Investing in the Big Games with Carl Armfelt

by Brandon Pham
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“Digital distribution has put more power in the hands of game developers, if you can make a great game, you can get it out there yourself, globally”

— Carl Armfelt (Portfolio Manager)

Episode 148


Carl Armfelt currently residing as a Portfolio Manager at Swedbank Robur, Carl’s eye and portfolio are currently focused on partnering with or outright acquiring game development studios that meet the criteria. Carl, who was recently appointed the chairman of the board at Quixel AB, manages over USD 2.3 billion with investments in CD Projekt, THQ Nordic, Paradox Interactive, Frontier Developments, Starbreeze Studios and other companies. He was kind enough to give some insights into his work.

We sat with Carl to demystify the hows and whys of getting investors for your games.  How to button up your indie company and get it ready for public trading. What expectations he had for pricing models in games for the near future and any tips we could get in regards to business development of an independent game company in the current era of gaming.

Managing the Swedbank portfolio and focusing on games

“We really like companies that have profitable growth, it’s more kind of the mid size game developers but we’re open minded. We think that the great companies always come from below.”

Carl works for one of the biggest banks in Sweden running small cap equity funds hoping to find the most attractive companies to be invested in overtime. Believes that one of the most attractive areas of investment for them over the last 4 to 5 years has been game developers.

“We really like companies that have profitable growth, it’s more kind of the mid size game developers but we’re open minded. We think that the great companies always come from below.” While he explains later that running a technology fund is a bit tricky, the things they started to appreciate most about game development as the two most attractive features about companies they invest in…

  1. If you own a portfolio of great digital brands, he bets you will be around in 15 years from now.

  2. When some of the game developers went from analog to digital publishing.


Long term investment goals for Swedbank’s investing in games

“If you compare the game developers to the movie industry, we think when entertainment goes interactive, it’s much more interesting to be invested. We think people will spend more and more time with these digital brands when you have interactive entertainment.” This stance conveys a true interest in the growth of our overall game development industry let alone the individual companies they support and the numbers don’t lie. In 2016 the game industry raked in over 98 billion dollars worldwide, while moves only pulled in a global total of $36 billion.

“We own between 5 and 10% of a company and we believe in small independent companies. We don’t think the end goal is to sell your company to a big competitor. We like the guys who go to the stock exchange, are happy to be a public company and stay independent.”

Getting to know your company before we do business

Being able to spot success early on requires an in depth look at the company, the brands, the products, and team responsible for getting the company to where it is. Carl explained their favorite companies to invest in are ones that are already on the stock exchange. “We usually have all the information we need, and it’s usually companies that have already looked over their books, etc etc. It can take between 1 to 3 weeks. Sometimes we meet a company 5 times, and sometimes we meet them 1 time. 5 years ago we found companies we never heard about and we invested in them. These days we know most of the companies, something doesn’t just pop out of thin air.

What stood out here was the way you can interpret what he was saying about the 5 year span of knowing vs not knowing companies that went public. If 5 years ago publicly traded game companies were under the radar, and today that is “not possible” it reflects that their company’s attention to game devs going public is both sharp, and also that overall the industry is becoming big time news as any company makes a transition into being publicly traded. The volume assumed trade volume makes us too big to ignore it would seem.


Would you invest in private companies?
Interestingly enough, you don’t have to be a publicly traded game development company to be looked at by Swedbank Robur but it helps greatly to be at least a year away from going public. Their criteria exists for a reason. Outside of this window likely means they won’t be interested.

“It’s always a bigger risk to be a private company over a 25 year cycle because then you know, who do you have looking over your shoulder to make sure you’re putting your energy and efforts into the right thing. A lot of companies 40 years ago can thank the stock market that they are still relevant today.”

What he’s explaining here is the fact that you’re publicly traded means you have a board and shareholders to appease and work with who have direct influence over decisions to make for the future of the business. You have a body of knowledge and capital resources available to help you grow your business outside of a vacuum and in reality with multiple viewpoints and perspectives on any issue your company comes up against. It’s a lot harder to make critical mishaps or negligent mistakes when you have a board and entire sum of shareholders voting to allow or deny macro level business decisions to be made.

Of the investments made at Swedbank, which one was the most surprising?
Starbreeze! “We invested right after they launched Payday 2. That was the first real example of what a small company can do if you have digital distribution. It’s 5 or 6 years old I think and still you’re seeing it at top 10, for players on steam.

Paradox is still probably the most valuable example for us.

  • Varied Portfolio.

  • Hundreds of titles on steam over $5.

  • Huge net cash position.

  • Making money on their back catalog.

  • Can really focus on making great games.”

How do you feel about pricing models in the game industry right now?

“I think I have a mixed feeling. I think over time, if I’m going to be involved personally in a brand I love, I would like to see a lot of expansions on it. I think that’s just the right way to entertain the consumer. But I think as well, this is a global industry and gamers can be quite picky so you will always strike a good balance between monetization and content. I think that gamers are very informed buyers, I mean it’s not like going to your electronic store and the salesperson can tell you whatever and you just pick up a product. People, there’s so many reviewers, so many streamers, people are knowledgeable and very rational where they spend their money. Just look at the data from steam in terms of, if you like a title but you think it’s very expensive you may wait for the first sale, and buy it for 25% discount or whatever. I think the $60 model is going away, I think the two prevailing models will be freemium like Fortnite, which is always going to be the mass market model and then I think it’s gonna be 25-30 dollar base game with expansions. And you have to make a great game otherwise people won’t buy expansions, and you have to make great expansions. I think those two are the prevailing models. At the end of the day the payment models are all successful, it just hinges on what the consumer is willing to pay for.”

So get ready for some shake ups in how you purchase games if you were a fan of paying $60 for a single game. With this top level of premium game content dwindling down due to both risk and competition, you will have many many more opportunities to spend or consume games in the mid tier and free level. Perhaps a gift, and a curse no? It’s easy to see a shift is indeed happening and the customers have responded. Fortnite appears to solidified the AAA quality free to play model now making over 1.2 billion dollars since switching over to it’s free to play battle royal mode in February of 2018.


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