YetiZen is a start-up accelerator dedicated exclusively to video game companies in the PC, mobile, social, and network download space. An accelerator is a company that educates or reorganizes an existing company or product and then connects it with sources of funding for long term growth. While we’ve seen one or two social game developers practice acceleration — notably Rocket Ninja Games and its relaunch of Wrestler: Unstoppable — YetiZen is the first platform-agnostic accelerator for games that we’ve ever heard of, taking in social, mobile, PC, and Xbox Live Arcade or PlayStation Network indie game start-ups.
At present, the company boasts a network of venture capitalists, advisors and angel investors that include a lot of big names in the larger video games industry. Playdom investor Tim Chang of Norwest Venture Partners, for example, sits on YetiZen’s board of advisors along with Jeremy Liew, Managing Director at Lightspeed Venture Partners and several other established investors. Full disclosure: Inside Virtual Goods researcher and ISG contributor Charles Hudson also sits on the board.
YetiZen is set up as an intensive three-month program of workshops and networking events for groups of around 10 game companies ranging from game developers and game tools services to publishers and even platform creators. The accelerator is currently closing its first session and wrapping up candidate interviews for its second session, which begins in August. YetiZen plans to maintain a biannual session schedule.
Below, we interview CCO & Co-Founder Japheth Dillman (pictured) on what YetiZen looks for in a candidate and what it expects to see from the games space in the future as the Facebook and mobile markets become saturated.
Inside Social Games: Why is it that YetiZen focuses on all game companies except those targeting consoles?
Japheth Dillman: Console [development] is difficult to accelerate. For example, it takes maybe $20 million to make a successful title these days and if one out of four of them succeeds, that means you need to make a few of them to find success, which means you need $100 million. How in the hell are you going to find that from a VC today? It isn’t going to happen. So [console] is not even on our radar at all.
ISG: As a contrast, how much does it take to get a social or mobile game off the ground?
Dillman: A really, really good social game? Maybe $300,000. It really varies depending on the type of game, the genre, the platform. If you’re doing mobile, you could do a really good game for $80,000 to $120,000. If you’re doing social, it’s maybe double that. Of course, the higher your production values are… some social games now are costing up to half a million to roll out.
ISG: Do you look for startups that have a cross-platform strategy in place? Maybe a game already built in Unity or HTML5?
Dillman: Oh, yes. HTML5 is one of my favorite tools to use right now because it’s true cross platform, anything can use HTML5. Even smart televisions, which is probably the next wave. We actually have relationships with Sony, Panasonic, Pioneer, Samsung — and they all are desperate for game developers to come onto their platforms and make native games to their platform. They know if they come to market and others have it when they don’t, they’re going to fail. Right now there’s no game developers focusing on smart televisions. So we’ve been approached by a lot of them to find that as the next platform for development.
ISG: But you don’t create a cross-platform strategy for your startups? You only focus on providing education based on the product that the startup already has?
Dillman: There are three components that we provide. One is the educational component, that comes in the form of workshops and advisors that get packed around the studio. The second is [distribution] partnerships. We actively seek partnerships with TapJoy, Super Rewards, W3i, all those and other types of partnerships. The third is the touch points to the investment community. Companies can spend a year or two in the bay trying to talk to these guys and never get an opportunity. We set six or eight of them up in a single dinner to do pitches.
ISG: What criteria do you use to select companies for the program?
Dillman: My background is in games, so I do all the interviews with the companies. If their vision as a designer excites me, they don’t have to have had success [to be selected]. So for example, some of the most amazing games on iOS that take advantage of the touch mechanics in a very unique way have done terrible in the store. These are very gifted game designers, but they don’t understand the distribution model. They don’t understand how to get millions of installs. We take on those types of people and give them the education so they can have massive distribution and all those other things.
ISG: We’ve heard YetiZen described as an incubator, but what you’re describing sounds a bit more like a boot camp. Can you characterize the difference between an incubator and accelerator for us?
Dillman: An incubator works with early stage companies where they have an idea on paper, but nothing in development. They help them get very early seed stage funding and they help them find co-founders. An accelerator works with companies that have a product on the market or at least in development. Generally those types of companies might’ve already had some seed funding maybe even some angel funding. I’d say that about half the companies that we’re currently working with have had an angel round, maybe a half a million average. All of them have something either on the market or in production right now.
ISG: So when you’re shopping for candidates, what in particular do you look for? Are you trying to fill quotas for a certain number of mobile developers or for different types of game genre?
Dillman: Ideally what we like to do is have companies that represent all the different components of the games industry in a single round. We’d like to have a publisher, a platform, a developer, and a tools company — where they could have synergy working with each other in each round. As far as genres go, that’s a little less relevant to us as long as its […] a mass marketable game, casual experience. We definitely avoid the triple-A world because it costs too much funding to make those kinds of games in this ecosystem today.
The other issue with traditional games versus non-traditional games is discoverability and marketing. With traditional games, you’ve got Joystiq, Kotaku, Destructoid — you cover those three channels and you’ve got the entire gaming market covered. You don’t need to get reviews anywhere else. However, let’s take Angry Birds — who’s your market? Everybody! How do you reach out to that audience? Everywhere! It’s almost impossible. So the only way you can do that is with discoverability on the App Store. It’s an entirely different world for these games where we have to seek distribution from distribution channels — TapJoy, Super Rewards, W3i, etc. — those types of distribution channels are the only way to find discoverability in the App Store.
ISG: What about for games on Facebook?
