Signia Venture Partners’ Rick Thompson delivers the über-investor’s take on mobile gaming investments (interview)

Rick Thompson has put a lot of money into games and other startups over the years, and he has lots of money to show for it. Now, as gaming’s über-investor, he’s pouring even more into mobile game investments. We caught up with him earlier this month for an interview about what he sees in mobile.

Thompson has had great successes as a tech investor, most recently selling Playdom to Disney for up to $763.2 million in 2010. His exits for all of his companies have totaled more than $5 billion in sales. He loves to play poker and chess; he has been an investor and entrepreneur since 1995; and he is focused on what he calls the founder-investor model, where he gets closely involved with the early-stage companies he works with.

He left Playdom in August 2011, and since then, Thompson has funded the next generation of game companies, including mobile gaming firm Funzio, which Gree bought last year for $210 million. He has also invested in Wild Needle (acquired by Zynga for $3.8 million), Idle Games, Red Robot Labs, Grand Cru, Rumble Entertainment, Project Slice, Fun+, Airy Labs, Noise Toys, Viki, Social Shield, Udemy, Triangulate, AdChina, and Iddiction. That probably makes him one of the most active investors in games to date. He serves on the advisory board and is a general partner of Signia Venture Partners.

 Thompson has had the luck of being at the right place at the right time. At Playdom, his team built Mobsters with six people in a week. Within 30 days, the game was generating $4 million a month. Here’s an edited transcript of our discussion with Thompson.

GamesBeat: So, mobile is where all the action is gravitating to, then?

Rick Thompson: Yeah. I think there’s continued momentum in that direction. The shift has been happening for the last couple of years. Some companies have also put their apps on Facebook and think of that as a multiplatform strategy, but pretty much everyone is thinking mobile first. What’s interesting here is with that comes an investment in the ecosystem — distribution, monetization, retention. A lot of opportunities exist in that ecosystem. That continues to evolve. We’ve made a couple of investments there. Grow Mobile — that makes it very efficient for companies like us to essentially acquire across the entire ecosystem. Iddiction is a company that’s dedicated toward app discovery. Xyologic is a third one that is taking a different approach by creating what amounts to an alternative app store.

We’re continuing to look at more possibilities. The opportunities that we see — the pain points become obvious as the market becomes larger. The companies that can help solve app developers’ problems are opportunities that we’re investing in. One of the things that’s interesting from a gaming platform perspective is what that’s going to look like on mobile. Right now, it’s game developers hoping to get featured by Apple and Google, and beyond that, they’re responsible for their own distribution. Facebook does drive a significant number of installs to mobile, but they lose control over the customer once they install the mobile app.

What we think is interesting is the rise of a large number of dedicated communication applications — chatting and messaging. There’s a plethora that have come out in the last six months, like WeChat and MessageMe. We think there are more opportunities there. Ultimately, we expect to see a social graph coalesce around those apps.

GamesBeat: That one seems to be regionally focused now in Asia, with things like the message platform Kakao in Korea. How do you take advantage of that opportunity? Does a studio simply target those countries with its games?

Thompson: It’s not happening yet, but those apps have the potential to become a platform and a means of doing for apps what Facebook did on the web. Does that mean there’s going to be multiple tiers to the game platform space on mobile? I suspect so.

It’s not just regional separation, too. Even within a given market, there are different apps with different purposes. People use each of these apps that are much lighter weight for a dedicated purpose. We see people using multiple communications and messaging apps.

GamesBeat: Are these becoming the fastest-growing platforms in gaming now, the mobile messaging apps?

Thompson: They’re not quite platforms yet. That’s what we expect to see over the next year, that they will become platforms.

GamesBeat: As far as the investments that can happen in game studios themselves, where do you see that right now? Is it still attractive to invest in something like a 10-person game studio?

Thompson: It depends on how you look at it. It’s much harder now to raise funds. Investors also have to be aware that follow-up financing is more difficult than it was. The quality of the teams and the quality of the deals has gone up. The valuations are much more attractive than they were. The downside is that follow-on investment is more challenging. It puts a lot more pressure on early performance success for the investor and for the team.

