Meet Maria Kochmola, managing partner at The Games Fund

The Games Fund is a Moscow-based $50 million early stage fund that launched last week

Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh, how times have changed!

While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.

But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?

We're highlighting key members of the community to find out.

Maria Kochmola is a managing partner at The Games Fund.

Kochmola has been the investment director of MGVC since the fund foundation in 2017, where she was responsible for M&A and venture capital investments. Maria led and supervised more than 30 investments in MGVC, the investment arm of Mail.ru Group.

Before joining MGVC, she worked in other VC and PE companies Vestor.In and AYR financial, and in the management consulting firm A.T.Kearney.

Kochmola graduated from the Financial University and Frankfurt School of Finance and Management.

VatorNews: What is your investment philosophy or methodology?

Maria Kochmola: We believe that the video games industry is very attractive right now for investors. This is the fastest growing segment in entertainment, it's already larger than movies, and we can see that there is a lot of interest from strategics. There's very high competition between them for content. That's why many game companies are involved in M&A activities. At the same time, the barriers to enter the market are very low. Right now, even kids from university can develop a game because of the modern tools, like Unity and Unreal Engine, and we can see that there is a lack of capital between these two stages, between startups and strategic players who are very hungry.

Another point here is that we are currently based in Moscow, and this region has very talented, big developers. There are many, many mobile studios, and they develop great games and when they develop these games they also develop mobile products that are available across all countries, since the only two platforms that you need to distribute the products are Apple and Google. So, we see that these games are very attractive for Western acquirers and, at the same time, there is no VC found in this region.

We're the first to be fund in Eastern Europe that invests in games and that's why we see that it’s very good timing for The Games Fund to launch. 

VN: You said Eastern Europe is a good ecosystem for gaming. Why do you see it as a good opportunity in the region?

MK: Well, historically, we have a lot of tech talents here, that’s one of the reasons. This is still a very cost effective region since salaries might be three or four times less than in the United States. So, it makes these companies attractive from an investment standpoint. Of course, if you invest early, you usually invest in development and the development costs highly depend on salaries.

VN: Are there certain types of games you like to invest in?

MK: We invest in video games developers and publishers across different platforms, like mobile, PC, and console, though the key focus for the fund is mobile; I think that 70% of our fund will be spent in the mobile space. Our expertise is stronger in mobile, and usually a round size for a mobile game is less than for PC and console. That doesn't mean that we will not invest in PC and console games, we will, but usually we will co-invest with other VCs fund and other partners.

VN: What types of genres do you see right now that are most exciting that you want to invest in?

MK: We are genre agnostic. There are many interesting genres and, at the same time, the gaming market is very fluid. There are many changes in the market, and new niches appear on the market all the time.

There are some things that we would avoid investing in; for example, we don't invest in adult games, we don't invest in gambling, and we don't invest in games for kids because usually there's some trouble with monetization. We don't invest in hyper casual developers because we don’t think this is a consistent and sustainable model. We might consider it in hyper-casual publishers, but not in hyper-casual developers. 

VN: What's the big macro trend you're betting on?

MK: We've seen that, in a very tough period of time last year during Coronavirus, games actually have grown. The total market is $175 billion, and that forecast increased last year. So, we just in general believe in games. 

VN: It's interesting that gaming grew, and I would guess it’s because people were stuck at home, they couldn’t go anywhere, so they were playing more games. Once Coronavirus ends, do you see that potentially going down a bit? Or do you think that it will remain at the same level even when you know people can go out again and do things?

MK: I think you're right that during the Coronavirus many people stayed home and, of course, many people played much more than they usually played. But I think it's still good for the gaming industry because, in general, it brought in some new users, and, right now, they are being retained by the industry. So, I think that the growth will not be as fast as it was during the coronavirus, but the user base right now is larger and they will be part of the gaming ecosystem.

VN: What is the size of your current fund and how many investments do you typically make in a year? 

MK: Initially, we targeted $30 million, and expected to close fundraising by the end of this year, but we underestimated the interest from investors to our fund and to the gaming industry in general. So, fundraising went much easier and much faster than we expected. Of course, people told us that the most difficult thing in VC is fundraising. We decided to expand the fund size up to $50 million dollars, and we expect to close fundraising by the end of this summer. 

We expect to do around 10 investments each year, and our investing period is three years, so our total portfolio will consist of 30 deals. 

VN: What stage/series do you invest in and how much is that in dollar amount for you?

MK: We invest quite early, in the seed and Series A stages. For game developers, it means that they should have at least a concept of the game with a very detailed road map on how they're going to develop the game. A prototype is definitely a plus. We can also invest when the game is already in soft launch; let's say it's launched, but not to their mobile audience, but just to some territories.

