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DATA40 Terminal
DATA40 Terminal is a data platform designed for efficient data management and analysis in specific areas: GameDev, iGaming, Blockchain, Venture and related FinTech/AdTech.
D40 Terminal is a data platform designed for efficient data management and analysis in specific areas: GameDev, iGaming, Blockchain, Venture and related FinTech/AdTech.

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Difficulties With Evaluating Venture Potential

24 Nov, 2022

The task of a venture investor is to predict demand trends and find a super-profitable “Unicorn” project, which can then develop exponentially, raking in impressive profits, and blocking off less successful competition. A “Unicorn” is a privately owned start-up company or project valued at over $1 billion and reaching a billion-dollar capitalization in record time. Finding such gems requires one to be able to assess a product’s venture potential with utmost accuracy. Today we want to talk about the main difficulties with assessing start-ups’ venture potential and how you can reduce possible risks.

1. Main Competitors

Market analysis is the first thing you need to do before developing your project as it allows one to understand their main competitors’ operating principles, evaluate their advantages and disadvantages, and assess product demand.

For game developers, it is especially important to study potential competitors well so that, by understanding their sales volume, one could get an idea of the target audience’s needs and introduce those elements into their game that the fans have come to expect. Understanding the key points of your competitor’s business strategy, checking past performance, and taking a look at competing products or services is essential to determine the best possible approach and gain a competitive advantage.

2. Calculating Sales Potential

Sales potential strongly depends on project size and the audience the company can reach. When calculating sales potential, one can hope for a good result if they know that their audience outreach is sufficient and their project is competitive. When aiming at a small audience by, for instance, developing software that only some companies in a specific industry will use, then you should be prepared for low sales. Thus, it would be best if you studied the audience and the market in advance to be sure that you have calculated the sales potential correctly because your entire project’s budget will depend on these calculations.

Venture investors have the freedom to manage finances at their discretion and take high risks. They understand from the outset that most of the start-ups they invest in will not pay off. Banks cannot afford such a business model — their modus operandi is based on receiving interest from loans, so the loans issued must be secured and reliable.

A venture investor is not constrained by the legal regulation that banks are subject to. They do not require licensing to operate, and there is not a centralized control system in the form of a central bank. Investor are not asked to maintain a credit score and financial liquidity to fulfill their depositor obligations.

The main disadvantage to this financing method for young start-ups is that venture investors usually receive a stake in the company. Thus, they are entitled to a cut of future profits, have a voice in decision-making, and influence the project’s growth. On the other hand, a venture investor brings their experience, connections, and business management skills to a start-up they support, often landing a helping hand and providing an impetus towards effective development.

Key Risks & How to Mitigate Them

According to statistics, 20% of all start-ups fail by the end of the first year, 50% do not make it to the five-year mark, and 70% last less than ten years. To reduce the risk of failure and better understand a start-up’s potential, it is crucial to perform the most accurate project assessment at an early stage.

This can be done both independently and by contacting specialize companies with relevant experience. Our own Data40 Team estimates game sales at various stages of development, and our team has developed a methodology for assessing future sales potential.

The critical advantage of game analysis in development is the combination of academic (quantitative) methods and expert opinions, which allows you to get the most accurate results for a game project at different stages and products aimed at any platform (PC, consoles, or mobile devices). The current performance analysis model we use offers reports for all stages of development. Comparison of past and updated reports allows stakeholders to track the game’s dynamics and the staged development progress.

Venture financing is the riskiest way of making investments, as it deals with innovative projects, the successful implementation of which cannot always be guaranteed and calculated in advance. Investing is inevitably associated with the possibility of unforeseen circumstances and ever-changing conditions that contribute to the loss of invested funds. However, investing into inventive projects also deals with creative risks, which imply the possibility of creating a product that fails to catch the eye of the consumer. This can happen with a sharp jump in technological advancement and the emergence of brand-new goods or services. What is more is that innovative projects have risks associated with uniqueness, stages of implementation, and scope. It is crucial to determine ASAP whether the product is relevant to the corresponding market, what key players already exist, and how they go about doing business. By analyzing all this, you can significantly reduce the aforementioned risks.

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