Why is the cost of equity dangerously misleading for a high growth startup? The faster you grow, the more expensive

your equity is. If you are in a relatively stable stage where your product is predictably generating

rorowass for you, raising a whole bunch of VC capital and equity is an incredibly expensive way to meet your

goal, which is to make as much money as possible. Today I’m joined by a former VC and gaming exec who led international

growth at Mobile Premier League, helping the company scale to 90 million users and expand into Europe.

Gaming and consumer apps businesses are just remarkably capital intensive and

they spend that capital on marketing. That means that vast majority of companies are in fact spending more than

50% of their revenues on marketing. That’s the realization that people don’t have. On this episode, we talk about why equity is often the most expensive way

to scale, how cohort-based UA financing works, and what profit studios need to know before doubling down on growth.

It’s very likely that if you’re getting 130% rorowes, you’re spending in excess of 75% of your revenues only on

marketing. All of your other costs are in that 25% bucket. If you’re trying to be profitable from someone who backs

marketing spend with real data and millions of dollars, this episode’s guest, Ritzky Shaer.

Risky, welcome to the show. Hey Arie, thanks. Thanks for having me. Thanks for coming. We met in Gamescom

nearly a year ago and then we kind of met again at GDCY in my hometown in

Cypress two weeks ago and yeah, I remember you mentioning the things you were doing. I just found it like really

one of type stuff. Like you have big bag of money and you’re kind of breaking the

norm so to speak. So yeah, how’s it been over the last 12 months? Uh it’s been a really rewarding journey and super

grateful that I get to work with a lot of the people that I’ve been working with for the past like five plus years

um in multiple multiple uh companies prior to that. Um and you know this is

the first job where um I’ve really been able to scope out the entire kind of

gaming gaming industry and and even further beyond gaming into consumer apps which I

find really interesting. Um it’s just such a cool ecosystem. I think back when I was I was working at a gaming startup,

um I was just executing, right? It’s just me me and the meta ads and the Google ads and and the and all the

campaigns and and my Excel spreadsheet. Um but this has really kind of like

propelled me into the world where I get to to hear about people’s stories, which I think is one of the mo more

fascinating things about the gaming industry. You can really come out of left field and and and you know, make

the next big game. Um, you can also have been working in the in the industry for 20 years and not find a hit and then

finally find some luck. Um, so it’s been a rewarding journey in that sense. Um,

and it still continues to be like I get to meet people like you who are um you’re who are also kind of in all of

the events and and and and getting to know getting to know folks better. Beautiful. So today we got some juicy

topics to go into. So we’re going to get into for people at home financing alternatives to growth stage game

studio. So breaking a few myths there. Also studio models to watch. So we got high scale markets, studio models to

watch. And the third topic will be on modern UA and also data decision- making. So you have your fingers in a

few pies when it comes to like where to get the money from, but also how to spend that money to get users. So

there’s going to be a lot for people at home. All righty. I want to get straight into the meaty stuff. Why is the cost of

equity dangerously misleading for a high growth startup? Yeah, I think I think we can start with

a little bit of context here. Um because um there is a mis there’s a misleading

element to the cost of equity. But before that, we need to understand that it’s particularly

amplified by the industry that we’re talking about. So um gaming and consumer

apps businesses are just remarkably capital

intensive and they spend that capital on marketing like and I I don’t think

enough people realize this that so for example Gartner did a study in 2023

where they like surveyed a whole bunch of CMOs and across large public and large

private companies and they showed on average that the ratio of marketing

spends to revenues, net revenues was around 9.1%. Okay. So, less than 10% of your revenues

are being spent on marketing. Um, can you take can you take a guess how much

that would be for gaming and consumer apps? Because I’ve spoken to a few of them. I’m going to guess quite high. I’m going

to say 50%. Okay. If it was 50% it would be incredibly high, right? like half of

your half of your marketing, half of your revenues are into marketing. And

that’s just way beyond the um you know the average you know company’s uh

contribution to to to to sales and marketing. So in our company PVX

partners, we essentially looked at all of the rorowass metrics, the return on advertising spends of like I think we

evaluated 350 companies last year. So what we realize in measuring rorowass

which is basically revenues divided by cost or spends is that the in casual

games the 80th percentile of companies are reaching like 200% rorowass in month

12 which means they’re when they invest a dollar they get $2 $2 in revenue right

in month 12. it gets it tapers off after month 12 usually because the retention doesn’t stay that long. Um in core gains

it’s 150% in month 12 but then over time you add more incremental revenue because

their retention is better. So let’s just say like it’s around 200% uh the terminal revenue that’s being

generated for every marketing dollar. That means that you’re investing exactly

that 50% of your revenue into marketing. But that is the 80th percentile. That

means that all the vast majority of companies are in fact spending more than 50 50% of their marketing

on uh 50% of their revenues on marketing. That’s the realization that people don’t don’t have that like it’s

very likely that at a like if you’re getting 130% rorowes, you’re spending in

excess of 75% of your revenues only on marketing.

all of your other costs are in that 25% like bucket if you’re trying to be profitable, right? So, and this is all

to say that the industry is very different from the other industries in the in a way that you need to spend

money to make money. That’s the reality of the industry. And uh yeah, the truth

is I think that uh there are different stages of a startup or or gaming and

consumer app startup. Um there are apt capital instruments or sources of

capital for each stage. But if you are

in a relatively stable stage where your product is predictably generating

rorowass for you. Um, my argument is that

raising a whole bunch of VC capital and equity is an incredibly expensive way to

meet your goal, which is to make as much money as possible. So, why do people do that? So, why do

people do that? Because I constantly speak to mobile gaming studios. they

want to raise money and they’re either looking for a publisher for the game or they want to, you know, sell part of the

game, even just like a revenue share model without equity. But I guess there’s a

few options, right? But I don’t really hear anything other than, you know, equity and raise money. Let’s raise

money. Yeah. So the reason and most of the companies that I think you and I I are

speaking to the majority of them that I I I’m speaking to as well are just not at that stage where their product is

predictable enough to generate the marketing revenues um across channels

and in a scalable way. So the reality is that most companies aren’t ready for it. So they need a capital instrument that

is you know for a pre-product market fit

company right so they need com uh they need they need capital that is willing to um you know bet on the fact that

they’re going to get there um so VC capital is perfect for this basically what you’re getting for VC capital is

you get a bunch of guys who are usually you know ex operators investors as well

um especially for the gaming VCs. They know what they’re talking about. They know what to expect. And they’re like,

