Richard Barnwell doesn’t mince his words when he says that building a game is “ridiculously hard”.

If there’s one person in the Irish games industry that knows this, it’s Barnwell, having co-founded games studio Digit Games, which was acquired in 2019.

The problem for game studios remains the same: It’s really hard to raise money in gaming and profitability is a rarity.

“The big issue people generally have with games is understanding that often they are a hit-driven type of business,” Barnwell said. “You have to build the game before you know if it’s going to be successful, so you don’t get very many shots on goal.”

In that scenario, a games studio will likely sink tens of millions of euros into building a game with little or no indication that it will be a success or not, until it’s released.

“It’s a very high-risk business, and it makes it very difficult for investment, so traditional investment funds have often stayed away from games,” Barnwell said.

Barnwell, who co-founded Digit Games in 2011, was able to avoid that fate and raised over $20 million in multiple funding rounds before ultimately being acquired.

Now Barnwell is on the other side of the table as a partner at Irish venture capital firm Delta Partners, bringing his experience as a gaming sector founder and his understanding of the funding challenges that lay ahead for Irish gaming start-ups.

Funding landscape

It’s not all “doom and gloom” in trying to raise money but the games sector faces distinct challenges. While it must also contend with the broader VC tightening seen across tech, it is measured by different metrics.

“It is still possible to raise money from venture capital as a games company, but you have to expect that there’s an awful lot of questions around what you’re doing that’s different to the current market and the answer is never ‘our game is unique’,” Barnwell said.

“The chance of your game idea being unique is almost zero. Instead, we care more about what platforms you’re going on, what are your barriers to entry, how you’re overcoming it, what’s your distribution strategy, what your monetisation strategy?”

The Irish games ecosystem is also challenged by its smaller profile. It has not developed as deeply as other countries. Finland, for example, has produced several successful games companies like Supercell and Angry Birds maker Rovio. They have exited to Tencent and Sega respectively, yielding founders and well-experienced staff that can found new start-ups or invest in others.

“You’ll find that a lot of the local investors continue to invest in that talent and that talent spreads and they move on to the next thing. It becomes a self-fulfilling prophecy in some regard. We haven’t had that in Ireland yet.”

Digit Games is one of the few examples of that model in Ireland.

Barnwell and his three co-founders started the business in 2011 and had founder pedigree, having all worked in the industry for years.

While the vision was to build strategy games, the pitch to investors was different. It was all about the route to market.

Digit developed games that were cross-platform, on mobile and in a web browser.

“Our view was making games that would work on any platform. Cross-platform was going to be a requirement for large-scale adoption and it also unlocks the ability for user acquisition to be more efficient,” Barnwell said.

“We could acquire users on the browser and then they would go and play on their mobile device. We would circumvent the problems with acquisition on mobile very early on. Our route to market was different, it was cross-platform,” he said.

That model is appreciated more these days, he added, but in 2011 it was a prescient one.

Digit would develop its own games but would see its profile rise when it landed the intellectual property rights to develop a Star Trek game.

The company also pumped sums that “would make your eyes water” into marketing before it reached the level they needed where the revenue per player was greater than the acquisition cost for those players.

That is the “magic formula” that Digit struck, he said, one that was key to its acquisition.

Ceiling

That gets to another issue for games start-ups. There is a ceiling of sorts to how much they can grow.

Digit was acquired in 2019 by US company Scopely, which was then acquired by the Saudi-backed Savvy Games Group this year for nearly $5 billion.

The endgame for many games companies is an exit through an acquisition rather than a public float.

“If you are a venture capital-backed business, at some point you need to give a return to those shareholders so you’ll be selling that business if you don’t have a path to IPO, and going public is a very significant undertaking,” Barnwell said. “To do that as the games company, you need an entire portfolio of games. I mean, you need a whole load of games.”

A company could spend years developing one game and increasingly gamers expect post-release updates and additional features. This means a studio could spend its whole lifetime building and supporting just one game rather than amassing the vast catalogue needed to be fit for the public markets.

“There is a very clear ceiling. There is a limited number of consumers that are playing the games, although the industry is big and it’s growing. Because of that, gaming studios are likely to sell if they’re under pressure from their investors.”

AI impact

What may have a profound effect on a game’s route to market is artificial intelligence. While seemingly every industry is falling over themselves to extol the benefits of AI, how it will manifest in the games industry is far from clear.

Barnwell foresees AI’s biggest impact being under the bonnet in functions like quality assurance. This includes grunt work like testing games for bugs and glitches.

“AI should be able to automate massive chunks of that,” he said. “It means that your skilled people can be focused on game development and not distracted by fairly mundane, monotonous tasks which no one really wants to be doing.”

Freeing up resources could potentially speed up the time to market and make for a leaner timeframe that start-ups can show to investors in their pitch decks.

Barnwell, now in his role as partner at Delta Partners, which was a backer of Digit, views around three games companies a week that are looking for funding and his criteria remain the same: experienced founders and a unique route to market.

Last year, Delta unveiled its new €70 million fund to back Irish start-ups at the early stages. It has made a handful of deals from that pot of cash so far but has yet to back a gaming start-up. 

“Building a game at scale is probably one of the most complex pieces of software challenges you can undertake,” Barnwell said. “We do have a slightly higher bar on the founding teams’ capability and level of knowledge before we’d be willing to back.”

Nevertheless, Barnwell said he remains “bullish” on the potential of the Irish games sector.

“It will just take a couple more successes here to kickstart it.”

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Richard Barnwell is speaking at the NEXUS by GamerFest Conference, which is taking place on Wednesday, October 18. NEXUS is a gathering of 175 industry leaders and professionals from the gaming ecosystem, facilitating invaluable knowledge-sharing and networking amongst developers, publishers, investors and service providers. The Currency is the media partner for the conference, use the discount code CURRENCY to get 10 per cent off when purchasing tickets.