Part Two: Hunting the next Supercell.

Our evaluation framework

There’s no silver bullet or magic formula for spotting the next great games company (or sure-fire hit game), and data alone will only get you so far… So at Atomico we have developed a framework for evaluating games by zeroing-in on the characteristics we believe the best-in-class games companies share.

To help games founders prepare — as they consider how best to shape their business and pitch their vision to investors — we’ve decided to make our evaluation framework public. We hope that it will become a handy checklist of things you should be able to discuss, if you are getting ready to go out and raise external funding.

Overall Games Fit.

The first thing we look at is Overall Games Fit. This is a high level first pass, probing a whole range of factors such as ‘gameplay differentiation’, and whether a game feels ‘new and fresh’ as well as ‘familiar and comprehensible’ at the same time, along with a number of other considerations (see below).

Some of the key questions you can expect a VC to ask you about in this category are:

What are your acquisition costs & marketing differentiation?

What is the size of the addressable market opportunity?

Is the platform proven and growing, new and unproven or declining?

What would you say is your likely app store appeal (Google Play, Apple, Steam), brand appeal or IP advantage?

What is the level of games expertise of your seed and/or angel investors?

Tell us about your team track record and amount of time spent together?

Is the production cycle speed of present/future games in line with the vertical?

Unit Economics.

Next, we drill into Unit Economics, which act as our second filter. Our close relationships with a number of angel investors and early stage funds, who help support teams through their early development, ensures the most promising games startups are already on our radar, even in their pre-launch phase.

Once a game is in soft launch/alpha, we look at metrics such as user and revenue growth rates, user acquisition (UA), marketing return on investment (ROI), cost of acquisition (CAC), retention metrics and ARPDAU (Average Revenue Per Daily Active User), and sustainability of revenues.

These metrics can be very different depending on the genre and even within a same genre. It would be misleading to say there is a golden rule here, but there are some rules of thumb.

So for casual games we like to divide the market into super casual, standard casual games and casual with midcore design loops.

Super casual games are driven predominantly by ad based revenue with low ARPDAU, but also low cost of acquisition (CAC). This category attracts a lot of users cheaply, but its monetisation is not as intense as in other casual genres.

Standard casual games usually don’t have as strong ad-based revenue, but they have a healthy ad revenue and in app revenue mix. The cost of acquiring users is higher than super casual but the monetisation (ARPDAU) is slightly higher than super casual.

Finally the casual games with midcore design loops are great at monetisation (ARPDAU) through mainly being focused on deriving revenue from in app purchases — but their CAC can be much higher.

For midcore games it’s a pretty similar picture, but they are usually dominated by in app purchases and high CAC with the added feature that they usually have strong synchronous or asynchronous multiplayer components. This is a tough place to build a gaming business given the dominance of some of the juggernauts in the ecosystem. Although there are some that have games that have produced viral loops, which transforms the CAC and they can also derive revenue from advertisements. Still with the right combination of innovation, familiarity and flawless execution, breakthroughs are still possible in this genre.

Competition.

After that comes Competition, which we measure in the context of originality, first-mover status, existing scale, ability to build a powerful lasting moat and international success or potential for success. This is critical in a market where 1,500 new games are created a day, which are all jostling for their share of the $50bn mobile gaming market which represents 76% of iOS and Google play revenue. Competition is intense but there are rewards for both the big and small players.

Here, we use highly specific subcategories (and questions) to differentiate between games such as: