Ian Livingstone CBE, co-founder of Games Workshop, opens up about his angel investment journey and the untapped potential of the gaming market for angel investors

The global games market value was up 7.2% in 2019 to $148.8 billion with mobile gaming accounting for 46% of that. In the UK the gaming market was valued at a record £5.7 billion in April 2019 thanks to titles such as PlayerUnknown’s Battlegrounds and Fortnite. Next week, on Thursday 30th January, the UKBAA and Creative England, in partnership with BFI, will hold our Investing in Innovation and Creativity event. Ahead of the event we spoke with our keynote speaker Ian Livingstone CBE, one of the founding fathers of the UK games industry, to talk about his experience as an angel investor in the industry and to discuss the opportunities in the sector.

Ian co-founded Games Workshop in 1975 with Steve Jackson, launching Dungeons & Dragons in Europe and Warhammer. In 1982 he wrote The Warlock of Firetop Mountain with Jackson, the first Fighting Fantasy gamebook in the series which went on to sell 20 million copies worldwide. In the mid-1990s he co-led the merger that created video games publisher Eidos plc where, as Executive Chairman, he launched hit titles including Lara Croft: Tomb Raider. After leaving Eidos he successfully invested in several mobile games developers including Playdemic. He is currently Non-Executive Chairman of Sumo Group plc and a partner in Hiro Capital LLP.

Discussing the beginnings of his angel investment journey Ian says:

“You reach an age where you don’t want the stress of being a full-time executive anymore, but you still want to be involved in the industry that you love. I’ve achieved that by investing in several games companies. I provide funding but hopefully add value in terms of my experience gathered over 45 years of being in the games industry. I act as a sounding board for people want to tell me about their games ideas, business strategy and also their problems if they have any.”

Ian believes there are plenty of opportunities for angel investors in the creative industries and in particular in gaming.

“The video games industry ticks all the right boxes for the 21st century knowledge economy; creative, digital, regional, IP-creating, high tech, high salaries, transferable skills, green, regional and instant export story. A digital game goes global the moment it is launched on mobile, PC or digital console. The UK is over-achieving in video game production but is under-served by risk capital compared to North America and Asia.”

Research carried out by UKBAA and Creative England found that only a small proportion of angel investment goes to creative industries. Angels are generally committing lower amounts of investment into creative industries businesses compared to more tech intensive businesses. Talking about why that is the case, Ian comments:

“The creative industries are sometimes seen as fluffy industries run by luvvies. Whilst UK music, television, games, fashion, design, architecture and advertising is celebrated around the world, there’s the perception still lingers that they are not ‘proper’ industries and are difficult to value. For example, in the video game industry, the assets are intangible and even though intellectual property can be hugely valuable over time, it is not something that investors can weigh or measure at early stage. Tomb Raider’s heroine Lara Croft started life as a simple sketch and went on to become a billion dollar franchise. I believe there needs to be a better understanding of the critical relationship between intellectual property and risk capital.”

“The global market for video games is forecast to be $200 Billion per annum by 2025. There are 3 billion gamers in the world and growing. And the UK happens to be superb at developing video games. This is an extraordinary investment opportunity. What’s not to like?”

Ian believes there is a perception issue too, often stoked by the media who tend to pick on the bad news stories from the industry rather than celebrating its success and growth.

“The games industry is often misrepresented by the media which tends to criticise rather than praise. This has a negative effect on the industry and impacts on investment. Yet there are so many good news stories. Grand Theft Auto V for example, launched in 2013, was developed in the UK and generated $1 billion in three days. That’s the largest entertainment franchise in any medium. It should be celebrated as a great British success story. Wilmslow-based Playdemic are the developers of hit mobile game Golf Clash which generates over $100 million per annum in revenue with a workforce of only 60 people. There aren’t many companies with so few staff in any other industry that can generate that amount of revenue. Yet you never see a minister visit a games studio to bang the drum and say video games will be a main driver of the economic future of the UK. They’d rather play safe and stand outside some widget factory for a hard hat photo opportunity.”

The research also found that angels don’t feel they have enough knowledge of the sector, which is why they tend to not invest or to invest small amounts. Through his experience, Ian has found in other countries that investors attend games conferences and events, and there’s more market intelligence data available, which leads to a greater understanding of the sector. With the gaming market still growing, and not having been exploited in large parts of the world such as India, Africa and South America, Ian sees plenty of opportunities for angel investors in the UK.

“The global market for video games is forecast to be $200 Billion per annum by 2025. There are 3 billion gamers in the world and growing. And the UK happens to be superb at developing video games. This is an extraordinary investment opportunity. What’s not to like?”

Ian is currently Non-Executive Chairman of Sumo Group Plc, the UK’s largest independent developer of AAA-rated video games. Explaining more about what the company does, Ian comments:

“Sumo is one of the UK’s largest providers of creative and development services to the video games and entertainment industries. The group has two operating businesses, Sumo Digital and Atomhawk, employing over 700 people and has studios in Sheffield, Nottingham, Newcastle (x2), Brighton, Leeds, Leamington Spa (UK), Warrington, Pune (India) and Vancouver. The company has talented teams of software engineers, designers and artists developing content for all of the major publishers and platform holders in the video games industry.”

What have been the biggest lessons he’s learned during his time in the gaming industry?

“A creative person should partner with a business person to do all the things they can’t do or shouldn’t do. There’s no point in a creative person spending time filling in VAT returns or doing management accounts or ordering toilet rolls or trying to find new premises. That’s an absolute waste of their time. They should hand over the running of the business to somebody who’s an expert in running businesses, but without giving up creative control. It should be an equal partnership. In order to scale, it’s important to get the right investment at the right time at the right valuation. The right business partner will know how to scale the business and know how to make the company investor-ready.”

When it comes to looking to invest, Ian has a number of things that he looks for when investigating an opportunity.

“Number one for me is team. The leadership team and the development team. What’s their track record? And then there’s a whole raft of things. What technology and IP do they own? Are they personally invested in their own studio? Who is their target market? What’s the addressable market for the game they’re trying to make, and the competitive analysis around that? What’s their business model? Last but not least, is the game compelling? A good game is the starting point for me, so ideally I need to see a demo of some sorts to give me an idea of how it plays. It doesn’t have to be graphically amazing, it just has to demonstrate gameplay. It’s hard to make a judgement call by reading a document.”

He also firmly believes that data should be a key part so that over time games can give a better user experience and improve the monetisation opportunities. Ian cautiously warns:

“Whilst games shouldn’t be designed by data, they can certainly be improved over time by analysing data. With games as a service, data scientists are a vital part of the development team. Using player data and performance metrics to dictate changes in gameplay, the player-experience can be improved over time, as can monetisation.”

Find out more about Sumo Group plc by visiting https://www.sumogroupplc.com/ and Hiro Capital by visiting https://hiro.capital.

Join us at Investing in Innovation and Creativity on 30th January, a pitching showcase presenting 7 innovative screen-focused founders seeking investment to grow. Register your interest to attend.

Want to learn more about angel investing? Enrol in our course The Effective Angel Investor at http://bizangels.thinkific.com.

By UKBAA 27 Jan 2020