drives better results for advertisers. Learn more about how Nefta can boost your results at http://nefta.io/
This transcript is machine-generated, and we apologize for any errors.
Aaron: Hi everyone. I'm Aaron Bush. And today I have the pleasure of chatting with Shanti Bergel.
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 and 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 Naavik Gaming Podcast.
Shanti: Hi, Aaron. Thanks for having me. And thanks for that very kind introduction. I'm really excited to talk to you today.
Aaron: Yeah, it's going to be a bunch of fun. So we're going to 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 nineties and how did that set the foundation for your career in gaming?
Shanti: 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 and D and computers and chess. And I actually wrote my very first game in basic on a Commodore PET 3000, which is the Computer even before the VIC 20 and the Commodore 64.
And so I got, I was saving up for my own computer. And so. Interplay was a U. S. kind of PC console developer, and it was starting out in Japan. I was employee number two, 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 was 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. So the PS1 era is probably the most effective way to do the business.
So this was PlayStation one, 3DO. So 3DO is a platform forgotten to time a bit, but at the time it was 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 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 CDs at retail. So selling into retail accounts in the U. S. That would be things like. Target and Walmart, but in Japan, it was Akihabara and a bunch of other local retail chains. And it was 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 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.
Aaron: Yeah, that's fascinating. I wish I could have lived through some of that, my, myself and gotten some of that experience. So I didn't know you were employee number two 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 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 you think? Still hold up today pretty well.
Shanti: Yeah, there's a lot to unpack there. So it was a really interesting kind of inflection point in the industry from when I got into it, you know, as I said, in the CD ROM phase back in Japan I actually.
Left Japan probably because of the online boom. I was on a business trip to the U S and a friend of mine worked at Silicon graphics. And which was a, is 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 the next couple of steps for me personally. I eventually ended up at EA. 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 it was right not to prioritize it immediately. The right timing for it, did come a little bit after I handed the reins over from that particular, kind of 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 Brute, 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 in both those cases was really a bunch of hard word insights about platform transitions and business models and pattern recognition. I would say that I also learned that like focus and audience. And what time it is in the ecosystem and salesmanship, frankly, matter almost nearly as much as talent and strategy.
And so a lot of that, I do take into additional parts of my career that came later, but also the venture work that I do now.
Aaron: 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 the new countries and regions that today's executives and entrepreneurs could learn from?
Shanti: 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 and why players behave the way that they do. And I think 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 I took a look at the sales charge for last year and was just reminded once again that premium is not dead, that free to play is still, 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, as you're talking about play fish is that like that audience and that market has a lot of texture to it, that they're not just like waiting for your product to arrive and they have their own history, their own culture and their own, set of criteria as to what good looks like.
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 view it as a primary way of viewing some of the challenges of creating something meaningful in the industry.
And so you're like, That is something that I encourage 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 at Gree, where I also was involved in developing Western product, which. Despite the fact that Greece is a Japanese company, we almost never shipped our US based games into Japan.
And it's a lot of that kind of interplay between myself and those teams back in the day. 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.
Aaron: I want to double click into this a little bit. If someone today, an entrepreneur, an executive, they were looking to take Japan and their Western based business. Is it harder or easier than it used to be? Do you think what is that listening and understanding the audience? 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 and doing that today versus when you were at the Playfish three days?
Shanti: Yeah, so I think 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 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 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 DNA and greed.
And 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're like the way that. The opportunity space is often shaped by distribution and what that implies for content, I think is an under discussed 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 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. Cause to be fair, like this is one of the most sophisticated gaming markets on the planet. Most of the console industry was born there, whether it's the hardware manufacturers or, the game developers.
Deep, deep history in terms of, understanding what great gameplay looks like and real attention to craft. Some of the very best developers over time have definitely, come from Japan. That said, 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 it 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 and fair advantages that Western developers don't.
Aaron: Gotcha. You also, you worked at Gris for five years where in that time you acquired Funzio, which I think got Gris into free to play mobile at the time.
That was 2012. Again, you can correct me if I'm wrong. You also set up Gris publishing framework. I don't actually know that much about the GRII of 10 plus 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 GRII?
What were some of the things that you're most proud of from your time at GRII? Notable lessons learned there, whether about M and a publishing or something else.
Shanti: Green at the time was a really exciting company. And one of the reasons was, is they were a real innovator in mobile social gaming. So at the time that I joined Greece still had a feature phone business in Japan that was really profitable.