Usually we can invest from a few hundred thousand up to $2 million. We can participate in the larger rounds, but with other VCs.

VN: What kind of traction does a startup need for you to invest? 

MK: If it’s a Series A then we expect that there should be some traction already. Sometimes the product is in the testing stage, and there are already some product metrics, like retention, for example. But, at the same time, you need to understand that the metrics for games are very different depending on the genre, on the product itself, on the setting of the game, on the competitive landscape. That's why we usually try to assess many things at the same time. 

Another point here is that the game industry is a very transparent market: once the app is launched, it’s tracked by different analytical systems, so we can see many data points about competitors and about their successful games. Of course, we use this information when making decisions about whether to invest in this game or not. 

VN: Do you have any specific numbers you want to see in terms of retention or anything else?

MK: The metrics might be different depending on the genre but, on average, retention of the first day should be about 40%, then the retention of that the next day should be about 20%, and retention on the thirtieth day should be about five or 10%. But, again, it depends if it’s a mid-core game or it’s a casual game. 

Sometimes we’ll also map the status of when the studio released a game and metrics around that. Sometimes you need time to improve the game, and to improve the metrics. In my experience, I met some games that used another probably another year or half a year after the game was released to improve it, and, afterwards, the metrics were okay.

VN: What do you look for in the team when you invest?

MK: If you invest early, this is one of the key factors that you look at and assess. We like to see if the team has experience in gaming and if they have a track record. If they have developed successful games, that’s definitely a huge plus. 

Another thing is a great composition of the team so that different people have different functions, and that it's not just one person you're depending on. We see also want to see what their motivation is: they need to think big, they need to dream of big numbers. 

VN: What do you want to see in terms of the product, so meaning the game itself?

MK: First of all, we need to understand if the genre, in general, is increasing or decreasing in volume. Another thing is that, even if the game is not done, we can still test some metrics. For example, many companies create fake shots that they use to try to acquire some users. This makes it possible to understand what the cost of the acquisition is, how many people clicked the banner, and to understand what the interest is in the potential game. Most companies do that even before they create the game, so we can see some statistics using these fake shots.

VN: What do you think about valuations these days, especially given what’s happened over the last year with COVID? Have they increased or decreased?

MK: Multiples definitely went up and it was not just because of the coronavirus; this has been the trend over the last three years. Comparing the multiples from 2017 and the current multiples, they doubled, at least and by that I mean multiples for revenue and EBITA. Valuations for startups also went up, especially when the team has some celebrities who work on their game, which can make their valuations skyrocket.

We have also seen that many companies filed for IPOs and there were many M&A deals in the gaming sector. This all shows that the gaming industry is booming.

VN: One thing you mentioned earlier is that there's no other gaming funds in Eastern Europe. Why is that?

MK: In general, there are not so many VC funds with a focus on gaming. I think there are some in the Western Europe and the United States, but, in comparison with general VC funds, it’s still a vert small number.

We are indeed the first VC fund in Eastern Europe, but, from the investor standpoint, it’s the strategic landscape. There are some gaming companies that do a lot of M&A, and sometimes they acquire companies at a very early stage, but there’s no classical VC structure. So, that is something that differentiates us from other strategic players in other regions, and other VC funds in the United States and Europe. 

VN: Do you go after the same limited partners as other funds and how do you differentiate yourself to LPs?

MK: Most of our LPs are actually from the gaming industry, so that shows that it’s a very attractive area to invest in. They don't have so many instruments and tools to invest in these industries. There are a few financial investors who want to know more about the industry, so that's also an example of who our LPs are.

VN: Venture is a two-way street, where investors also have to pitch themselves. How do you differentiate your fund to entrepreneurs?

MK: As I mentioned before, the venture landscape here is mostly strategic, so it means that, usually, these partners will require some options to acquire the controlling stake or some rights of refusal. If you work with a strategic partner, it means that you love to work with this partner for the rest of your life. We, as a VC, don’t require any controlling rights or any strategic rights; we’re an equal business partner, we have the same goals. So, we’re ready to put in the maximum effort to accelerate the growth in the company, and we can also help with things like HR, with marketing, with product. We have very broad expertise from our LPs, and all of them are involved in different game development and different genres so, of course, they can advise our portfolio if they need it.

VN: Is there a certain amount of ownership that you look for when investing?

MK: It might be different, so from 10% up to around 35%. If we co-invest with other partners, we have a very small amount of shares, but if we are lead investors, then we prefer to have a lot of stake.

VN: Are you typically the lead investor or do you do more co-investing? 

