Over Kölsches at Gamescom, I was asked by a group of investors to tell the story of Humble Bundle. I recounted bootstrapping our way through Humble Indie Bundle 2, graduating from Y Combinator (W11), raising a Series A with Sequoia Capital and then after seven years and 200+ million dollars raised for charity (now $274M lifetime) we were successfully acquired by Ziff Davis who owns IGN.

My colleague responded: “You raised from Sequoia and survived? They are the hardest investors to work with… known for replacing founders and growing their businesses without them if need be.”

I explained that my co-founder Jeffrey Rosen and I had an amazing experience working with Sequoia. Alfred Lin (formerly CFO/COO of Zappos the company known for “Delivering Happiness”) was on our board. Alfred and his team (shout outs to Bret Reckard and Jess Lee) were the best and most founder-friendly partners we could have hoped for on our journey.

I pressed my friend for more information and learned he was describing Sequoia Capital in the 90’s.

What had changed in the following decade?

I nearly dropped my beer as it hit me like a lighting bolt… I had lived the change.

Y Combinator had reshaped the landscape.

Paul Graham (no relation) and Jessica Livingston founded Y Combinator in 2005. I recommend everyone take a moment to watch Jessica’s interview above to understand the full thoughtfulness of YC’s ecosystem of trust.

By the time Humble Bundle was admitted, YC had established strong momentum. Heroku had been sold in December of 2010 to Salesforce while Dropbox and AirBnB were compounding incredible growth (both were predicted to IPO, which they eventually did). Paul, noticing the trends, made the official case for founder-control as a new best-practice. On December 2010, the very month before Humble Bundle began the Winter ‘11 batch, Paul Graham penned this essay on why investors should let founders stay in charge:

“I feel like we’re at a tipping point here…

Founders retaining control after a series A is clearly heard-of. And barring financial catastrophe, I think in the coming year it will become the norm...

Knowing that founders will keep control of the board may even help VCs pick better. If they know they can’t fire the founders, they’ll have to choose founders they can trust. And that’s who they should have been choosing all along.”

Four month’s later - thanks to YC’s advice and the growing YC alumni community (shout outs to Alex Polvi, Alexis Ohanian, Sam Altman, James Lindenbaum, Garry Tan) - Paul’s tipping point theory became Humble Bundle’s reality. We received competing term sheets pre-demo day. In no small part due to Alfred Lin’s willingness to advocate for us to Sequoia, we were offered a deal granting us both shareholder and board control on a Series A. We accepted it quickly and immediately went to work growing our business.

Our founder-control (combined with YC and Sequoia’s parental guidance) provided us the agility we needed to reinvent ourselves several times. We may have looked calm and composed from the outside, but across our journey we created: Humble Bundles, The Humble Widget, Humble Book Bundles, The Humble Store, The Humble Monthly subscription and Humble Publishing (with additional experiments with music, browser games and standup comedy). By the time we were acquired, we had processed over $2 billion in gross sales across our products while raising $200 million for charity. Our acquisition yielded a nice return for our shareholders (though I’m not at liberty to disclose the amount) and we became one of the numerous success stories emerging from YC’s founder-friendly ecosystem…

Y Combinator combines a multitude of best-practices which are constantly being improved upon but these are the factors I believe matter most for establishing trust.

Front-loaded Founder Filtering

Paul was already adhering to his own investment advice by having YC “choose founders they can trust”. After completing his own successful startup journey, Paul knew what he wanted to see in founding teams: Determination, Flexibility, Imagination, Naughtiness and Friendship. By interviewing thousands of candidates and only admitting the most entrepreneurial few, YC was front-loading due diligence for the rest of the ecosystem… thereby establishing trust in the brand.

Some say YC is now big enough that it has a self-fulfilling distortion effect where the best founders in the world know they should all apply to YC first before they talk to any other startup accelerators or investors.

A Fast, Iterative, Development Loop With A Forcing Function

In video game terms, YC is very much like a game jam with parental supervision. You have a few months to focus on nothing but building your business while being surrounded by peers who are all actively building theirs. You know that at the end of the YC program you’ll be presenting at demo day and you want to build as much momentum as you can. You’re not being graded by judges or professors, but by the actual market of investors who will all be watching your pitch. So you are flung into a fast product-building-loop and the energy is contagious.

By the time you get to demo day, you’ve been forged in the crucible of one of the most intense prototyping process with some of the best mentors in the world. Investors know this.

A Community Built On A Foundation Of Trust

YC acts dutifully like a “Trust Escrow Agent” in the marketplace between founders and investors.

Founders must follow a YC code of ethics where they promise to be truthful and honor their business commitments. YC’s brand itself is the collateral on this social contract so they must make sure founders behave.

Additionally, startups are individually small, weak, have poor information and few resources compared to sophisticated investment firms. As a collective, YC maintains awareness of current investment terms as well as the behavior patterns of individual investors. As such, YC levels the playing field and coaches its portfolio companies away from bad actors and bad deals.

Making Investing A Repeated Game

In my introductory game theory class with Professor Ben Polak, I learned that cooperation amongst individuals is impossible to enforce in a single, short-form game like the Prisoner’s Dilemma. When played only once, there’s no sure way to deter selfish behavior between founders and investors. But YC has made investing a “repeated game” across recurring batches of many startups. As such, YC can credibly punish bad actors (if needed) by hurting their expected future outcomes in the investment ecosystem.

Imagine a VC (or a founder) being threatened with excommunication from YC or being permanently marked as untrustworthy across the whole community. This is a credible Grim Trigger-style threat that can deter bad actions from occurring in the first place and incentivize cooperation.

Establishing Rewards For Reputable Behavior

Credible rewards are just as valuable as credible threats. In any sustainable ecosystem, it’s important for both parties to benefit from their social contract. If Paul Graham and YC have been on the sell-side for their founders, then Alfred Lin and VC’s like him have been on the buy-side.

Together, they’ve successfully created multiple unicorns (companies valued at over $1 Billion) and Alfred’s star has risen at Sequoia. His impeccable business track record, stellar interactions with his founders and the value-creation he has presided over have made him a desired board member and investor by everyone from AirBnB to DoorDash to Reddit (all are YC companies). Alfred was recently promoted to lead Sequoia Capital (and has now three-peated #1 on the Forbes Midas List).

In the Prisoner’s Dilemma, imagine altering the payout matrix so that cooperative behavior yields the biggest expected payouts on the board for both parties. Now, even without threats, a Nash Equilibrium exists with mutual cooperative behavior. YC has shown that founder friendliness improves the payouts for everyone.

People forget how crazy Y Combinator seemed in 2005. In Paul’s essay reflecting upon the early days of YC, he describes that there were definitely “people who didn’t take us seriously”. No one questions the YC model anymore. Twenty years later the verdict is in… it works!

Keep in mind when you look at the above chart that YC invests super early. So in theory, those that also invest later stage like Sequoia, SV Angel and Accel can “wait and see” while joining companies later on for a Series A, B, C etc. when their likelihood of unicorn-ing is higher. When you filter for seed investing only, you clearly see what YC does better than anyone else…

The Y Combinator SAFE has prevailed as the silicon valley standard for all founders even beyond the direct YC community itself. The structure allows entrepreneurs access to fast, early-stage capital without loss of control and near-zero legal cost. Many founders now raise sizable rounds entirely via SAFE’s (some SAFE rounds are now bigger than the $4.5 million Jeff and I raised in our Humble Bundle Series A).

Every modern entrepreneur owes YC thanks for tilting the startup ecosystem towards this and other founder-friendly precedents.

YC itself has made several decent bets in video games including Twitch, Machine Zone, Heroic Labs and Humble Bundle. But gaming will likely never be YC’s primary focus.

Video game entrepreneurs enjoyed a brief window across the pandemic where they were treated with the same exuberance as tech founders. But unfortunately, the results of pandemic-era deals were largely catastrophic for everyone.

Mitch Lasky and Blake Robbins offer a full hour of analysis in their podcast GameCraft on the VC Deadpool. They break down in detail the ways recent investors and game companies seem to have fallen out of alignment. If you don’t have time to listen to it, David Kaye (who ran his own game studio before exiting and becoming a VC), wrote an excellent summary of the podcast here:

Adam Boyes, a games industry legend (Capcom, Sony Playstation, Iron Galaxy), appeared on the Business of Video Games Podcast and diagnosed the problem as follows:

“I think a lot of the investment that we had over the last 5 years was just ‘here’s a bunch of money to go make something’… when you do that in a vacuum on an island… like Lord of the Flies…. all of a sudden: Piggy’s dead, the glasses are broken and who’s got the conch? What happened here? Well it’s ‘cause we didn’t have any sort of like nice oversight, that adult supervision.”

Elbow Grease Games has been fortunate. I’m very proud of the momentum we’ve built: Misfits Attic signed with Shochiku and is shipping Below The Crown, Torpor Games recently announced their Seed Round and we have plenty more going on that we will announce soon.

But the funding market realities for most of the industry are quite dire. The mantra: “Survive to 2025” didn’t pan out. Based on data I could find, 2025 seems likely to be the worst year for video game equity funding in recent history.