So they, like before smartphones took over the market, the eye mode was his dominant force in Japan. And, Gree had a really great, 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 per pound, I think like employee for employee, like how much more profitable rooting and DNA were than some of the local companies like Zynga. And like they were as a company trying to move into the Western business, but also the smart phone business.
And so my role at coming in as the head of corp dev there 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, three 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 very odd company. They had a lot going for them.
The revenue was growing month on month, made it a very tricky transaction to corral. But we did manage it and it put together 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. If there was no deep understanding of the 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 was part of the reason that I was so excited for this particular, kind of 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 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 with, by the end of that year, we 5x the run rate of, the funzio portfolio within pretty short order. And so it definitely worked.
Aaron: Yeah, that's really exciting. So we're nearing present day in your career, but between GRI and transcend, you also spent a couple of years as an executive at fun plus.
I don't know much about your time there, so maybe you could just fill in the timeline. Fors, what did you do? What was your largest takeaway or two from your time at Fund? Fund Plus
Shanti: there, there's fewer big things to point to at Fund Plus. I would say the biggest thing I did, frankly, was help recruit Chris Petrovic. Oh, who's the current Chief Business Officer.
Aaron: Yeah.
Shanti: Away from Zynga and eventually to to fund Plus. Chris, I think is a spectacularly talented executive and doesn't get enough credit for his contributions to the amazing turnaround that Frank Jabot and team pulled off at Zynga. And so to help bring him into FunPlus was actually quite a coup, but in terms of other things, it wasn't a ton.
I was focused at that point on investing and like the investments done by FunPlus, not too much I can share with the audience.
Aaron: Yeah, no, that's fair, but we can go ahead and 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 and 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?
Shanti: Oh, yeah, no, there were, unfortunately there's lots of course, like 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 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 companies that were importing them from South Korea at the time. There That's 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 Habbo Hotel. InView, Second Life, a lot of these companies probably don't ring out anymore, except for Roblox, of course.
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 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 it 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 here. I think, Deployed it on maybe my space and Facebook, but in any case, there's these rumors going around that, like Dave is making a million a month, basically.
And so you're 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 and tell mobile so oxygen for other things like world, for example, became 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 jogger nut today and I forget the exact numbers like 70 million DAU 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 this arguably a very similar strategy and we missed not only the Roblox outcome, but we also missed the Zynga 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 terms that made the difference for both of these in retrospect. So that was definitely, like one that, 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 was able to sustain on Facebook really worked.
And then the transition to mobile, which really was the thing that in. What are about 2011, 2013 gave real rise to Roblox, in my opinion, and like their ability to stick around and catch that mobile wave is really amazing to me because it was so long that they were building basically like in a very, humbling, ecosystem that didn't give them a lot of Great feedback signals and as a VC now, like I think a lot about like the timeframes that we look for return on and like the nature of different platforms and what good looks like against those opportunities.
Aaron: 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 making it work in various ways until something clicks.
Is there any more in there that's worth unpacking?
Shanti: The thing about Zynga in particular, in retrospect, that like I've grown to admire, despite the kind of the companies, I think, In the San Francisco ecosystem, I think they took a lot of slings and arrows, some of it probably right, and so for fast following other people's game design, they were absolutely ruthless in their application of data analytics and their pursuit of a better player journey.
Things that I learned to, 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, every time I see a successful company, I'm immediately interested in why they're able to pull that off is one of the reasons that I was interested in fun plus 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.
Aaron: What did you learn at FunPlus that changed your mind on that?
Shanti: 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, like 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 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 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.
Aaron: 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. What did you learn about being good at that type of role that other aspiring biz dev people can absorb and put into action?
Shanti: 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.
And so I think part of it is, like Understanding what you're good at and being able to make that an important building block for the company's, plan. And like both are critical. And I said, I like strategy. Salesmanship is really important if you're going to be in BD.
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, like success comes from a number of different factors and strategy is definitely one of them. I think. Orienting yourself correctly is 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 like for the good. 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 personal orientation.
Aaron: Yeah. What else did you learn about becoming better at sales?
Shanti: So I think once you for me personally, like having grown up, like loving the strategy side and cringing at the sales side. Letting go the mental acts of, not wanting to really study this thing that, clearly is very important.
Once I was past that hurdle, it was actually quite fun. I think understanding 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 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.
Aaron: So also throughout much of this time for several years in your career, you mentioned how you did investing at Fundplast, 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.
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.
Shanti: 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 wanted to learn more about that world, but also I had friends who were starting companies and 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 the kind of companies like super evil mega corp, which is started by some former coworkers of mine from playfish. And 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, very different roles.
