The Biggest Indie Collapse You Haven't Heard Of.

In 2021, Devolver Digital listed on the London Stock Exchange at a valuation of approximately $1 billion. Devolver Digital is the indie publishing company famous for its annual press conferences mocking the game industry's obsession with money. They ran fake corporate executives. They made fun of monetization strategies. They have built an entire brand identity around not caring about the things that public companies are legally required to care about. Then they became a public company. By August 2023, their share price had fallen 94% from its peak. Also in 2021, TinyBuild listed on the same exchange at a $473 million valuation. By November of 2023, it was trading at an $18 million market cap, a 96% collapse. Two indie publishers, two IPOs, two catastrophic outcomes. The conventional explanation is that the games market got harder. That the post-COVID hangover hit everyone. That they made bad acquisitions and released underperforming titles. All of that is true. None of it is the real explanation. The real explanation is that indie publishers are venture capital firms, and venture capital firms are not public companies. And when you take a private market instrument and list it on a public exchange, the structure fails before the first game ships. That is what this video is about. Let us start with what a venture capital firm actually does. A VC firm raises capital from investors, typically institutional investors, endowments, pension funds, high-net-worth individuals, and deploys that capital into a portfolio of early-stage companies. The expectation going in is that most of the portfolio will fail. Some will return the invested capital. One or two will return 10 or 100 times the capital and cover everything else. That is why they are particularly popular in periods of zero interest rate policy. This is called a power law return distribution, and it is the entire foundation of the VC model. It's not a flaw in the strategy, for it is the strategy. The model rests on three structural assumptions. One is that returns are nonlinear and unpredictable. You cannot know in advance which bet will hit. You diversify because diversification is the only rational response to genuine uncertainty. Second, the time horizon is long. VC funds typically run for a decade. Limited partners who invest in them understand that they will not see returns for years. The capital is illiquid by design. Third, and this is the most important one, most bets lose. The structure expects this. The accounting expects this. The investors expect this. A fund that loses money on seven out of 10 investments is not a failed fund if the three winners more than compensate. Now, I'm going to describe the indie publisher model, and I want you to notice something. An indie publisher raises capital from their investors, from their own revenues, from acquisition activity, and deploys it into a portfolio of early-stage game projects. The expectation going in is that most of the portfolio will underperform. Some will return the invested capital. One or two will become Hotline Miami or Untitled Goose Game or Hello Neighbor or Cult of the Lamb and cover everything else. Power law return distribution, the entire foundation of the model. The first structural assumption is that returns are nonlinear and unpredictable. You cannot know in advance which game will hit. You sign 20 games because you cannot pick the one winner in advance. Second, the time horizon is long. Very long. Game development cycles run years. The return on a signed title may not arrive for three or four years after the deal. The capital is illiquid by design. Third, most games lose. The structure expects this. A publisher that loses money on 15 out of 20 titles is not a failed publisher if the five winners more than compensate. This is These are the same firm. The indie publisher and the venture capital fund are structurally identical. The asset class is different, games instead of startups, and the revenue caps are certainly different, but the investment thesis, the return distribution, the time horizon, and the loss tolerance are the same. One of them just has a cooler logo and runs ironic press conferences. Sequoia Capital has never filed a quarterly report explaining why three of their portfolio companies missed their targets this quarter because Sequoia is a private fund, and private funds do not owe the public an explanation for their losses in real time. Their limited partners understood that they committed capital that the fund would lose money on most bets and that return to be lumpy, delayed, and nonlinear. That understanding is baked into the contract. Public markets do not work this way. A public company is required to disclose material information about its financial performance on a quarterly basis. And if revenue comes in below expectations, a profit warning is issued. If a major asset underperforms, it is impaired on the balance sheet. If the CFO resigns, that is disclosed immediately. Every one of these disclosure requirements is rational in isolation. Together, they create a structure that is fundamentally incompatible with a business model that expects most bets to lose. Obviously. When Devolver releases three underperforming games in a single year, a private fund would absorb that quality quietly and wait for the next bet. A public company issues a profit warning, the stock drops 45% in four days, analyst coverage turns negative, and the depressed share price becomes a story that damages the marketing cycle of the next release before it ships. The disclosure requirement forces you to narrate your losses in real time, in public, before the hit arrives to justify them. And in a power law business, the hit always arrives eventually. The public structure makes sure it never gets the chance to land. Devolver Digital listed on AIM in November 2021 at 157 pence per share. In January 2022, the stock hit an all-time high of 222 pence per share in January 2022. The second largest American company in AIM history. The market was valuing the company at over 800 million. And then 2022 happened. Weird West underperformed. Shadow Warrior 3 underperformed. Trek to Yomi underperformed. Three titles, one year, a competitive release window. In June 2022, Devolver issued a profit warning. The stock dropped 45% in four days. From 222 pence to 14 pence by August of 2023. A 94% collapse from peak. An 86% collapse from IPO valuation. The company's market cap went from 818 million from a peak of over 100 million to 111 million. What did Devolver do wrong as a game company? They