“You have a good idea. So, I’m going to put money um towards you, and you’re

going to give me some of your shares, and I’m going to ride this this this uh journey with you.” And um that’s that’s

the perfect type of capital because if you don’t get to a point where it becomes very predictable and you’re

profitable, then you don’t owe them anything. Basically, you owe them you owe them whatever the value of your

shares are, but the value of your shares if you fail are pretty low, right? So,

it’s it’s a great instrument for getting to that from that zero to one stage. The

publishers will come a little bit later. They’ll want to see some KPIs. So the

KPIs that they’re looking for are retention metrics, um some monetization

metrics ideally, um and then even better so some marketing campaign metrics,

right? These three things are essentially early indicators of whether or not you will be profitable at scale

and they will have looked at so many so many companies and their expertise is in

seeing saying like okay this benchmark is going to be good enough for you to make a lot of money if we gave you if we

if we if we funded it. Uh whereas at this at this benchmark it’s not. So they

have that sense and what they’re willing to do is say I’m going to fund all of that marketing for you but you’re going

to have to give me a revenue share usually for a really long time like usually for like 5 years or something

like that right and u but they have an in-house team that can help you build

can help direct you can help you with art can help you with all of these things that you may need to help scale

the business right to get to to get that business in a competitive state with the rest of the market and I think that’s

that’s also useful for um a lot of startups but I’m seeing more and more

startups and founders who are you know um who feel that they are able to get to

that stage without the help of a publisher not necessarily with the help of a investor either especially in your

where you’re where you’re sitting in Cyprus I’m seeing a lot of bootstrap founders that are basically able to do

this from zero to one and now they just need to figure out from one to a thousand

where am I going to get the money because it’s so capital intensive right so for these companies that’s that’s

that’s the that’s the stage that I think um this question becomes really relevant

if you’re at you’re not at zero you’re at one and you you have something that works what is the capital you’re going

to take in order to take it to a thousand so the alternatives that you have or this the the options that you

have um which is what you asked is yes you can take more VC capital yes you can

now partner with a publisher yes if you’re lucky and you’re in the right country you could take bank a bank

loan and the most common um especially with bootstrap founders is I’m going to just

I’m just going to invest I’m going to wait until the money comes back and then I’m going to reinvest that incrementally

Um so maybe we go through these four options.

Um starting from the reverse uh or do you want to do you want to ask?

Yeah. the Cypress example because yeah I’ve met these people right they’ve bootstrapped they own 100% of the

business they go to the conferences and not saying they’re chill but it’s like you said make more money once we get it

we try to make more money then cool cool cool but then hearing what you said like if they have a return on ad spend of

like $2 and you put in $1 then it’s literally a money printer and you

probably get economies of scale of some sort once you get more revenue in you can probably do some cool with that money that can maybe improve their

return on ad spend so to speak. So in reverse like you said like the model that you do could you maybe just

describe like because you mentioned before the call you’re doing these deals actively so like maybe paint a picture

for people for people who don’t know about the offer that you have and just like you know using a loan essentially.

Yeah. So the model that we have is um an instrument called user acquisition

financing. So, it’s financing like a loan specifically for the use of marketing. And the way that the loan is

structured is that we lend you a percentage of what you spend on

marketing. Let’s take that. Let’s take a 50% example. So, you spend $100,000 on

marketing. You can request us to lend you $50,000 and we’ll wire that to your

bank account. What we’ll do is then label all of the

users that were acquired in that month that you were acquiring users. So let’s say it was June 1st to June 30th. All of

the new users that you acquired that month, we would tag as a shared shared pool. And then we would share 50% of the

net revenues of the of the that are generated from that pool of users until

we through the 50% revenue share recoup our $50,000 investment. So we lent you

$50,000. We’re getting $50,000 back through a 50% revenue share. And

depending how long that takes, we’ll charge you an interest rate. What’s special or unique about this

instrument is that it’s because it’s cohort-based um meaning we measure the cohorts and we

take a revenue share on the revenues based on that cohort performance. If you never get to recoup, you never get to

100% return on ad spend, you don’t owe us that money. So, we’re taking risk

alongside you. So, this is why it’s uh it’s a useful product, especially if

you’re looking to scale and you don’t know what’s going to happen, you know, when you double or triple or quadruple your spends. You want a partner that is

able to finance you, but also take risk alongside you. Um, and do that in a way

that doesn’t dilute you or require you to to sell any of your shares. And it

also doesn’t require you to perpetually continue that revenue share like maybe a

a publisher would. Uh so you get to keep a lot you get to keep all of the upside essentially minus the interest rate. Um

but that’s the that’s that’s that’s essentially what we’re we’re offering.

