The right financing at the right stage: A guide for gaming companies

For most founders, the instinct is to raise equity at every stage of growth. Equity feels familiar, it buys time, and it comes without repayment schedules. Yet, among gaming and consumer-app businesses, this reflex often leads to an expensive trade-off: unnecessary dilution and loss of long-term control.

Equity is an extraordinary instrument when the future is unknowable. But as a company matures, predictability increases – and so should capital efficiency. The smartest founders optimise not only for growth but for how that growth is financed.

At its core, capital optimization is about cost and risk. The ideal instrument carries the lowest cost of capital while minimising downside exposure. Understanding this trade-off at each growth phase is critical.

Every gaming company – or consumer app business – grows through several distinct phases. At each phase, the financial needs and the optimal type of financing change.

In our view, capital should be primarily optimized towards two variables: cost, and risk. You want the cheapest cost of capital which carries as little risk to the company in a downside scenario.

Phase Zero (Pre-Seed to Seed): When Everything Is Unknowable

In the pre-seed or seed stage, almost nothing is certain. The product is still conceptual, market validation is minimal, and risk is total. Equity is the correct tool here. Early investors are partners who share both upside and downside and who back the founding team's potential rather than financial metrics. Founders should seek sector-savvy, long-term investors – ideally those with whom trust already exists.

Equity investors are partners who share both the upside and the downside with the Company. These investors understand the risk of the unknown and are willing to bet on the team's potential. This makes equity the best option during the seed or pre-seed phase, when what you're building is still generally unknown.

Phase 0 Capital Optimization Function:

●    Equity investors who know your space and sector well.
●    Founder-friendly investors who bet on your team for the long-term.

Phase One (Seed to Series A): Finding Your Footing

As the product takes shape and early user data emerges, risk begins to decline but remains significant. Companies are testing acquisition channels, refining retention, and gauging early lifetime-value signals. Equity continues to make sense in this stage, particularly from investors willing to double down if traction strengthens but scale is not yet predictable.

Here, some things become clearer. You start to see early signals of what works and what doesn't. There's still significant uncertainty about what the terminal outcomes will look like, so the flexibility and shared risk of equity funding are invaluable.

Phase 1 Capital Optimization Function:

●    Equity investors who understand the opportunity ahead.
●    Investors who can support you with additional capital if you're showing good traction.

Phase Two (Series B and Beyond): Scaling with Predictability

Once user acquisition shows consistent returns, the dynamic shifts. Marketing spend becomes data-driven, LTV curves stabilise, and the company can forecast recoup periods with confidence. At this point, using equity to fund predictable growth is unnecessarily expensive. The true cost of equity – once exits are realised – often exceeds 30% of enterprise value.

Eventually, as the company matures, it moves toward predictability. Now you have a polished product, consumer appetite is validated, and marketing returns are measurable and predictabble.

The Equity Problem

Traditionally, companies in Phase Two have relied exclusively on growth equity to fund user acquisition. But giving up equity to finance predictable returns is unnecessarily expensive. While it feels like "free money" in the short term, the real cost of equity for successful startups is well over 30%. Over time, companies that fund predictable growth with equity end up giving away a massive share of their business, which is why founders of very large and successful companies often hold less than 10%.

Is Debt an Option?

Traditional debt may appear viable, but it's rarely accessible below $30–40 million in revenue and often comes with high rates and rigid terms. Even when available, fixed repayments create timing risk – miss one due to delayed cohort returns, and default looms. Most lenders won't share user-acquisition risk and impose EBITDA covenants that restrict marketing spend, making traditional debt a poor fit for companies with predictable RoAS curves.

The biggest problem with traditional debt is timing risk. When you're investing in user cohorts, you know you'll recoup the investment, but the timing of those returns can fluctuate. Traditional debt offers no flexibility here – miss a payment, and you're in default. Most lenders also won't take risk directly on your UA performance. You have to pay them back regardless of how your UA performs. This makes traditional debt a poor fit for funding growth in gaming and consumer app companies with reliable RoAS curves.

Why Cohort Financing Makes Sense

Cohort financing fills the gap between equity and debt by taking risk directly on the user cohorts being funded. It offers key advantages: no dilution, flexible repayment tied to cohort performance, and covenants based on RoAS – not EBITDA. This structure lets founders scale confidently and free up capital for higher-value initiatives like new products, M&A, or dividends.

While it may not always be the absolute cheapest form of capital, its unique structure – taking risk on, and being secured solely by the new cohorts being funded – offers several critical advantages:

●    No dilution: Founders retain their equity.
●    No black swan risk: Repayment matches cohort performance, eliminating default risk.
●    Common-sense covenants: Based on RoAS curves, not EBITDA.
●    Flexible leverage: Founders can redirect cash to other high-equity opportunities.

Treating Cash as Equity

Founders sometimes think using cash on the balance sheet avoids financing costs. But cash is equity. There's no reason not to apply an equity cost of capital to the cash a company holds. If your goal is to grow equity value, that cash should be deployed in ways that carry equity risk and generate equity upside.

Even mature companies can benefit. Leveraging marketing spend with cohort financing can free up cash for initiatives that drive long-term equity value.

A Smarter Path Forward

At PvX, we've designed our financing solutions to empower gaming companies to scale intelligently. Cohort financing isn't just about providing capital – it's about being a true partner, sharing the risk and rewards of growth while giving founders the tools they need to thrive.

Whether you're a startup navigating the unknown, a growing company scaling predictably, or a mature business looking to optimize capital, cohort financing offers a smarter, more aligned way forward.

For more information on UA financing, visit PvX Partners.