A look back on Balderton’s investment in Dream Games

Following the completion of CVC’s acquisition of the VC stakes in Dream Games, I thought it might be interesting to look back at our original investment memo for their preseed round in 2019.  Some things we got wrong, some we got right. The most important thing we got right was to make the investment! 

It has been a privilege for Balderton to be an investor and board observer. Thank you Soner Aydemir, Eren Şengül Hakan Sağlam, İkbal Namlı, Serdar Yılmaz and all at Dream for your huge achievements to date, including building Royal Match to be the global number one puzzle game by revenue. It has been a great six years working with you, and I wish you all the very best as you continue to build the Royal universe and world leading games.

Before we go into the investment memo, let’s take a quick look at the extraordinary growth of Dream’s first game Royal Match. Below are Dream Games revenue numbers from Companies House. From zero to $1.5B revenues in 3 years.

Dream Games Investment Memo, July 2019

So – into the memo. In italics is what I wrote to the team back in July 2019, with today’s reflections below in bold.

“As discussed Soner from Dream Games will be presenting on Monday. The remarkable aspect of Dream Games is the calibre of the team.  At their previous company Peak they were the core team who built Toon Blast and Toy Blast which are top 10 and top 20 grossing in US App Store and still growing.  They would be in the top 5 western casual mobile games companies globally alongside King, Supercell and Playrix.“

This was certainly the key reason for us to invest and for Dream’s success!

What was exciting?

• “Exceptional team. At Peak they built two of the most successful mobile casual games, Toy Blast and Toon Blast, grossing $XXXM annually between them. 
• Spending time with the team you get a sense of an impressive set of game builders with a strong relationship.
• Ambition. They left a lot of ESOP on the table when they left Peak, which is a good sign of ambition. They are determined to prove that they can build something even bigger  
• They are obsessed by excellence in the game. Speak about spending hours late at night perfecting game load animation. 
• Strong references on team from Akin Babayigit (ex Facebook & King, angel investing) 
• Huge vision to build the next/better Pixar, starting from games rather than animated movies.” 

At this stage investing in Dream was all about the founders and so the memo really dwelt on this.

We spend a lot of time at Balderton thinking about what stands out early in the most successful founders. There is no single archetype, so instead we look for where founders have spikes – where they really stand out. The Dream founders exemplify product obsession and huge ambition and competitiveness.

On the vision, it was no surprise that they ended up adding Ed Catmull the Pixar cofounder as an advisor.

The concerns:

• “Pre-everything, only started two months ago”
  • We only make a few preseed and seed investments a year at Balderton, and focus on companies with strong founders where growth can be very fast. This approach has worked well for us with the likes of Dream and Revolut. Important for us that we keep this bar really high and not get into large scale seed investing
• “Istanbul location makes it harder to get actively involved – but to be fair in games there is not a huge amount for board to do pre-launch.”
  • About 6 months after we invested we hit COVID and I didn’t meet the team in person again for over a year, which was not ideal. However it enabled the founders to focus 100% on hiring locally and game building and so perhaps was beneficial.  Our approach at Balderton is to be honest about where we can be helpful versus where to let founders get on with it.
• “Expensive and large seed, as expected given team track record.”
  • Several respected games VCs questioned the ‘high’ valuation at which we came into Dream and high round size ($7.5M). At the time a good games team was usually raising ~$2M seed.  However this was not a good team, it was an exceptional one. Raising $7.5M meant that they could focus on hiring and building and launching the game when it was ready.
• “Previous titles were about perfecting existing game concepts.  Will this continue to work?  They are dismissive of ad revenues which are increasingly important for most games today.”
  • I got this wrong! Dream’s focus on transactional revenues and retention has led to incredible retention and monetisation. Ad revenues might have helped short term but would have been a distraction from this focus 
• “First time as founders.”
  • First time founders can often be the most successful, as has been the case here.  
• “The mobile games market is huge ($68B) but  highly competitive, and many companies and games do not make it. King and Supercell have struggled to build hits to follow up on their initial successes. Brawl Stars from Supercell has been a success but has taken a long time.  This makes the achievement of Peak and Playrix all the more impressive. However there are only a small number of studios with the team, funding and ambition to build a world-leading mobile casual game. We think Dream have the team to potentially make this happen.”
  • Pretty accurate…

The business plan

• “6 months to build the team and iterate on concept

• 1 year to release the beta

• 6 months in beta, show LTV>CPI, show potential to invest substantial marketing $

• (this is slightly padded timeline to allow for having to rework the game along the way)“

Dream were slightly quicker than this timeline. Really impressive as most game developers run way over schedule.

“Then raise ~$25M to invest heavily in marketing.  This should be the final round.“

Completely wrong!  Dream raised three more rounds of funding, totalling over $450M. The reality of building really successful mobile games in the 2020s is that this is through paid acquisition, and payback times can be long.  This is not to the taste of some VCs who idolise organic growth, but it is how mobile games work today. 

“If the game works very well then exit could be $700M (similar price to Small Giant, Natural Motion). If the company then go on to produce a number of hit games – as is their intention –  the company could become worth multi-$B.“

I drastically underestimated how big Royal Match could become. As the biggest global puzzle game it forms all of the $1.5B 2023 revenues above, making Dream already worth billions. Dream have had another success with Royal Kingdom, making it two out of two so far. I am confident they have many more to come.  

The decision to invest

After Dream’s pitch we had our usual discussion amongst the partnership.  Some of my partners pushed back on whether this was “the one” company to invest in in games. Balderton had some considerable success investing in the first generation of mobile games, with Wooga, Natural Motion and Big Fish Games totalling ~$2B of value created. However we hadn’t invested in a new games business for a decade (other than a small seed investment in Mojiworks in 2017). What I had been doing was working on the Wooga board through to their acquisition by Playtika in 2018, being part of many failed games and a few great successes – most notably June’s Journey which has generated over a billion in lifetime revenues. I also met dozens of new games teams over this period. This gave me the confidence that the Dream team were really special.   At the time we had little network in Istanbul so getting independent references on the founders was tough and required some digging – thank you to those of you who helped here. Akin’s personal investment was a big part of us gaining confidence – a huge thank you to Akin. 

We held our usual vote amongst the partners on whether to invest, which was very positive, although not unanimous (the best investments usually aren’t).  I immediately made Dream our offer and after some discussion and compromise we were able to invest alongside Makers Fund in a $7.5M seed round.

After the round was announced, they focused 110% on building Royal Match, working super hard, beating their self-imposed deadlines and targets, and the game took off on release. We were happy at Balderton to continue investing in all of Dream’s further funding rounds. It has been a privilege to be part of the Dream board over this period.

Congratulations and thank you again to the Dream team.