Can I double click on this a bit because you are almost acting like a VC trying

to decide is this going to be worth in loaning to because if it doesn’t succeed

it goes let’s say the return aspect is less than $1, you lose money and we don’t like those deals and you only in

my opinion from my understanding you’re taking deals that you know are going to win and we spoke before the call like

you have a tool which gives you data which I’m guessing helps you make those decisions as well. So, I found it kind

of funny. If I were coming to you for a loan and you rejected me, that’s kind of like a free analysis like, “Oh, wait. I

should probably not be raising money right now. I should be doing something else maybe.” So, um just to something

practical for the people at home, if I’m looking to raise money for my game and I got rejected by you, what is

the main reason like I’m not ready to scale? Yeah. So there’s there’s a lot of um

frequent reasons uh which we we don’t reject um applications. We just

basically tell them look you’re not ready yet but we’d like to keep monitoring you and we try to prescribe

the milestones that you need to reach in order for you to actually receive funding from us. Um, so from a practical

sense, I think what you mentioned was true that even if you don’t get the money today, at least you’ll have some

guidance on what it would take or what it needs what you need to look like in order to to receive financing. But the

common reasons why we typically uh reject applications for now is that

they’re the high amount of volatility between month with your performance. So

even if your latest performance or one of your cohorts in the last few months

got to 200% rorowass but the other but the other uh cohorts around it are

getting 130 170 then 240 or 400%.

even if it’s generally profitable, the inconsistency

um for us means that there’s no statistical reliability in the future outcomes. And that becomes really

important as I’m doubling down your spending um over time. So, but we I

would much rather invest in a company that was getting 130% rorowass at month 12 uh consistently over 6 to9 cohorts

versus a company that was getting 200, 150, 180, 400, right? Um so, the

inconsistency part is a key factor in our type of loan because you have to keep in mind that we don’t get to

participate in any of that upside, right? you get to keep that upside but we take the risk if you fall below 100%.

We take a lot of the risk um if you fall below the 100%. So our business is being

conservative in that way. The second most common reason is um that there’s a

lot of um there is insufficient

payer retention in the long run. So I’ll tell you what I mean by that. Some

games, especially like hyper casual games or heavily IAA dependent games,

they pay back very quickly. They’ll get to 100% in like a month or two months,

but then right after they get to 100%, all of their users churn and then there’s no more incremental rorowass

after that. Um, so a lot of people they say, “Hey, I’ve got great payback

periods. It’s one month, it’s two months.” That’s great. But what does it look like after 100%. Because if it

completely turns off and you have zero users, that means it’s a binary decision

for me where I mean it’s a binary outcome for me where if I invest money, it’s either you above 100% or below

100%. And there’s nothing in between because you don’t have the users to incrementally give you that margin of

safety over time. If that makes sense. Yeah. So the volatility. So let’s say I

have a mobile game. We do a bit of role play and I have volatile metrics and I’m like Ritzky, we just had a whale log in.

I’m sorry. It went really volatile that month. Like we can’t control our volatility. Like

why are games why did those games have volatile, you know, return on aspect in

your opinion? that that generally wouldn’t happen um for due to a whale um

because our typically we start investing when you’re already spending greater than $150,000 a month on marketing which

means you’re acquiring multiple whales, right? Uh like several whales um in a month. And so one whale is not going to

make a significant difference unless unless you’re ver there’s a huge PTO law

in your in your game like uh economics. um Saudi prince logging in or something.

Yeah. Yeah. Yeah. Which which you know if if he’s contributing like 200% rorowass for your entire cohort of

100,000 users um alone then what’s what are like how am I supposed to rely on

the second Saudi prince to join the next month right and also you could probably isolate that right in the data. So that’s also fine.

We can also isolate that that in the data and see what’s the contribution of revenue from what users. Um, but the

volatility point is very important and holds true generally in most cases when

you’re at scale, when you’re at a minimum scale. You’re not going to see like one user creating that volatility

or it’s usually uh being caused by some breakdown in the funnel, some breakdown

in the offers, or some breakdown in the marketing campaign. which

if it’s one cohort that does that but then you have five other cohorts before and after that one cohort um generally

operating the same way that means you would have proven to us that you fixed it right so we wouldn’t take that into

consideration I want to ask you what actually are you playing right now like do you play games

in your free time what kind of games are you playing yeah um so I’ve been I grew up in

Southeast Asia uh I don’t know I think if you look at the demographic Um there’s a lot of concentration of mobile

players like uh multiplayer online battle arena players there. So I grew up

playing um Dota uh Defense of the Ancients um back when I was still a mod

in in in Warcraft. Um then like I played Heroes of New Earth. I played Dota 2

when Valve came out with it. Um and then and then I eventually crossed over to

mobile and then played Mobile Legends which is from Moonton. Um, that’s the type of kind of format that will always

kind of keep me coming back because it’s just once you spend all of your life learning how to play it, then it’s like

there’s so much sunk cost there. Um, and and it’s it’s not easy to kind of like

uh to kind of breach it uh if you’re a new new player, but it’s it’s really rewarding for like a recurring player to

come back and and play. even if I don’t play it for a year, I still have like I’m able to kind of keep up um just by

learning some of the new new characters. But I’m also a big sucker for uh you

know the habby titles like um Archerro Arch Hero Archer 2 um Capy Bar Go was

hilarious um and fun. And then most recently I’ve been playing Whittle Whittle Defender uh which is a which is

another their latest title I think. Um, but yeah, in my every my everyday like

um work work day, I’m I’m downloading games and trying them out. Like the the

latest one that I I downloaded was from my games uh Castle God, what is it

called? It’s called Castle DS. Uh which is pretty good. Um but I I’m not hooked

yet. Not quite there. You playing for fun? Because it sound like you’re playing for fun, but are you

also playing to kind of see what’s out there? because this is obviously very relevant to the thing that you do. Like

one thing I tried when I play the hobby games, it’s almost like I know and walked into a casino like the dopamine’s

everywhere, bro. It’s just like ah and I just what I tend to do when I start enjoying a game too much, I delete it.