Annual publisher data is harder to find but in my many travels this year I’ve seen publishers retreat from the market as well. Namely, dev budgets have shrunk… so much that I now hear of several publishers explaining they offer ZERO DOLLARS in development budget because they already have their pick of finished games. In such cases, you’d have to make a full game on your own and then maybe, just maybe, a publisher will provide some additional marketing support at the end of your journey in exchange for a meaningful share of your royalties.

(An aside: In fairness to game funders, this can be viewed as the pendulum swinging back the other way from the pandemic when dev budgets were quite large and nearly all developers failed to deliver big enough results to justify the money invested.)

But this doesn’t feel like a sustainable ecosystem. Instead of going on development journeys together where funders are aligned with developers, risk mitigation feels like it has become a zero-sum game… one party mitigates risk by dumping it on the other.

Valve and Riot Games were quick to add “behavior scores” to their MOBA matchmaking systems while Heroes of Newerth did not. As a result, well-behaved Dota 2 and League of Legends players would get matched with one another while non-cooperative, toxic players were relegated to their own hives of scum and villainy. Many suggest that this is why Heroes of Newerth shut down while Dota 2 and League of Legends have lived on.

If game funding is a repeated game, and none of us in this small industry get to use anonymity or throw-away accounts… our reputations will precede us. People will remember who is a cooperative team player and who is not. I predict this will separate the industry into two groups.

One funding community will adopt a ruthless short-term focus. Individuals will seek fast returns at minimal risk. This ecosystem will build asymmetric relationships with disparate values and no long-term alignment. I predict this ecosystem will mostly yield only incremental value due to infighting over an existing, finite pie.

But another community will also rise… one of shared values, shared risk and mutual respect. It will be composed of long-term, team players who want to take a true shot at creating innovation and growth. Members of this ecosystem won’t fight each other for pie slices, they will create more pie.

I look upon the success of Arc Raiders as a high-profile example of what can happen when a publisher like Nexon and a studio like Embark align in good faith for a long-term relationship to launch new IP.

I recommend everyone take a moment to absorb the Embark case study from multiple angles: Christopher Dring’s The Game Business shows us Patrick Söderlund’s thoughtful studio approach along side Owen Mahoney’s patient publisher perspective. Danny O’Dwyer’s 3 part documentary shows us in the trenches how Embark pulled it off (Spoiler alert: Embark had to get their hands dirty prototyping, play testing and then hard-pivoting to find the fun).

This is the way. We need more careful stewards of capital and development resources to keep stepping up. This is our industry’s path to growth and prosperity.

(An aside: Vince Zampella was one of the most skilled and thoughtful allocators of game development resources in the world. We need more like him. What a loss for the industry.)

As we close 2025, Newzoo has revised their annual report to show that consumer-side fundamentals have resumed decent growth: 7.5% year over year. Shams Jorjani, CEO of Arrowhead, thinks we may soon hit the bottom of despair and grow our way back out.

Owen Mahoney is even more bullish and has declared that the games industry is about to triple. Why should we let our industry succumb to “red ocean strategy" when there’s so much untapped growth potential?

I believe we are now demonstrably underinvesting in talented teams. If industry growth continues, FOMO (Fear Of Missing Out) amongst investors will grow. Eventually, it will be deemed irrational for investors not to participate. At such a time, who do we think capital allocators are going to choose?

Adam Boyes says success boils down to: “Doing good things for good people… It’s kind of simple, I’m a believer in the golden rule. Right? Do unto others as you would have them do unto you.” You may recall that Adam’s ethos secured the PS4’s victory in the console wars against Microsoft.

Similarly, my whole career has been built on trust and the golden rule.

Humble Bundle was sustainable because of its respect for studios and gamers and their respect for us. Humble Bundle was able to scale because YC and Sequoia trusted us, invested in us and built an ecosystem with us. We experienced a blessed journey as part of a community much larger than ourselves.

My wife and I founded EGG in 2022 because we believe the same core fundamentals still apply to the gaming industry. We want to pay it forward and help future generations of video game entrepreneurs achieve their dreams the same way Humble Bundle did. Like YC, EGG’s goal is to build a sustainable ecosystem and prove that the payoffs for good faith cooperation and long-term thinking are vastly better than any alternative.

Yes the industry feels scary. Layoffs continue. The funding gap for video game entrepreneurs has never been worse in recent history. Things may even continue to deteriorate in the start of 2026 before they get better.

But investment capital will re-enter the games market, and as it does it will be smarter and more cautious than it was during the pandemic. This time trust and cooperation will be major factors. EGG’s mission is to make it smart business for investors and gaming entrepreneurs to work together again.

Here’s to big things in 2026. Happy New Year everyone!