Dillman: Facebook has even larger issues with discoverability. There is no App Store that represents Facebook. So discoverability of games there is even more difficult. For a new developer in the landscape of Facebook today, it’s nearly impossible. Not totally impossible, but very, very, very difficult. On the App Store or Android, it’s not so difficult. The discoverability is there — you just have to pay for it.
ISG: Sounds like a social game developer wouldn’t make an ideal candidate. What would they have to do to convince you to take them on if what they want to do is make Facebook games?
Dillman: Someone would have to really convince us with their background or some interesting metrics to take them in if they’re new to Facebook. They’d have to show us that they really understand the ecosystem of Facebook itself.
For example, one of the companies we have in this round has half a million monthly active users on Facebook currently. That already shows they’ve established themselves and now they’re looking for bigger success. But a company that has absolutely no traction on Facebook, it’s going to be really hard to get into [YetiZen’s] program just because that particular platform is starting to become saturated. We’re starting to see that a little bit on mobile devices as well. That’s why we’re looking at new platforms like smart televisions.
As each platform matures, it becomes saturated. Which means two things: it’s more difficult to gain a new users — more costly. And you make less revenue per users. Right now on Facebook, it’s about a dollar per install and the monetization is low. Whereas on mobile, it’s about 35 cents per install and monetizaiton is high. So which platform are you going to go after?
ISG: What about social game developers targeting more than one social network? Are all of them equally saturated?
Dillman: All of those are just less interesting these days. The nice thing is developing for Facebook means your game can easily [be ported] to those networks. And a lot of them are hungry for content. In fact, we’re talking to [hi5] about a preferred network program for developers. So they are hungry for content, so we can bring a lot of developers their way. But for our developers to spend resources managing that when it’s a smaller space, it has to make sense. We have to look at the market that’s on that platform and look at the market for the game to see if it’s worth it.
ISG: Speaking of “worth it,” how did you manage to convince so many big-name VCs to YetiZen if the social games market is starting to look saturated?
Dillman: There is no other accelerator in the games space as far as I know. There’s a small handful of somewhat related incubators to the games space — but overall, incubators are quite hostile towards game companies. Game companies have a very difficult time getting into incubators because most people are baffled by the ecosystem of the games space. VCs in the games space have been dying for something like [YetiZen] to exist for a while. VCs know that a company that goes through an incubator or an accelerator have astronomical chances of success. So they’ve been dying for something like this to exist, and that’s how we easily attracted our board of advisors.
ISG: What kind of interest do you see from YetiZen applicants? Are they mostly local game developers, or have you seen a broader range?
Dillman: We’ve had a lot of companies apply from overseas for this upcoming round. Out of the five to 10 companies [in second session], we’ve already got maybe five or six international studios.
ISG: How are you funded?
Dillman: We run the San Francisco Video Game Developer’s Workshop series [for a fee], but the three-month program has no application fees or anything. A lot of incubators will take a percentage of investment and a percentage of equity. We don’t want to do that; we don’t want to take a piece of the investment because that would encourage us to give them dumb money. Dumb money is somebody who doesn’t have a background in games and then a year later if that company is in trouble, they want to touch the product and ruin what they have. Whereas a smart investor knows how to help companies overcome issues a year down the road [using their network of contacts]. We don’t want the incentive to give [game companies] just any sort of money. We want to be dedicated to only bringing smart investors to the table. So we only take a piece of the equity.
ISG: So when a company “graduates” from YetiZen’s three-month program, what happens? They pay you equity, but do they get anything more from the program after those three months?
Dillman: We only take equity, which means we care about the companies ‘til the very end — when they find a successful exit someday. Because we’re not taking a piece of the investment, it means we want to continue to help them. We plan to have some “graduate” benefits, so they might be able to attend a certain number of classes post-graduation. We’ve been video taping all the different session, so those videos are also available. There are forms online where they can communicate with their class and future classes. Once they go through the program, if they need more advisors, we’ll help them. If they need more investors, we’ll make introductions. If we’re not burning through resources, we’ll help them. Because we only get paid out in the end if they’re successful.
ISG: If and when it comes time for a company to exit, what role will YetiZen play in that?
Dillman: There’s actually a fourth component to our program I forgot to mention. We are forming merger and acquisition exit partnerships. We’re forming relationships with Microsoft, Google, Qualcom, Visa, Zynga, Sony, EA, maybe a half dozen others. Two years down the line when these companies [in this current session] are ready to exit, we can facilitate that partnership. LIke I said, we care about them all the way to the end. We’re not forcing an exit on anyone, but when they’re ready, we help facilitate that exit.
ISG: How much education does YetiZen do on exit strategies?
Dillman: Part of the interview process involves cross-examining applicants for exit strategies. There’s maybe four major strategies for an exit. There’s talent acquisition — which a lot of people want to avoid because you get locked into a contract for two to four years at some place. And it’s usually the smallest type of exit. Zynga’s major buyout right now is on the talent side. Another is IP acquisition. So if you build a strong IP, you get companies like Disney interested in you because they want to expan their IP universe. Distribution is another exit. So that’s Zynga again or companies like Ngmoco, Gree, DNA — they want to expand their distribution network, so that’s why they buy companies like OpenFeint. Number four is really a technology exit. Maybe some of our tools companies might go for that. This is where Google would come into play.
So let’s say you want to go after an IP exit and you make games in this IP, but if you’re sloppy you start making games outside of that circle of IP and now you’ve kind of lost interest from Disney and other places maybe looking for that strong IP exit. Companies should really consider their exit because that forms how they direct themselves from the start. Again, we don’t force anybody to form an exit strategy, but we try to help them see how it can help them with their overall business strategy.
YetiZen’s second acceleration session begins in August 2011. Interested parties are encouraged to apply here.