So it’s kind of I’m like the worst player from a data retention point of view to like track like he uninstalled

why like it was too good. Like for some games you would probably see me as a user that’s a whale. um if

you if you really hook me um I will spend like a like a small fortune on your game. Um that was the case with uh

with Mobile Legends. Um and then even on the console I play like I’m a basketball

fan. and I play NBA 2K and like I’ve got like the Kobe Froby like the Afro Kobe

like card and I think I I had to spend like I don’t know close to two grand to try to get it like and then you realize

that the next season you don’t have that card and it’s just a complete waste. Um,

so no, I I play it for fun for sure, but there are certain categories that I I get more sucked into. Like I like I

agree for haby it’s just like a time time killer um on the on the metro. Um

but I’m not I’m not really um invested. All righty. Regarding

financing, is anything that you keep repeating yourself to founders that they just simply

don’t seem to understand that we could kind of sold for people today? Yeah. Look, so like I mentioned, in that

scenario where you’re at a ready state in your product to scale, like you’re

you’re spending $100,000. You think that if you could double every quarter for like eight quarters, you’re

now spending like you’re now spending like $2 million a month, right? If you if you believe that’s your trajectory,

right? We can one validate that. Uh but if you really are in that trajectory and you need you need suddenly cash to be

able to manifest that outcome. Um a lot of people do go to VCs, right? They want

they want to to give the VCs a slice of their company and they want like $2

million or $3 million in the bank right now so that they can marketing. Yeah, I would I would argue that like

70% of that is going into marketing. I mean like they’ll say a whole bunch of other things in their deck where they’re

like, I’m going to hire this person. I’m going to do that. But like in reality, um a lot of that is going into

marketing. Maybe not right away, but the cash flows that are being generated are also going back into marketing, right?

So, um you’ll easily get to you’ll easily get to like 70% of what you

raised as as um contribution into sales and marketing. So, let’s take this

example. This is a for easy easy math, right? Let’s say your company today was worth $100 million, right? Great

company. And this company is like I want to make this a billion dollar company. I need $10 million to invest into

marketing and people and whatever. Um, essentially you have given 10% of your

company to do that, right? $10 million for $100 million valuation, post money valuation.

Let’s say you actually do achieve what you say and next year you’ve grown by 50%. Now your company’s worth $150

million assuming the same like multiples on revenue or ITA.

Now the 10% that you gave away is worth $15 million,

right? Cuz you’re worth $150 million. So over a year you’ve now taken $10 million

and now you owe $15 million one day, right? So that’s that’s a 50% annual

interest expense if you spent all of that on marketing, right? You could have low borrowed you could have borrowed

that from a bank and could have paid up to 49% interest over a year to get that

financing and it would have still been cheaper than the cost of the equity that

you just raised. That’s not taking into account the next year when you keep growing, right? Um

yeah because it’s not also some VCs might not want to sell their thing at what is valued at

they might be waiting for the long game. So even if you wanted to get that equity back, it’s not like you always have I can guarantee you that if you are

growing at 50% yearon year, that VC is going to hold on to that stock until until until they really can cash out,

right? Because a real example. Oh, sorry. Yeah. So I was saying like VCs are

targeting a return like over their five or 10 year life cycle of like greater than 30 40% irr. So like that is what

they’re targeting. um they’re not going to be letting go until they reach that, right? Is it always a 10x type situation with a

VC? I’ve heard that number somewhere. Like, no. I mean like it’s not always that especially depending on the life cycle

of the VC especially if the VC is like at the tail end of their of their kind of fund life then they want to they’re

going to be willing to liquidate more so that they can actualize their their returns and just show that show that um

IRRa being actualized so that they can raise a bigger fund next fund right that’s that’s how it would work

raise lend money for marketing to show that I can make money so I can use that

story to market to raise more money to then lend to marketing. Yeah.

Yeah. Sort of. But um but that’s that’s the crux of it that I think that people don’t realize just by that simple

example, right? That if you if you really are going to grow very quickly,

the faster you grow, the more expensive your equity is, right? In that example that I just shared with you, the rate of

growth equals the interest rate. So, if you’re growing at 50% from a hund00

million company to $150 million company over a year, that’s equivalent to you

paying 50% interest uh for that $10 million that you raised. And I think I

think um like in comparison like a bank loan for people who are not familiar in

financing, if you had access to a bank loan, that would be like 6% or 10%.

Right? to like a fraction of that. But I guess you still have to do the pitch to the bank that they’re going to

get their money back similar to is it the same I wonder is it harder to convince a bank versus a VC in the

average model average example? 100% harder, like almost impossible at this

scale. A bank is, first of all, a bank doesn’t know what a cohort is. So, they’re going to hear you say rorowass

and they’re going to be like, “What?” They they have like a in most banks, I’ve seen like very progressive banks,

like for example, in Israel, they have banks that are able to understand cohorts and they’re actually lending out

based on cohorts. Um, so I’m sure they’ll all get to this and I’m sure they’re all smart people that are there,

but typically the way that they underwrite is they’ll look at your P&L. They’ll see, are you burning cash or are

you are you making profits? And then they’ll take a look at your cash reserves and they’ll be like, how much

cash how much how how many months of runway do you have until like I’m royally screwed and you can’t pay me

back, right? That’s typically how they look at it. and um they will generally

try to find a company that is profitable. But this is counterproductive to a company that’s

trying to grow very quickly. Because if you think about it, if you knew for a fact you were going to get $2 out for

every marketing dollar that you spend today, you should spend every sorry every dollar that you have, right?

Because like that’s the right thing to do for a company. You’re maximizing profits. Doesn’t mean you’re maximizing

short-term profits. You’re going to be in the negative or or very close to the negative if you do that, but you are

going to be incredibly profitable in the future if you do that. That’s interesting cuz two things here.

I’m seeing Grammarly ads, I swear, every single day. And I saw they just rose a bunch of money. And I’m thinking of

Grammarly when you were talking to me. I was like, how much of the money they raised is just going into marketing. And why didn’t they just get a loan?

They did. and they they got the loan from General Catalyst um who is our partner and our investor.

