🔐 Alpha Leak: Video Games With a Twist
Investing in video game projects
Welcome to the first edition of Alpha Leak — a new newsletter where I bring you some exciting investments I'm pursuing. Think of it as a one-pager behind why I'm making certain investments.
I've done a lot of investing in the last decade, and access to opportunities continues to improve. With many people fighting the SEC's outdated accreditation rules, more investment opportunities should be opened up to those previously locked out. Most of what I write about in this section should be available to every investor.
This blog section will be for paying members only, free subscribers still have access to the remaining 99% of posts on my blog, but this is something special for paying members. You can become a member here.
Also, note that investment opportunities featured on AL are precisely that: opportunities. Not guaranteed ten-baggers. I won't be giving any advice, just writing about my experiences. As always, you should do your research. Read the full disclaimer.
Please provide feedback by replying or emailing me at newsletter@. Enjoy the first edition.
I've been gaming all my life and have always wanted to invest in them. I noticed studios raising funds on Kickstarter six years ago, but the model seemed off. Backers were exposed to all the downside when projects failed, but none of the success when projects became critical hits. Regardless of how well a game performed, backers got t-shirts, early access, and maybe a collectors edition if the game ever shipped. As an investor, this model seemed broken because people were backing commercial projects.
Fig changed the crowdfunding scene for video games when they launched. They allowed studios to raise funds from both backers and investors. As usual, backers got their perks, but investors could finally get some upside exposure!
I've been a member since 2016 and have been exposed to many opportunities. In those five years, I thought four investments were promising, and I missed my chance to invest in every one of them. The allocation was usually full by the time I clicked on the email link. The games I would have invested in but missed were Phoenix Point, Psychonauts 2, Wasteland 3, and most painfully, Homeworld 3.
Missed Opportunities
Phoenix Point is a new IP that took the XCOM formula and built something audacious. XCOM is my favorite game series of all time — I've played over a thousand hours across several titles. I had high hopes for PP. But when I finally got to play, it was rough and unbalanced but fun and challenging. It wasn't perfect, but I could see what they had in mind. My missed opportunity returned 255% over about two years. I missed out, but I am excited to see what they do next.
Next up is Psychonauts 2. I never played the first one, but I knew that those who did loved it. The second iteration was announced in 2015 but wasn't released until this year. It was well-received, and despite the long wait, investors got a nice 139%.
Then there was Wasteland. I'm a big fan of the series and have sunk hundreds of hours into Wasteland 2. I knew their track record and expected no less from the third iteration. I missed out on a 132% return.
I have fond memories of playing Homeworld 2 on an old PC in middle school. The games weren't perfect, but they have a cult following. When I got the email, I clicked on the notification for Homeworld 3 as fast as humanly possible and was finally able to get a reserved spot. I was hyped for a while till the studio got acquired, and all reservations were canceled. I'm happy for them, but I missed out yet again.
Three of those four misses had an average return of over 175% in a couple of years. Assuming I knew nothing about games and invested in Fig as if it were an index fund, I would have netted 125% on average (over a couple of years) while removing my bias and taking less idiosyncratic risk. From a risk/reward perspective, it beats many asset classes.
New Opportunity
Fig Portfolio Shares is giving investors access to a diversified portfolio of games. From triple-A titles to indie games, investors will have exposure to some new IPs and sequels in the coming years. The fund is looking to publish at least ten gaming products and is seeking a 2-3x return in 5 years. I know it has been on a tear lately, but it's unlikely that the S&P500 doubles in 5 years.
I like this opportunity due to its chance to produce asymmetric returns. No one knows how any of the projects will perform, and they all have individual chances of blowing up or going bust (like startups). I also think that the present is the best time to invest in digital IPs. With everything going on with web3 & NFTs, I believe the digital economy is just getting started, and video games are a big part of that trend.
This opportunity also provides some good diversification. I don't know what your portfolio looks like, but mine doesn't have enough exposure to gaming despite it being a big part of my life. Gamers will likely continue to game regardless of what stocks are doing or where interest rates are. This investment is an exposure to something unlike the rest of my portfolio.
It's not a guarantee, and these projects aren't risk-free. The investment is very illiquid, and once committed, you only make money when games sell. Funds go to zero otherwise.
Fig returns are distributed twice a year as dividends, which continue till the rev. share ends (after about five years). The way it's structured, shares will "go to zero" after all dividends have been paid out. It makes more sense to view those dividends as total returns (incl. the principal). A sign of success would be getting all of the principal back in the first dividend distribution.
NFTs
I know I said returns only come from game sales, but NFTs are all the rage now. Since I invested months ago, some of the studios are either incorporating NFTs or doing some sale in addition to the raise. But if you've been following the space, you'd realize that gamers hate NFTs right now, so I wouldn't invest solely for this reason. But if they are successful, investors will be exposed to the returns from primary & secondary NFT sales in addition to game unit sales. But again, it shouldn't be the deciding factor.
Alphaaaaa
If you're plugged in, then you know everything I just shared. You're probably also aware that Republic, the crowd-investing platform, acquired Fig last year. What you may not know is how crypto-friendly Republic is. They've helped multiple blockchain projects get funded and continue to educate users on crypto. Not to mention Republic Note which I'm still patiently waiting for.
Now that Fig is part of Republic, and after reading their NFT tease and a bunch of replies, I think there's a good chance that the fund backs some crypto-native gaming projects. Legacy gamers hate crypto games, but crypto games are creating a new breed of gamers that understand and like the unique mechanics NTFs introduce. There's a lot of money in crypto, but crypto games are still pretty dull. Fig can bridge seasoned developers who know how to make fun games with the crypto ecosystem. All this is speculation, but could a better Axie be in here?
If you're interested, allocation is currently 85% full, and you've just wasted a bunch of time reading this. Head over to Fig if you want to invest.
I like this opportunity because it's open to all investors; you don't have to be accredited. It's also fun. If you've been reading my blog for a while, you'd know that I like to play and experiment with investing. What's more fun than investing in gaming?
Thanks for your continued support. As always, you can reach me on twitter (@tolusnotes).
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