Invest In Businesses, Not Studios
Fund distribution leverage, not content - the content is only a means to an end
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 90%
Lasky blogged this rule roughly fifteen years ago and has applied it since: he invests in businesses, not studios, even though he has done more content deals than almost anyone in the Valley. The screen is simple. A studio pitch ends with 'we will make a great game and put it on Steam or in the App Store'. A business pitch has a strategy that transcends that - a specific, credible source of distribution leverage that produces a cost or access advantage over rivals. Because barriers to production have collapsed, product excellence is assumed rather than differentiating; the differentiator is whether anyone will ever find it. Lasky will invest against any credible distribution leverage. Without it, he argues, the company cannot aggregate enough value to justify a venture investment, however good the thing itself is.
Origin
Mitch Lasky articulated the rule in a blog post around 2011 titled to the effect of 'investing in content', and restates it here as the discipline that governed his Benchmark investments in Riot Games and thatgamecompany.
Core principles
- 01Content is a means to an end; the end cannot be another piece of content.
- 02Distribution is king once the barriers to making things have collapsed.
- 03Assume the product is excellent - excellence is table stakes, not an edge.
- 04Any credible distribution leverage is investable; no distribution leverage rarely is.
- 05The strategy has to transcend 'make it and put it on the store'.
How to run it
- 1
Separate the product from the business
Write down what the company is beyond the first product. If the answer is another product of the same kind, you are looking at a studio.
Watch out Founders often mistake an ambitious roadmap for a business model; a queue of products is still a studio.
- 2
Assume the product is excellent
Take craft off the table. Every venture-backed studio should be building something outstanding, so quality carries no information in the decision.
Pro tip If the pitch spends most of its time on the product, that is itself a signal.
- 3
Name the distribution leverage explicitly
State the specific mechanism by which this company reaches customers more cheaply or more certainly than a rival. Owned community, captured demand, an existing audience, a channel relationship.
Pro tip Riot cleared this bar by identifying an enormous existing pool of Defense of the Ancients players with pent-up demand.
Watch out Vague appeals to virality, influencers or 'organic growth' are not leverage.
- 4
Test credibility, not novelty
Ask whether the team can actually operate the leverage. Lasky will back any credible leverage; the qualifier doing the work is credible.
Watch out Leverage that depends on a third party's goodwill can be revoked at any time.
- 5
Trace leverage to profit advantage
Show how lower acquisition cost turns into a margin advantage over competitors, since that is what funds the next round of leverage.
Pro tip Ask what the second product costs to launch given the first one succeeded.
- 6
Decide and be honest about the category
If there is no leverage, the deal may still be a fine personal investment but not a venture one. Lasky makes exactly these deals now, outside a fund.
Watch out Do not stretch a studio into venture clothing; the maths of the fund will punish it later.
In the wild
Riot pitched a standalone product built from a Warcraft 3 mod. On its face that was a studio bet. What convinced Lasky was that the team had identified a large existing pool of Defense of the Ancients players facing enormous friction - hunting for an out-of-print copy of Warcraft 3 and a chain of workarounds. The team then bought the Defense of the Ancients community websites and redirected their editorial traffic.
→ Lasky invested; the acquisition advantage let Riot reinvest profits and become a platform-based publisher.
A founder arrives with a genuinely outstanding game, a proven team and a plan to launch on Steam with a PR push and a few streamer partnerships. Asked what happens after launch, the answer is a second, larger game on Steam. There is no owned audience, no captured community and no channel advantage.
→ Declined as a studio rather than a business, however good the game turns out to be.
Common mistakes
Confusing a great product with a business
Assume every venture-backed competitor also has an excellent product. Quality no longer separates winners from the pile.
Calling a channel tactic a growth hack
Lasky reframes Riot's website purchase as a customer acquisition advantage rather than a hack, because a one-off trick does not survive; a structural advantage does.
Believing the audience will find you
Robbins notes that unless a product is genuinely top of its category, people will never even know it exists, no matter how good it is.
Is it for you?
Best for
Seed and Series A investors, and founders pitching them, in games, media, apps and any category where production has been democratised.
Not ideal for
Patient capital, personal angel cheques, or studios funded on craft and IP upside rather than venture-scale returns.
From the transcript
“I invest in businesses not in studios”
“those businesses have to have a strategy that transcends I want to make a game and put it on steam or I want to make…”
“invest against any credible distribution leverage but if you don't have that distribution leverage it's very difficult it's very difficult to aggregate enough value”
From the episode
Benchmark’s Mitch Lasky and Blake Robbins on The Art of Business in Gaming
Mitch Lasky