Uh so General Catalyst is quite interesting. Um they are a huge 30 plus

billion dollar AUM fund wildly successful across many categories. Um so

they invested in in they invest in equity which includes investing into PVX

my company. They’re they’re our investor. Um but they also have a customer value strategy which is a uh

portion of their funds um uh and their balance sheet that lends directly into

user acquisition financing the exact same instrument that I’m that we are

doing um but they focus on very large scale companies like Grammarly that $1

billion raise was was user acquisition financing so you could estimate that

They’re spending like a hundred million 80 million to hundred million in marketing. That’s why you’re seeing

their ads everywhere. Um, and all of that is revenue shared is is I don’t

know the inner workings of the deal, but that’s revenue shared with with General Catalyst’s customer value strategy. And

they’re able to scale up pretty much unlimited um as long as they’re seeing

profitable cohorts. Very interesting. So, wow. cuz I’m

thinking h this was a conversation I had with you actually and you mentioned

the different ways of people running their business right and you mentioned

like in the east versus the west there’s different attitudes towards uh marketing

and then quick story I watched a re video recently explaining the very high saving

rate in China and like the average household they save 30 to 40% % and then

when you zoom out they’re screwed when you look at it in clear terms because

like they have to save money and the main thing they save money for is to buy a house but they tend to buy a house in

like 20 or 30 years but in America it’s kind of the opposite where they save a

lot less but they potentially invest and then when they invest they get 10% returns and there’s no real equivalent

in China and also in China they’ve had very recent famines and situations where they’ve lost most of the money that they

have saved. So they tend to buy stuff was like gold or whatnot. And then I thought about like my company recently I

put 5K into the company otherwise payroll wouldn’t have been met because I did one too many conferences. You

probably could see from the LinkedIn post but as of now that money has all come back. I’ve done new deals and I’m

happy. And I just spoke to some people who they’ve run

businesses in gaming. They’re making over a million a year and the business developer is pretty much only the

founder and he goes to conferences and he spends zero on marketing and the conser he’s so conservative and I’m just

thinking I’m running my business a lot more like I know in the long term this is going to make money if I invest in

events which I have been doing for a year. The event loses money on paper now but all the relationships and whatnot

it’s going to be stupid compounding. And if you have a situation where you know in the long term it makes money then

like you said like I’m going to be kind of more the American way I guess like going very close to spending because I

know the return is going to be super high like 5 to 10x versus me just keeping it in an index fund you know.

Yeah. So yeah just wanted to share that story. is just super it’s super relevant and it

actually play does play a parallel um to the Chinese market because in China the

user acquisition financing or the bank the bank debt is is actually

it’s much harder to crack because of this uh this um this cultural this

cultural mindset right um and but the Chinese are no they’re they’re they’re

no joke when it comes to business they know when they know how to sniff money out like very very well.

I see on sensor tower I had a little export once someone showed me literally top 100 you just see China China 10 10

10 like in terms of the apps making the most revenue right now. Yeah, absolutely. And uh a lot of them are

Singapore, but they’re actually Chinese companies incorporating in Singapore as well. Um like Hab for example. But the

the they will eventually I’m I’m convinced that user acquisition financing is going

to be incredibly mainstream, like as mainstream as VC VC fundraising. um

especially for companies that get to this to this level because it’s going to make um your life

way simpler to basically be able to fund whenever you need the money. Well, be

able to spend whenever you need the money rather than having to raise more and more money. Like fundraising is not

a simple task, right? It it takes a lot of time and effort to to fundraise. Um, and back to back to a little bit of a a

segue back to the to the banking point. The banks are not going to finance you. If you’re a tiny company that’s spending

all of its money on marketing because you have no IVITA, your cash runway is dwindling. They’re going to look at you

as an as a huge risk. Why did you walk in the door today? Exactly. But then I don’t really care. I

mean, you need to have some cash to support your opex and your salaries. like we don’t want you to go under because of that. But like if if you have

that minimum amount, but your cohorts look fantastic, I’m willing to fund you

to the moon, right? Because I understand I understand how predictable it is. Uh I

I can see you for what you are, which is a cash or profit printing machine. And

you’re very unique because you’re also the end user. Like you said um at the start of the podcast, like you know

what’s possible. And I feel like what you said, like a bank is just not going to have that experience. It’s just

not going to happen. Yeah. Um, exactly. And I’ve worked in gaming companies as well, so I know I

know what what what a good marketing campaign looks like, what it what it doesn’t, and what what monetization

strategies kind of look like. Um, so that’s also all of our team has a

mixture of gaming and finance experience. So they’re all like ex

bankers, private equity, corporate development people, but have focused on gaming. Um, and so everyone in my team

is like, why doesn’t this exist? Why why aren’t people looking at cohorts to finance? And to us, it’s very obvious.

We use it to do M&A. We use it to um, you know, to get leverage from uh to to

to do equity swaps. We we do it for a lot of reasons. Um, but no one is

funding and taking, you know, taking risk with that. So, I thought that’s that’s the reason why we got together as

a band and started to do this. And that explains why everyone’s going to VCs because they don’t know of an

alternative. Yeah. I want to take it a bit more personal now. So, you mentioned you were

in gaming companies and obviously now you’re doing this very oneofone type of gig. So, yeah. What’s driving you to do

this? like why are you how did you get into this situation? What’s driving you to do this every day?

Yeah. So, well, I mean, um, yeah, from from a

personal standpoint, I I think I’ve always been intrigued being being a founder and and and starting a company.

