Venture Capital, Mitch Lasky & Outpost
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Venture Capital, Mitch Lasky & Outpost2015-09-032018-06-12DFC Dossier200px200px
Benchmark partner Mitch Lasky.
SEPT. 3, 2015 • Outpost Games, Inc. secured $6.2 million in funding from Benchmark back in July. The startup has plans to release PC games that incorporate a built-in platform for users to broadcast their in-game exploits to the web. Leading Benchmark's investment was games industry veteran Mitch Lasky. The former publisher executive has been a partner in the Redwood City-based venture capital firm since 2007 and was instrumental in previously backing both Riot Games, Inc. and Snapchat, Inc.
Lasky is best known for his executive stints at The Walt Disney Co., Activision Inc. and JAMDAT, which was acquired by Electronic Arts in 2006. With the Outpost investment, Lasky also joined the year-old startup's board. Lasky told The Wall Street Journal that he was attracted by how Outpost intended to create games that showcased skill and creativity in an accessible fashion that can also translate into consumable performance video content. The developer is still in quiet mode, but Lasky says its first title shares elements with hit television content such as Lost and Survivor.
Intrigued with the Outpost investment, DFC thought it would be a good opportunity to check in with Lasky for an update on how he has taken to the role of venture capitalist.
DFC: You have been a principal at Benchmark for eight years now. How has the ride been? What do you enjoy most compared to your publisher days?
Mitch: It's been an incredible learning experience. The amazing variety and complexity of startups, as well as the constant changes in the capital markets in the last decade, is just breathtaking. I didn't appreciate the difficulty of venture investing when I was an operator and entrepreneur.
DFC: What is the capital investment landscape today in the game industry? What are the current trends and how have they changed since you joined Benchmark?
Mitch: The availability of venture capital for games industry startups is probably as healthy as it's been in the last 15 years. When I joined Benchmark, there were only a handful of investors who would even look at games companies. There was an influx of "tourists" after Zynga and Playdom, but that's subsided and there is a smart and engaged group of investors who "get" games.
DFC: Do you still believe the Los Angeles startup market is under served – if so, why so, if not, why not?
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Mitch: When I was an entrepreneur, there was definitely a stigma associated with L.A. startups. Silicon Valley VCs tended to view L.A. companies in a certain way, and I think L.A. startups took a valuation discount in fundraising for staying in L.A. I don't think that's true any longer.
But with a couple of notable exceptions, the indigenous venture capital environment in L.A. hasn't developed as fast as I'd hoped. The local venture firms in places like Seattle and New York seem to have more early stage deal control in their local markets than L.A. investors have in theirs. Look at Snapchat, for example, the most significant company from a valuation standpoint ever founded in L.A. All the early funding came from the Valley, from Benchmark and other well-known firms.
DFC: How has the investments you are attracted to changed since 2007, and why?
Mitch: I've matured as an investor since then. Coming into venture as an operator can be humbling. I think I understand the nature of risk a lot better now. My partner, Peter Fenton, taught me to ask the question: "What could go right?" when looking at new companies, not just fixate on the obvious downside risks.
DFC: Once Outpost caught your attention, what about them cemented your interest? Was it their product focus or were these already people that you knew and had confidence in?
Mitch: It was three things. First, I found Sachin and Wright really compelling. They were smart, imaginative and flexible in their approach. When we referenced them with our friends at Zynga and EA, where they had worked, we heard things like: "Wright is probably the best designer in the U.S. right now." Second, they had a functional prototype that let us understand where they were headed with the product. And third, we liked their approach to the market. We'd seen a number of e-sports startups that all seemed pretty paint- by-numbers. Outpost's approach was radically different, while still addressing the enormous market opportunity that companies like Riot and Twitch have exploited.
DFC: It has been said Benchmark is a pretty lean operation. How fast can you move on an opportunity compared to other investment firms?
Mitch: We are very lean – just five investing partners and a small staff. It allows us to move very, very quickly. I've seen occasions where one partner has met a new company and within 48 hours all the other partners have rearranged schedules in order to meet the founder, vote, and get a term sheet done. It's remarkably non-bureaucratic.
DFC: With a Benchmark lead like yourself on Outpost, you take a seat on the startup's board. How involved do you typically get and how large a time commitment is this role for you?
Outpost Games co-founders Wright Bagwell (left) and Sachin Pansuria (right).
Mitch: It is the single most important part of our practice. Ideally, we can play a very active role working with the CEO and other board members to ask hard questions about the business, debate strategy, locate and recruit candidates, among other things. Because it's potentially such a significant commitment, each of the Benchmark partners can only serve on a limited number of boards. Our ability to serve on these boards of directors is our scarce resource.
DFC: What impresses you most in working with the team at Outpost?
Mitch: Sachin and Wright know what they are doing as game designers and developers. What I'm impressed by is their willingness to dig in and learn about the business. Their "big idea" about games and performance transcends any one product, and they've shown an impressive ability to maintain focus on the flagship title while also understanding how that title fits into the bigger business opportunity.
DFC: DFC Intelligence has done quite a bit of research on the potential among what we call high-spending PC gamers. We see this as one of the biggest segments in the market in terms of growth opportunity. We wonder if you agree and if that was part of the attraction around Outpost?
Mitch: I do agree. One of the attractive aspects of the PC games business is the potential for early revenue and profitability. But too many game developers make the mistake of thinking that monetization tricks can produce long-term competitive advantages. Monetization arbitrage games companies, even at scale, trade at very low multiples compared to other software businesses. What was most attractive about Outpost was their awareness of this and their plan to overcome it.
DFC: Why is the growth in games as a spectator sport important as a consumer trend, what is your interest and how does Outpost fit in?
Mitch: It's important because an entire generation is growing up watching FIFA and Minecraft videos, or League of Legends live-streams on Twitch, as an alternative to television. These categories have tremendous share of day for young media consumers. It's user-generated content, but also great marketing leverage for game developers. I saw first-hand as a Riot Games board member how symbiotic League of Legends and Twitch were to each other's growth.
DFC: What is the value of turning players into performers? How do you adequately manage and monetize the product?
One of Lasky's prior investments was Riot Games in Los Angeles.
Mitch: It feels to me like a necessary next step in the evolution of online games. Players worldwide are already creating performances in games that were not explicitly designed for that purpose. A huge percentage of YouTube videos are the output of video game engines. When performers have the necessary tools to really capture in-game performances, I think the global audience for this kind of content will broaden, and hopefully new genres will emerge.
DFC: Will these player/performers eventually come to the conclusion that remuneration for their participation is necessary? How will a company like Outpost deal with that eventuality?
Mitch: I think that's the case today with YouTube, Vessel, Twitch, Patreon – there are many ways for performers to get paid and some are making very significant incomes from their work. The professional e-sports teams are often sponsored and some even have endorsement deals. The larger gaming tournaments offer significant prize money. Monetization of performance is the norm.
Acquisition, Acquisitions, Benchmark, Interview, Outpost, Venture Capital, Video game Investment
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