GamesBeat: I had a conversation with David Helgason from Unity. He was saying that it was interesting to him that small teams continue to do extremely well, even at a time when people were predicting that bigger companies and brands would start to dominate mobile. He says he doesn’t see that happening now, and he doesn’t think it will happen.

Thompson: Big brands and well-known IP certainly have an advantage in discovery. There’s no doubt about that. The pressure to create that new IP, though, is something that larger companies have to be feeling from smaller companies. A lot of the creativity and innovation comes from smaller companies. That’s one of the things that keeps us excited and gets us out there.

GamesBeat: How do you look at the activities of the big companies out there now? What do their actions tell you about where things are going, like with EA as an example?

Thompson: We do see an increased commitment to mobile. That includes tablets as well as phones. We’re seeing a lot of support.

GamesBeat: Warner Bros. decided to open their own digital games studio here in San Francisco. It’s one more interesting sign. It seems to run against the trend of the larger companies shutting down a lot of studios now.

Thompson: Yeah. Warner Bros. has amazing IP. If they can create quality games around that IP, they should do very well. That’s the thinking around bringing Batman to the App Store. It would get millions of downloads simply because it’s Batman. If it’s a good game it should do extremely well. I’m very much looking forward to seeing that quality of IP come into mobile gaming.

GamesBeat: As far as how well they’re going to offset the cycle of the consoles and the revenue decline there with the rise of digital games, do you think that digital games are rising fast enough to help them out there?

Thompson: The challenge in a changing market is to get on the new horse and get up to speed as the other one starts to wear down. That certainly creates pressure on companies. The good news is that people are spending a lot more time gaming than they were previously. As the industry moves forward, some of the monetization does fall off, though, and that does create some short-term pain.

GamesBeat: I don’t know if you’ve gotten lonelier as an investor as a VC in games, now that some of the other guys have gotten out. Why do you think it’s wiser to stay in and stay very close to game investing?

Thompson: I think it’s a much better investment market right now than it was a year ago, when there were, frankly, a lot of tourists in the space. It’s very difficult to successfully do a one-game investment or a two-game investment. To understand the space it requires four or five or six investments. Competency and experience does pay off. As you know, of course, things go in cycles. This may very well be a hot space in another year.

GamesBeat: What do you think might lift it up and make it a hot space again?

Thompson: There are some very profitable growing companies that are able to show predictable growth. They’ll get people’s attention. We see some of those companies coming into the market just now. Also, to the point earlier about additional platforms arising on mobile, that has the potential to set things back on fire. It’s probably six months until we see any of those platforms start to show meaningful traffic, but platforms on mobile through which publishing and distribution can be handled, they can be extremely interesting businesses themselves, and they can also open up a lot of opportunities for new companies, just like Facebook did in 2008-2009.

GamesBeat: Are you staying focused on certain regions right now?

Thompson: We’re primarily invested in the U.S., but we have some investments in China, Finland, and Germany. It’s a global business. The opportunity to reach larger markets has never been easier. We’re working where we find talent.

GamesBeat: If there are going to be big exits like the ones we’ve seen in the last five years or so, where do you think they’re going to be?

Thompson: We’re going to see a new social graph on mobile, and a publisher that’s able to create a platform that can go across iOS and Android and possibly Windows 8 to publish games across each of those platforms and integrate the social graph, much like Facebook did on the web.

GamesBeat: Are you very interested in investments related to the new generation of console games — the PlayStation 4 and Wii U and whatever they call the next Xbox?

Thompson: No, that’s outside of our interest right now.

GamesBeat: Is that simply the domain of giant companies, then, or is that something you think is going to be a smaller part of the business going forward?

Thompson: We’re investing in small teams that can be very capital-efficient and hit home runs with fairly modest investments. That’s why we’re focused on mobile. That’s also leading us to other investments in mobility, including other apps, enterprise, and business models that are enabled through mobility.