I used to work at a VC myself, by the way. Um so uh I was working at a VC

mainly for the vantage point of being able to see what industries are interesting to to invest my time in and

then you know gaming stood out and so I joined a gaming company and then I I I I worked with them for five plus years. Um

that was also an interesting journey. We took that I mean we we took that I joined that company very early on. And

we took that company from I think at a series A of hund00 million or something like that to series E of $2.5 billion

company. So I got to I got to see all of the the the the growth trajectory but all the cracks in between on the way up

which was incredibly valuable, but I always knew that I wanted to have a crack at it myself. And um my

co-founder, CEO and and and and head of analytics, we both essentially came from

the same gaming company. um uh Mobile Premier League and we were like so

convinced that the frustration that we had having to

raise so much money in order to fund our growth was almost certainly a

frustration that a lot of other people are going to have. So, um, I’m, as I

said to you before the call, super grateful to be able to hear the the founders stories, but also be able to

kind of relate to them in a really meaningful way and be able to say like, hey, by the way, if you continue to do

this, you’re going to run into this problem. I think we have a solution. Like, hear me out. I think that’s what

keeps me motivated in the morning. And then refining that in a way where honestly, not everything that I propose

to them is a great idea. and they give us they give us feedback and we we kind of designed the product around hypers

scale companies, hypers scale use cases and um and I think we’re getting better

at that every day. Awesome. Very cool. So the team you’ve

made from what you said it’s from a team that you’ve built before. What kind of

people do you enjoy working with? I’m just curious for people leading teams here. Um you’ve led teams before. Now

you’re doing your own team as well. What kind of people do you work with? What do you test for?

Um, honestly, I I I kind of love being the dumbest person in the roof. Um, so I

think and I think I’ve been that for nearly the whole of my career. Um, and I’ve been fortunate to work with people

who are patient with me and are willing to kind of show me the ropes. But I find myself in that situation constantly

because I’m the type of person who just follows their curiosity even when I have no business being there. So like I’m in

a I’m a co-founder of a financing company but I’m a mark I have a marketing background right um there is

some re relevance there because we’re funding marketing but um when I got into gaming I was like you know uh I was a VC

right and before I was a VC I was I was doing BD and so like I always find

myself in uh new environments where I I really have to like pick it up from scratch um but people have told me that

I’m a reliable executor and like a decent manager. So, um the the people

that I like working with are people who are um generous with knowledge sharing

um who are who are driven by curiosity as well, similar to me and um have a

pretty high pain threshold because uh sometimes you do you autodeduct like

the learnings and you you follow painful paths of mistakes. Um, so the type of

people I generally like or that like working with me and I like working with people who have high pain thresholds,

they don’t like get too discouraged by, you know, following the wrong path as long as it’s not like detrimental and

um, yeah, that’s that’s and I’ve been working with these people like my co-founder for 11 years now across three

different companies and and I think he exemplifies that. Beautiful. I want to ask if you can

share you’re literally investing in games which are doing well. what’s

scaling right now? What’s working? Can you share any secrets from a high vantage point? Type five.

Yeah. Um, look, I think I think the the the trend

has has certainly been hybrid hybrid monetizing kind of like casual titles.

Um, which is not to say that the the game mechanics of of hyper casual are not

still monetizable. Like I think um a lot of those components, the hyper casual

games um are being integrated into like your forex strategy core games. Um

they’re integrated into real money gaming companies. they’re integrated into um some hybrid casual, but like

those game mechanics are still relevant and are still monetizing, but they found a a meta uh which can kind of take the

user through a longer journey and a more retentive journey. I think that’s becoming more important. Um and as I

mentioned, that’s what we’re looking for as well, because we don’t want a binary outcome of you acquiring a user and

maybe they pay it back or maybe they don’t. um you want to have multiple chances over the lifetime of that user to be

able to monetize them. So I think that becomes extremely important as CASs and

CPIs inevit inevitably rise, right? Um, I

think also the AP monetization is becoming more favorable and will become more favorable because of your web shops

and your out ofplay store kind of monetization giving you greater margins

um than than before. Um, and all the more reason why, you

know, your core and your hybrid casual games are becoming more and more um more and more successful as as as as use

cases in terms of th those are just like the categories um of and and monetization

methods, but I’m seeing very clear like scaling winners in Turkey doing puzzle

games like your merge two, merge three sorting games. Um, and it’s not just

like a one-off. It’s like it’s a playbook. Like people know, people who

have come from Grand Games, sorry, not from Grand Games, from uh Peak and Dream

and um, uh, Good Job Games that talent pool is now teaching other people and

leading other companies into success. I mean, I think Do you think it’s the UA or the product that they have locked down or both? I

think I think for them it’s it’s uh the product. I think for them I the differentiating factor is the product.

The UA is still at a at a at a high level but not higher than other markets

that I’ve seen. So the other the other markets that I’ve seen that are doing well um because of the product is

Israel. Israel is is is is also very good at um at generating because they

come from this ex like social casino background. Um uh and they know how to

kind of monetize through this you know random mechanism or like l mechanism.

Um, so it influences the social casino aspects of hybrid games and that plays

into puzzle games, that plays into um other types of genres, including sweep

stakes, real money gaming. Um, they’re very good at at those at those game

mechanics. Um, on the UA side though, I would have to say like the Chinese companies are

probably dominating. Um,

and like a close friend of ours and the firms is is is uh the two and a half

gamers folks. I think they spend quite a lot of time consulting um over there. So, I can’t I can’t I haven’t met them

personally, but the anecdotes that I’ve heard from them is that they’re set up the teams the UA or sorry, the gaming

companies are set up in a very fundamentally different way than um than in the west where the UA

leads or like the chief marketing people over there are actually the most um

authoritative people in the company where they can then direct what goes into the game, how the game is balanced,

um and how the game is monetized and what mechanics should be should be. So

they’ll test a creative strate a creative strategy and if and that strategy just doesn’t work doesn’t exist

in the game. But if it works on the ad, they’re going to introduce it into the game. And the company needs to be built

and structured in a certain way to be able to do that very quickly, right? to to integrate a winning concept on on the

UA side very quickly into the game. Wow. So like in my world in business, it’s like you build a weight list. Like

you build a weight list and then you go build the product and it’s like they’ve found a way cuz they’re making money. Like the R&D department is like go check

if our players would want this by spending money to attract players and then go build it later. That’s so

interesting. Yeah. And I think that’s why that’s why they win. And obviously there’s many other factors. A lot of people mis

misunderstand that like, oh, it’s China. Their their their talent must be way cheaper than