MK: I mentioned, we are going to invest in Eastern Europe, but it doesn't mean that we are limited to this region only, so we're going to invest in the United States and invest in Europe. If we invest in Eastern Europe, then we will be the investor, and if we invest in the United States or Western Europe, most likely we will co-invest with other funds. 

VN: You just recently launched the fund, so have you made any investments so far?

MK: We had an initial closing probably a week ago, but we still have some deals closed already. One is a mobile game developer called Purple Games, based in Minsk, Belarus, and they are going to launch their game quite soon, probably in one month. That's a casual game. It’s our first investment, but we approved three other investments and I think that by the middle of May we'll have announced those. 

VN: What are some of those investments you mentioned? Why did you want to invest in those companies?

MK: Three of them are mobile game developers. The second one, they are developing a real-time strategy game on mobile, so we're very excited about the idea that a successful genre on PC can be portable to mobile. But it's not just taking an old game and putting it on a new platform: it’s a new game because you need to rethink the whole interface in the game to make it playable on mobile devices. This company is based in the U.S, London and St. Petersburg in Russia.   

Another game is an action game, also on mobile, and this game is developed by a team based in Ukraine. And the third game is also developed by the Belarus-based team, and this is the Merge Games.

Purple Games and Merge Games have very experienced teams that have been working in large companies, and they were involved in developing very popular games. So, we knew that they knew how to develop games. The third, the action game, this something new, so it's a new genre and a new niche, and it’s a more innovative approach in development.

VN: What are some lessons you learned?

MK: Before becoming one of the general partners in the Games Fund, I worked at Mail.ru, in their corporate venture arm called MGVC, which is one of the top seven gaming funds across the globe; I was an investment director and I was the first to really lead games in the fund. So, we basically built the whole fund from scratch. Right now, it’s a big structure, there are 30 people. During my time there, I led 35 investments and so I’ve worked on the strategic side. We invested quite early, but we would see that there was some traction in the game, and when the revenue was over $10 million dollars, we would be interested in acquiring a controlling stake. Six companies out of the 35 were actually acquired by Mail.ru. I also was responsible for these acquisitions. Before MGVC, I worked for another private equity and VC fund, and I also worked for a management consultants company called A.T.Kearney.

When I worked at Mail.ru, I realized that it was important to keep a certain level of freedom in the companies since you're working with a creative industry and there is a high dependency on talented people, so you should let them realize their vision. Of course, you can help with the product, you can advise them, but founders still need to decide on key issues in the company. That’s crucially important. Also, for a VC, it’s important to look for companies doing big things.

Another thing that I want to mention is that it's important to have chemistry with the founders. Even though the business is professional, if there's no chemistry and there's no understanding between you, it’s unlikely that this publisher will be successful.

VN:  What spurred you to launch your own fund? What is the difference for you between being a corporate investor and what you're doing now?

MK: Of course, if you work in big corporations, if you have a good title and it's a very cool place to work, it provides you a certain level of confidence and predictability, but, again, you're just an employee in the company. This is not your business or you sometimes cannot implement your own vision and decide what you want. That's why I think that having a fund is just the next level for me and I always wanted to have my own business.

We met the right partners who will help us to implement this idea about the new fund and we all realize that this is the perfect moment on the market to do it.

VN: What excites you the most about your position as VC?

MK: I'm excited to work with a big number of companies. For me, it might be boring to be sitting just with one project or with one company and here I have to work with a big number of different projects or games. I like to see the variety of different ideas and to observe how the real business is growing, and when millions of people play games that are developed by our companies. It’s really important that we invest early to see how these people can create a sustainable business.

VN: I hear that a lot from VCs, that they don't want to focus on one thing. They want to have a broad portfolio, so I think that that's a trait that a lot of VCs have. 

MK: It’s also part of my hobbies: I’m also a gamer, I play a lot, and this is a perfect fit to be able to combine these two interests. I like art and I like technology, and I like venture investments, and I think that games are something that unite all of these interests.

VN: Is there anything else that you think I should know about you or the firm or your thoughts about the venture industry in general?

MK: We'd like to see more females in the industry. I think that still games are dominated by men. I reviewed hundreds, probably thousands, of games when I worked at MGVC and, at maximum, 10 companies out of these thousands had female founders. It might be a good example to see that there is a fund manager who is a woman and hopefully it will encourage other women who want to be a part of the industry to create their own business or launch their own fund.

VN: Obviously you're going to invest in the best companies, but are you going to put an emphasis on trying to fund female founders?

MK: Of course we will choose projects on a competitive basis, so if the idea is better, we will choose these projects. But, of course, if the company has a female founder, that will be more interesting, and have more impact on our decision.