泥中蟠龍's Game愛歌 [A love song for games of the dragon waiting for an opportunity] Video game and fund (Part.3)

泥中蟠龍's Game愛歌

[A love song for games of the dragon waiting for an opportunity]

 

Video game and fund (Part.3)

 

In Part.3, I'd like to mention how investors see video game startups. Recently, I had an investment consultation with the CEO of a video game developer. Of course, as a venture capitalist, it was not unusual for me to have a one-on-one consultation with a potential investee looking for an investment opportunity. I was merely surprised at a heavy amount of fixed costs. People who want to start a so-called business venture should be ready to explore an unknown territory by taking risks for future growth. In particular, they can cut non-labor costs including rent, buildings, and office machinery, etc. in contrast with other process industries. Workers in listed or large firms commonly receive high salaries, however, most employees in startups with very low sales cannot expect it as much as those large income earners. Furthermore, the median wage for the workers in those company is not that much higher because of various levels of salaries of the members. For example, a company, where its total number of employees is about twenty, generally spends an estimated 80-90 million won for monthly fixed costs including personnel expenses which account for approximately 80-90 percent of the total costs.

 

The fixed costs of the twenty-employee company were about 140 million won which is equal to the average costs for a sound firm stayed in the black. Of course, I don't mean that a worker at a young company should be paid well below the minimum wage. As a nine-to-fiver, I think it makes perfect sense that salary should be increased depending on individual ability. However, start-ups generally are made up of future-valued people and they offer many ways to motivate their workers such as various incentives or stock options. If workers in the company without any sales receive the same pay as other stable corporate, it means that not only working-level staff but also executives are paid very high salaries. From the investor perspective, those executive directors seem to live comfortably with other people's money. The more absurd fact is that there are many similar cases in the industry.

 

As I mentioned earlier, the external environment is not friendly to the domestic gaming industry. And I said that surviving is the most important in these hard times. Most people in the field probably agree that the current investment environment is not that good and the industry is in deep trouble. Nonetheless, whenever I have a conversation with local video game business owners, I often feel that most of them are not tend to aware of the current crisis. All members have to tighten their belt if they want to survive. And executives—the biggest beneficiaries when the company succeeds—should naturally sacrifice the present to the future than working-level employees. Intensity and passion are essential for a business venture. I've never heard of the word 'cash-rich startup' before. The rich business venture is no longer a start-up.

 

 

※ This is from Kyunghyang Games column by 泥中蟠龍 since September 2013.

(http://www.khgames.co.kr)

 

Translation by Kim Ki-hui