What is the biggest misconception about China? I’ve yet to find out. I’m I’m that is my

the China market is the biggest uh opportunity

uh I think in our business um that we have not yet cracked. Um if I I mean I

think my running theory um about the Chinese companies is that they are uh

very very relentless about profit uh about and they really really don’t um I

mean they’re they’re very data driven um in all aspects of the business um in

making the game in running UA and um in

in scaling their game as well, ma making decisions about scaling their game. Which is why when you look at these

companies on on on sensor tower, it’s like boom. It’s like it’s like a hockey

stick because they know very clearly what it takes what it t what the game

mechanic game metrics need to look like before they are super confident that it’s going to scale. And once they have

those metrics, they’re just going to do it. Whereas I think the other markets

are you know incrementally testing and maybe that’s because they don’t have the same conviction in the data as the

Chinese companies do. Beautiful. In terms of the founder here,

so the founders you’re talking to, I like to ask this question. It’s very basic, but

what is their biggest mistake that they’re doing just in general? not necessarily about financing but like the

biggest mistake you see a founder doing when you speak to them. That’s a good question. It’s a simple

but like very tough one. I think founders need to be hyperfocused on what

is going to make their business a business, a real business. What will it take for them to not live at this scale

but at like a 10x scale and anything in between? Like if you don’t get there,

whatever you’re doing right now doesn’t matter. Like it really doesn’t matter. You’re going to be operating a zombie

business essentially. So I think founders are not uncomfortable enough

with that state of being. uh and therefore and and it’s usually due to

lack of clarity of what is going to bring that business to that next level. Um but I think it introduces so much

complacency if you don’t clearly see what’s going to take your business to that next level. Um so for the the

founders that we’re speaking to what we’re trying to do is introduce more quantitative a more quantitative

approach in helping them identify what first of all how do you rank between

your peer set like your category? what percentile are you in terms of some

of these key metrics, retention, re like K retention, revenue retention, rorowass. Um, and

that gives you like at least a map of where you exist because if you aren’t at

that level, no matter how much you spend in money, like they can outspend you. like the more profitable companies can

outspend you and you’re eventually just going to die because um your margins

will shrink as they out bid you and out compete you and your CPI is increased.

So giving them a map of that, helping them validate if you’re not there yet,

what needs to happen in order for you to justify like scaling up, I think is is

is going to be really important. At least that’s I think the core of the the reason why we built our tool PVX Lambda

is because we think that there’s lack of clarity in the market on what it looks like to be a

scalable company to be ready to be a scalable company. Um and I think this applies to other other

um business sectors as well like in your business like I was about to share. Yeah.

Yeah. like what maybe maybe you can share, but like do do you have a sense of what that looks like? Um and are

what is the urgency um in in getting there? What are you willing to sacrifice to get there?

Yeah. Now, you like this. So, my goal is

personally make so much money so I can make as many babies I want without

thinking about how much they’re going to cost and then spend as much time with those babies. and I’m 27.

My girlfriend is similar age. So when I zoom out, I’m like, okay, if I have

three, four babies, they will cost, let’s say, 100k a year or whatever and not 100k, 100k over their lifetime,

whatever. Long story short, I don’t have that much time if I want to have this ideal lifetime. So I have like 2, three

years. So when I started my business, my idea was do the highest

return on time money that I can do, which at the start was ghost riding. So I was ghost riding everything. I had

eight clients. I was writing everything. My profit margins were really high. And then I realized if I continue doing

that, I will make more money in 24 and 2025 than if I hired anyone. I would

just objectively just get like 70 80%. I’m writing words on the internet. And then I was introduced to like a CEO

coach and he exited his marketing agency in the UK. And part of the golden handcuff clause is he had to stay in the

business for 2 years as he replaced himself and he eventually went from 4 days a week to three days a week to two

days a week to one day a week and then he like had a spreadsheet and he mapped out all the processes and then he

realized that’s a really useful skill and now he’s consulting others to do the same. And in there the first exercise we did was all right let’s get a or chart.

I’m like, “Oh, I don’t have one.” Okay. And we started mapping it out the three things that a business has, which is

getting new customers, so growth, marketing, operations, so delivering anything that you’re doing on the

marketing side, and then finance, um, anything outside of delivery and

whatnot. And then he put founder should only be doing strategic stuff, maybe

hiring, other stuff. And then you put your name on every single job title that you’re currently doing. And I was on

like 15 whereas like I’m also doing the marketing. I’m editing the podcast. I’m like I had like 15 different job titles.

He said, “Okay, what’s on here not founder worthy?” Like what could be outsourced for less than $20 an hour?

And it was pretty much everything on the podcast side, on the research side, all that. Was like, “Okay.” So then I had an

EA who was helping me sometimes. I was like, “No, I need to make him own the entire podcast, which he now does.” I was like, “Okay, cool.” And then you

start thinking, “Okay, how much money do you want to make?” So you get a spreadsheet out. It’s like I want 20 or 30 clients. Okay, how many writers would

that take? You know, okay, probably two riders. Okay, are you going to manage them? No, ideally want someone to manage

them. And then you start fleshing out this orchart and you realize, okay, for the last 6 months, I’m trying to make

more money, but because I spent zero time on hiring someone or documenting how I do things, this will never happen

like ever. Like it was just is not possible unless I did the hard thing

which was hire someone. And then someone did a very nice um post on LinkedIn, I can’t remember. And he mentioned

when you have recurring revenue, you get so complacent. So the work I did three

to five months ago signing those clients and I’m doing delivery and I have decent retention. So it’s like the fire was

kind of gone. And then I’m thinking about these gaming founders. They have

more money than they need, I guess. And potentially they don’t know why they’re doing it. some people. But with me, I

actually know what I want to do. I want to hire my family. So, I need to make enough money or add a new business vertical so they can actually make

money. So, I’m doing the event side as well. And then what ended up happening is I hired. So, now the team’s four