Aaron: 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?
Shanti: 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 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 then they've gone mainstream and now drive socialization and culture and particularly for younger. I think that's almost, like of course and accepted by most people at this point I don't think it was quite as obvious like just was it four years ago? Yeah, and To answer your question One of the reasons that we were I was interested in starting a fund was that I really enjoyed working with you know 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, like required, 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.
Aaron: 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 details. So it shape up people's understanding of transcend right now.
Shanti: Yes, we've raised two funds. We have an investment team of six in key geographies around the globe. We're focused on pre seed and 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, the, I mean, we named the firm transcend, because of, like what we see as 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, like Disney and Lego both invest billions in Epic. Last of Us is, a top rated series on HBO and all these other, kind of proof points that kind of under, underline the audience dynamics that inform our thesis construction and 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 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 walk, watching through of Gen Z and Gen Alpha is going to grow the games business, like pretty easily. And so we are very excited to this day about the opportunity to continue invest in interactive entertainment.
Aaron: Nice. And is there anything unique you would say about TranscendFund, either in the way that you invest, view the market, work with founders, anything else?
Shanti: 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 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, 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.
Aaron: 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?
Shanti: 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 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 worked on. A different view on just because of our personal histories.
Like 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. 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 three 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 three of those vectors, we're pretty uniquely formulated to push hard on each one of those levers.
So we're, very purpose built for the job.
Aaron: Very cool. So on this podcast, we've discussed adventure 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 of 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 of years, big picture?
Shanti: We're bullish long term. I think short term definitely, the fact that there are some, there's some chop, it needs some introduction. People are very aware of that. In terms of specific spaces, it's always a little difficult in games to prognosticate, like how fast something might happen, but you can definitely see the bones of, like AI and UGC of course are very relevant and very topical, but they have been for a long time.
And we have several companies in our portfolio that, of course, make use of these building blocks. 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 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, kind of create replicable unfair advantage for the entity that you're building, creating a platform that then is able to, leverage what you're doing again.
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 hidden 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 we're happy for them not to be muddying the waters with 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, 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, that start was they had a highly cash generative phishing game. The platform that the company then leveraged into the next phase of its growth, which was dramatic. You could say that kind of Zynga experienced some of those dynamics as well, though it's a little bit different.
Anyway, like 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. 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. There are hundreds of ways that you could federate together your fandom and craft an interesting business around it.
And so that toolkit 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.
Aaron: That's fascinating. That's a great answer. 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?
Shanti: So you remember what I said about content sometimes leading to distribution? 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 that game company.
And you can already see the work with sky, which is their big hit. So that game company 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 the, 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 a an animation project based on Sky, of course. And so this is, I think. You can see the elements of their ability to take their audience into additional additive businesses and additional touch points that reinforce the audience's engagement with the franchise.
Certainly answers your question. But it is, I think a little bit of a a view into like how an early stage company is developing along that path.
Aaron: Gotcha. No, that's all totally fair. And related one industry wide discussion topic lately has been around like what investors consider investable. For instance, many investors have soured on mobile or web three 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.
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.
Shanti: 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 like the ability to see through a. A pitch about right now versus 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, black cab companies.
And so. The, 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. 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 like 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 I'd like to think so.
Aaron: 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 fundraise, having been on the investor side of the table.
Or 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.
Shanti: 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 10 X return, and that literally they view it as your responsibility to deliver back that kind of return profile, you're like, that is a better place to start.
Then if you come in, like in the case of video games, if you come and 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 have.
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 gamery and we're all going to get it. But what I coached 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 and they don't understand, you know, like all the hip gamer lingo.
And I would say. It's a good practice to start at the beginning to start assuming that, 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, the where I'm based now, 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, tell me horror stories about board meetings with folks who 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 who is the right team for you overall? Get your series A lead set, your series C lead set, and then 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, do a five slide deck, do a three slide deck, 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.
Everything else will sort itself out.
Aaron: 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. The years you want to call out.
Shanti: So one, so my partners and I, we have deep history in free to play. And 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, we're all in South Korea, like companies like Nexon, we're 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 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 the premium is not dead.
And so one of the controversial things, I think, that we've been saying for a while is that 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, 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 investable. So perhaps that's controversial. I don't know.
Aaron: 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?
Shanti: So then we have an email address. You can send any materials to, or a pitch to it's called pitch at transcend dot fund.
You can also reach out to the team members on LinkedIn.
Aaron: Awesome. 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 Fond.
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