Mobile games have exploded amid the pandemic.
The industry generated $ 77.2 billion in revenue in the United States alone last year, according to data from SocialPeta. The result is a market that is expected to continue to grow in 2021 and beyond, as more people turn to app stores to discover ways to learn, be entertained, and connect with a community. online.
For game and application developers, this dynamic has also opened up major opportunities to take advantage of the financial windfall. But recreating the viral obsessions of products like Flappy Bird or Angry Birds is probably not on the roadmap, according to Pollen VC CEO and co-founder Martin Macmillan.
The bad news is that developers can no longer rely on creating a viral hit to be profitable. But the good news is a shift in user dynamics that Macmillan says has given rise to so-called “hyper-casual games” that can be profitable through user payments and ad revenue.
At the same time, the democratization of app stores like Google and Apple has also made it possible for anyone with development and coding knowledge – and a creative idea to execute – to enter the market.
Speaking to PYMNTS, Macmillan explained why it’s time for business loans and finance to take a vertical approach specific to the gaming market and lend the kind of support and expertise that developers need and need. traditional banks are often lacking.
Building financial literacy
Pollen VC targets the developer community with a financing solution that finances against receivables. For game and app makers, revenue typically comes from in-app purchases from customers, while another key revenue stream can be found in inbound B2B payments from advertisers.
Developers understand that generating income is the key to financial success and that customer acquisition is essential to generating income. But as Macmillan explained, these professionals typically focus on making the game itself and may lack the financial expertise to optimize monetization and cash management.
“Developers come a lot from a product design and gameplay perspective,” he said. “They are relatively small businesses to begin with, and the financial aspects are sometimes overlooked at the beginning. You get a big hire – CFOs or CFOs – much later in the business lifecycle than you normally would.
This is all the more true as it is not always the big companies that initiate the development of games or applications. Often times, this is an individual developer or a small group of developers looking to bring their ideas to life.
Historically, this market has relied on equity for financing. But Macmillan said there is an opportunity to leverage capital through debt in a way traditional banks haven’t been able to handle. In addition, there is also a space for FinTechs not only to close the debt financing gap, but also to promote financial literacy within the industry through a variety of resources and tools.
An inch wide, a mile deep
The combination of debt financing with financial literacy resources means that developers can be connected to the capital that fuels customer acquisition, which strengthens income cycles. Macmillan said helping these professionals understand when to turn to equity and when to turn to debt can help build viable and successful businesses.
The use of receivables to lend is also a strategic decision of Pollen VC. FinTech secures read-only access to developer platforms to get information about their claims, which are owed by high-quality companies like Google or Facebook, as well as service providers targeting developers like AppLovin and Iron Source.
“They’re all very high-credit, and most of them today are publicly traded companies and operate on exactly the same kind of loan model in terms of print data forensic investigations.” or in-app purchase data to support our lending decision, ”Macmillan said.
For the developer community, venture capital can be essential in getting an idea off the ground, especially in markets like the US and UK. In other regions, venture capital funding is less available. Either way, these sources of capital are not always the most effective way to build a business after a product is launched.
And while debt financing is nothing new, traditional banks and other lenders are often unable to understand the nuances of the game and app development world with their vertical agnostic debt financing (AR) models.
In order to support a creative community that generates significant market value, financiers must equip developers with the capital and tools that can meet the unique challenges of developers.
“AR Bank’s fundraising initiatives are one inch deep and one kilometer wide,” Macmillan said. “We have created a loaner product for our vertical sector, which is really an inch wide and a mile deep. We have an empathetic understanding of the challenges developers face – it’s an underserved market, and traditional financial services, like bill finance and banking providers, don’t really understand this industry.