full-time and now I have payroll. I’m making less money and like my brother’s getting more money than me and he’s

younger than me, but I know by doing that he will build those skills and so on and so forth. So, to kind of bring

this to a close, now payroll is a lot higher than it used to be. But now all I

need to do is BD and like I signed two clients this week and I know I can sign two clients a month to the end of summer

and I will like triple the revenue I had a few months ago and also double my take

home. But then also I’m funding people now. But I never would have done this if I just didn’t have that or chart which

is so crazy to me like if I just didn’t visualize like oh I can’t do this forever otherwise I’ll burn out. Okay so I need to hire someone. And that was the

hardest thing I could ever do. I tried with like 14 writers and I was like, “No one can write like me.” Blah, blah, blah. And what did I actually do? I

didn’t do a job post. I just messaged a few people I knew. Then I actually just doubled down and stuck with someone for a few months and then, you know, we made

it work. And it’s very hard. I’m more stressed than I was 5 months ago, but it’s a lot more exciting because I just

saw it for what it is. Like I have no choice. I have to make that hard choice. And yeah, now we’re getting there.

It’s It’s all about leverage, isn’t it? It’s it’s one is you’re you’re hiring

and you’re building an organiz organization that you can leverage even in your absence, right? So all you need

to input into it is is capital and direction. Um and ideally it can

function as something that is going to amplify the value. Um, and if you do that really all the successful founders

do that incredibly effectively. Like if you like I see I still get I still get

like um you know shocked or like emotional by seeing uh Bill Gates sitting next to

Satya Nadella. you know, they’re sitting on a they’re sitting on a couch uh and sorry, there’s Steve Balmer there as

well and they’re sitting on a couch and it’s like, dude, that guy built this entire industry and now there are two

other billionaires who are sitting next to him who are who are running the show, right? And like tens of thousands,

hundreds of thousands of people working underneath and everyone having their software on their on their their laptop

like and he all he did was make himself obsolete and and steer the company in a

direction. Um, so yeah, that’s that’s what a founder

does or should do. Yeah. But like my favorite quote, you

don’t know what you don’t know. If I just didn’t have that chat with him and just seen him do it, I was like, “Oh, yeah, this makes sense. Cool.” Like if I

just never had that call, like I wouldn’t have been doing three podcasts this week cuz I would have no time to

prep them, you know, because I wouldn’t have helped that person. Um, absolutely. Really really enjoyed this conversation. I’ve

got two more things. Um, anything from the podcast that we did today that we feel like we haven’t spent enough time

on that you want to cover? Anything for anyone listening to this who’s got a game? No, I think I think I think just to

reiterate the main point was uh actually no, I think we’ve we we’ve

spent enough time on that. Um, anything else that we haven’t covered? Probably.

So, maybe is there a message you want to leave everyone listening here? Actually, maybe I can tell you about the story of

why we named ourselves PVX. Um, so PVX stands for player versus X. Um,

as opposed to player versus player, player versus environment, player versus monster, etc. Um, me and my co-founders

were thinking about what we should name this company. It’s going to be a financing company, so it can’t be too like ridiculous. But player versus X um

felt like it reflected how hard the journey is in being a a successful

founder at gaming because you’re basically just against everyone else. Like it’s so competitive.

You know, someone could easily replicate your IP. You know, the marketing the

marketing kind of platforms are like trying to shank you and and take more more more money from you. uh Apple and

Google are trying to take more margins from you. Um you know it’s just very

very tough. Um it’s rewarding but it’s also very tough. So that founder journey

felt like player versus X and we wanted to be partners for founders who wanted

who felt this way because it’s a lonely and grueling journey.

Why shouldn’t you have a partner that is willing to kind of take risk with you and also want

you to scale to your maximum profitable potential? That’s that’s the story of the the name of the company.

Very cool name. I like it. So yeah. Any hot takes do you have? You told me to

ask you that. I wanted to. Is there a hot take you have in life? A hot take? Yeah. Actually, I was I was

having a dinner the other night and I was asked this. So, I um I don’t know how it came it just came out of my

mouth, but I I told I said I think that aspirational role models are overrated

and that um and that bad role models are underrated. I think

you can in the sense that they’re more useful to you in your life. Um, so which

is to say that if you were to take cues from anyone in the world, I think you should be taking cues from an archetype

that exemplifies behaviors that you want to avoid rather than behaviors that you want to emulate. Um, and you know,

this is because for me, maybe it’s because I’m trying to optimize for regret minimization. Essentially, that’s

my framework. Um but I think it’s you know people who are dishonest

um people who are willing to give up like everything in you know in their

life for money. people who take credit from other people. Like these are all

things that you can easily remember to avoid rather than someone

who’s like, “Oh, this person is like kind or this person is like um you know,

very smart or intelligent.” like it’s much easier to remember the path that I

shouldn’t walk rather than try to emulate a path that I should walk because you never you never know 99% of

the things that that that aspirational archetype is is is giving up in order to

to achieve that. Um so I think the hot take if I had one was that bad

archetypes or bad role models are more useful than you think. Yeah, I would agree. And I think it’s especially

useful if the role model maybe like on the surface is very good

and you most people would aspire to be that, but then they have these traits you don’t like. So it’s like in my head I’m like ah just remove those. And

obviously some argument like you need the dark for the good sometimes. I think that part is potentially overrated as

well. Yeah. True. Amazing. Risky. Thank you so much. Where can people get in touch if they want to

ask you questions about anything we discussed today? Best place to reach you, LinkedIn. Um, add me on LinkedIn. I’m

pretty responsive over there. And, um, if you’re interested in in in any of the

tools, um, that we Great. Just visit pvxpartners.com

and then sign up for either the financing or the uh or the or the SAS tool.

Nice. And the SAS tool is how much does it cost? It’s free. Wait. So, yeah, definitely everyone

should check that out. Sweet. Thanks so much. And if you enjoyed this podcast, send it to a friend. Thank you.

Cheers.