had a bad year. They released three games that did not connect. This happens to every publisher. It is a statistical inevitability in a power law business. What did Devolver do wrong as a public company? They existed as one. TinyBuild listed in 2021 at a $473 million valuation. The collapse is more protracted and more complete. Management spent over $30 million per year in development costs and acquisitions while operating cash flows averaged less than half that amount every year while public. The level of investment was unsustainable, and the quarterly reporting requirement meant that every single milestone in the deterioration was disclosed in real time to a market that had no framework for understanding that this is how the model works. In the first half of 2023, TinyBuild reported an operating loss of 31.9 million. The stock dropped 78% in a single session. The CFO resigned. By late 2023, when platform deals expected at year-end failed to materialize, the company had 2.5 million dollars in the bank. An emergency cash injection from the CEO and from Atari kept the company operational. $2.5 million. A company that raised $473 million was left with $2.5 million. By November of 2023, the market cap was 18 million. A 96% collapse from IPO. TinyBuild's games are not the problem. Their pipeline had real games. Their back catalog was performing. The problem was spending like a VC fund, deploying capital into a diversified portfolio of uncertain bets over a long time horizon, while being held accountable like a public company. Those two things are irreconcilable. Let me be precise about the claim that I'm making. I'm not saying that Devolver and TinyBuild are well-run companies that got unlucky. They made real mistakes. They made poor acquisitions that were poorly diligenced. Development costs were allowed to run ahead of revenues. Release slates were overpromised. What I am saying is that those mistakes were survivable in a public private structure and unsurvivable in a public one. A private indie publisher with a bad year regroups, cuts costs, waits for the next release cycle. Their investors who understood the model absorb the loss and continue. The bad year is a data point in a 10-year fund. A public indie publisher with a bad year issues a profit warning. The stock collapses. The depressed valuation makes further acquisitions expensive. The negative press coverage affects developer relationships. The talent pipeline dries up dries up because nobody wants to sign with a struggling public company, and the bad year becomes the entire story. The public structure transforms a recoverable setback into a structural crisis every time because the public structure is not designed to hold a power law asset. Devolver doesn't have this problem because Devolver is private. The indie publisher model requires a specific kind of investor. An investor who understands that most bets fail by design, who has a 5 to 10 year time horizon, who will not panic when three consecutive titles underperformed, who signed exactly for lumpy non-linear returns and has the balance sheet to wait for the hits. This investor exists. They are called a venture capitalist or a private equity limited partner or an institutional investor with a long duration mandate. They operate in private markets because private markets are the only markets designed to hold this kind of risk. The retail investor who bought Devolver stock on AIM is not this person. They bought a gaming company stock because they liked Devolver games and thought the company would grow. They were not told in any in any le- legible way that they were buying into a model that expects most of its bets to lose. They were not told because public companies are not allowed to market themselves that way. If you invested $10,000 in Devolver Digital when it was at its peak, you now have $960. So, you have the wrong asset in the wrong market sold to the wrong investor. And when the asset performs exactly as its model predicts, lumpy, non-linear, and with several consecutive misses before the hit, the wrong investor reacts exactly as their incentives predict, they will sell. The crash was not a failure, it was the structure resolving its own contradictions. Of course, the obvious question is why list at all. The answer is the same answer it always is, capital. An IPO raises money. Devolver raised capital to fund acquisitions and expand their slate. TinyBuild raised capital to fund the same. In 2021 with gaming valuations at peak and retail investor appetite for gaming stocks running hot off during the pandemic, the window was open and the price was high. They took it. This is rational. The decision to IPO evaluated at in isolation at the moment it was made was defensible. The valuation was there, the market appetite was there. The strategic need for capital was real. What was not evaluated correctly or was not evaluated at all was the structural incompatibility between the business model and the ownership structure they were taking on. You can raise capital through an IPO. The question is whether you can run your business correctly under the constraints that come with it. For a power law portfolio business dependent on creative output with unpredictable timelines, the answer is no. The capital was worth it. The structure that came attached to was not. Devolver's brand was built on a specific kind of irony. The fake corporate executives, the satire of the gaming industry's relationship with money, the carefully cultivated identity of a company that did not care about the things that public companies are required to care about. That identity was genuine as far as I could tell. Devolver consistently published weird, interesting, uncommercial games. Their curator ins- in- instincts were real. And then they listed on a stock exchange and then became legally required to care about exactly the things their brand was built on not caring about. The ideology that made them culturally powerful and economically successful was the same identity that made them structurally incom- incompatible with public ownership. You cannot be anti-corporate and be accountable to shareholders simultaneously. The market does not negotiate on this point. The market does not know what ironic press conferences are. It knows earnings per share and guidance and whether the CFO resigned for personal reasons. Devolver understood games, potentially. They did not understand or did not fully reckon with what they were agreeing to when they signed the listing documents. The structure was wrong before the first game shipped and the structure is always right.